BiggerPockets

So myself and a friend are looking at buying homes from the trustee sales here in OC and LA county. We have met quite a few people who would be glad to use our money and split the deals 50/50. We don't want to do that.

Here is the good news:
From what I could gather from a gentlemen who buys about 10 properties a month, he is ending up with about $30000 (gross) after he rehabs/sells them. His target is SFR with an ARV 400K give or take. This seems reasonable. Buy for 300K, rehab for $10-25K, and expect 10% to go to commission/closing costs/etc.. These are nice looking homes in decent areas.

I can see the reports on ForeclosureRadar listing what has sold each day at each auction, and we have been standing around watching and writing down the daily history as well. We have driven by many of the sold properties, and done comps on them (no, not on zillow). The deals are there. Period.

Here is the bad news:
Everyone I talk to tells me, "I am going to lose my shirt. I am inexperienced and over my head. Or I am wasting my time trying to find a needle in a haystack (yes, I know almost every one gets cancelled or postponed.) There are no deals or too much competition. There will be some hidden lien that will wipe us out because we are noobs. REO's are a better way to go."

There is a piece or two of the puzzle we've yet to figure out. How do we accurately review title on the MASSIVE # of homes we have to inspect and keep in our database? There are plenty of sites where you can get basic title info, but we are obviously nervous about missing something. There just isn't time to go to the county and look up records on all these places. And there certainly isn't money there to pay title companies for the job. There are just too many properties!

OR

Do we need to get smarter about this and just pony up the dough for title research on a select number of houses, after calling the trustee just before (or on the morning of) the sale date? In the hopes, of course, of having a higher ratio of houses we can bid on? In other words, do all the driving, inspection, and comp work on tons of homes, but only pay for title research on a select few that are more likely to be sold that day.

The fact of the matter is that the same people are at the sales every day, and they aren't there if they are losing money. The answers are out there, we just don't have them all quite yet. Any input is appreciated, even if I file it under the "bad news" column.

Thank you,
David

David: Have you thought about teaching a college student how to do the title search? They will often appreciate the title knowledge and be willing to do a lot of your work for you at a fraction of the cost of title companies.

This may not stop them from missing one small item which is sometimes easily overlooked and it is not an actual guarantee for you, but will weed out the bad ones and you can take a closer look at what it left.

I do something similar with tax sales and have not had the bad news on any of the properties that I went after.
The good news has such a great upside that the bad news can be absorbed by the good news.

I am currently working and following properties at the trustee's sale with one investor. Looking for other investors as well. Im at the LA County Trustee's sale either in norwalk or pomona..Purchasing at the trustee sale requires special knowledge on determining and identifying the right property to acquire. Call me as this is the area I can be of help.

I think most investors are buying less expensive flips and making a higher % return, even in CA. Rich

I don't know how to use the Quote thing and hope it comes out OK.

Most investors are actually making less money than the OP's numbers. The average selling price at trustee sales (including estimated rehab expenses) in the Phoenix metro has been steadily increasing as a percent of ARV and is now at around 85%. After accounting for closing costs, you end up with a very slim margin.

I have noticed that a fairly large proportion of the investors here have their own real estate license so they save on selling costs. In addition, many of these investors seem to have been realtors who decided that they wanted to take control over their income stream. The problem is that they seem to be happy making 3% on a property because that's what they think is a reasonable income from a property.

Trustee sales can be a pretty frustrating business for us investors who think about attractive returns on our invested capital.

Originally posted by Rich Weese

I think your #'s stink. 30K profit for a 300K-400K investment? Those are horrible returns, imo for all the risk. If you factor in rehab ,marketing and closing time, it may get worse. I want a much higher % return, on cheaper homes with a quicker turnover. I want a second exit strategy, that if it doesn't sell, I'll rent it and almost make what the guy would make rehabbing in your example above.
I think most investors are buying less expensive flips and making a higher % return, even in CA. Rich

^^^^ Truth.

It would amaze me if you are a small investor and survive long with the numbers quoted in the original post. These are properties that are more often than not - occupied - and you are buying without inspection.

What happens when you inspect the house and find no carpet, dry rot, mold, leaks, etc?

I know several people at the auctions in OC, LA etc and I just do not know how they do it with such tight margins. Must be because the market has been stable - what happens if it slips again or as I believe makes a major move down again and you are in the middle of an eviction on a home you bought at 85%LTV?

Scary stuff.

Quote from Rich:
I'll chronicle any deals I buy from start to finish to colleagues, if interested. Rich

Rich, I would be very interested.

Ray in Ct

Originally posted by JCC

Originally posted by Rich Weese

I think your #'s stink. 30K profit for a 300K-400K investment? Those are horrible returns, imo for all the risk. If you factor in rehab ,marketing and closing time, it may get worse. I want a much higher % return, on cheaper homes with a quicker turnover. I want a second exit strategy, that if it doesn't sell, I'll rent it and almost make what the guy would make rehabbing in your example above.
I think most investors are buying less expensive flips and making a higher % return, even in CA. Rich

^^^^ Truth.

It would amaze me if you are a small investor and survive long with the numbers quoted in the original post. These are properties that are more often than not - occupied - and you are buying without inspection.

What happens when you inspect the house and find no carpet, dry rot, mold, leaks, etc?

I know several people at the auctions in OC, LA etc and I just do not know how they do it with such tight margins. Must be because the market has been stable - what happens if it slips again or as I believe makes a major move down again and you are in the middle of an eviction on a home you bought at 85%LTV?

Scary stuff.

With math skills like mine it is amazing I ever get anything to work out ......

The #'s in the original post Buy at $300K, $20K rehab, 10% Cost of Sale, sell at $400K - those numbers are not bad. I apologize.

The problem is that I do not know anyone at these sales getting props at that low a price. Every time I talk to someone who buys at the Courthouse Steps they are in a property for 85%ARV.

You are seeing numbers in LA and OC that are better than this? Care to share any addresses, not yours of course, just ones that we can analyze that other have purchased. I would be interested to see some - I randomly pulled some from Trustees Deeds recently (pulled ones that were 'sold to third party' and then did a value analysis and the prices were way too high for me.

Originally posted by JCC

Originally posted by JCC

Originally posted by Rich Weese

I think your #'s stink. 30K profit for a 300K-400K investment? Those are horrible returns, imo for all the risk. If you factor in rehab ,marketing and closing time, it may get worse. I want a much higher % return, on cheaper homes with a quicker turnover. I want a second exit strategy, that if it doesn't sell, I'll rent it and almost make what the guy would make rehabbing in your example above.
I think most investors are buying less expensive flips and making a higher % return, even in CA. Rich

^^^^ Truth.

It would amaze me if you are a small investor and survive long with the numbers quoted in the original post. These are properties that are more often than not - occupied - and you are buying without inspection.

What happens when you inspect the house and find no carpet, dry rot, mold, leaks, etc?

I know several people at the auctions in OC, LA etc and I just do not know how they do it with such tight margins. Must be because the market has been stable - what happens if it slips again or as I believe makes a major move down again and you are in the middle of an eviction on a home you bought at 85%LTV?

Scary stuff.

With math skills like mine it is amazing I ever get anything to work out ......

The #'s in the original post Buy at $300K, $20K rehab, 10% Cost of Sale, sell at $400K - those numbers are not bad. I apologize.

The problem is that I do not know anyone at these sales getting props at that low a price. Every time I talk to someone who buys at the Courthouse Steps they are in a property for 85%ARV.

You are seeing numbers in LA and OC that are better than this? Care to share any addresses, not yours of course, just ones that we can analyze that other have purchased. I would be interested to see some - I randomly pulled some from Trustees Deeds recently (pulled ones that were 'sold to third party' and then did a value analysis and the prices were way too high for me.

Here's one of C-Note Advantage, LLC's Property BUY LIST:

Hi Judy,
Just wanted to give you details on one that I was following to purchase

Property address: 15218 Cobalt Street Sylmar Ca 91342
6/4/99 $260,000 Grant Deed Cruz Ceniceros to Teresa Ceniceros
4/2/02 Lis Pendens
1/16/03 Lis Pendens
12/9/03 Award
6/7/05 Grant Deed Teresa Ceniceros to Marianne Ceniceros
6/30/05 $250,000 MIT Lending(Foreclosing Trust Deed)
3/8/07 $310,000 First Magnus (Trust Deed)
4/9/09 $125,000 (Private Trust Deed)
4/9/09 $125,000 (Private Trust Deed) Recorded twice
10/9/09 NOD
1/21/10 NTS
5/27/10 $325,200 SOLD TO THIRD PARTY

Just thought it might be interesting to share this.
Please verify and let me know how accurate my(I mean C-Note Advantage, LLC's) research is.

Edgar
Broker 01312077, acting as Principal-Only

Just throwing my $0.02 worth in here, for whatever that's worth :wink:

I attend sheriff sales regularly in my area. Many bidders are realtors, and I guess they either think that they are going to be saving the 3% by self-listing the property for re-sale, or they think that just getting a commission at re-sale is worthwhile. I'm not sure why, but there are just too many bidders willing to way over-pay based on my criteria.

My criteria: it must make money, and over-paying is one sure way to not do that.

$300K foreclosures that haven been in and out of foreclosure for many years (example above shows a few years) will have LOTS of deferred maintenance, and will therefore need LOTS of dollars poured into rehab. IMO, the 10K - 25K range seems way too low for property that has been under distress conditions for that long.

Think about what you would do in a typical quality flip. New kitchen and baths. New roof if needed. New HVAC if needed. New paint and flooring. All this stuff adds up.

Again,the objective is not to own houses, it's to make money; houses are just a means to that end.

Again, that was just my $0.02 worth ...

Originally posted by Edgardo Cruz

Here's one of C-Note Advantage, LLC's Property BUY LIST:

Hi Judy,
Just wanted to give you details on one that I was following to purchase

Property address: 15218 Cobalt Street Sylmar Ca 91342
6/4/99 $260,000 Grant Deed XXXX to XXX
4/2/02 Lis Pendens
1/16/03 Lis Pendens
12/9/03 Award
6/7/05 Grant Deed XXXs to XXX
6/30/05 $250,000 MIT Lending(Foreclosing Trust Deed)
3/8/07 $310,000 First Magnus (Trust Deed)
4/9/09 $125,000 (Private Trust Deed)
4/9/09 $125,000 (Private Trust Deed) Recorded twice
10/9/09 NOD
1/21/10 NTS
5/27/10 $325,200 SOLD TO THIRD PARTY

Just thought it might be interesting to share this.
Please verify and let me know how accurate my(I mean C-Note Advantage, LLC's) research is.

Edgar
Broker 01312077, acting as Principal-Only

By the way, The comparables on this property is somewhere around $515,000-$525,000 range...so easy math would let you know if this is a good buy or not. considering also some of the liens on the property that you have to deal with.
Edgardo E. Cruz
Broker 01312077, acting as Principal-Only
Managing Member of C-Note Advantage, LLC

I went ahead and took out the names of the owners - would hate to have Google pick up there names and add grief to their already complicated situation. Please do not take offense Edgardo, its just that anything posted on this forum has a way of eventually ending up on page 1 of google.

I am looking at the comps for this property and, granted I do not know the area, but the most recent sold looks like it is around the corner, same neighborhood, and its a 4/3 2368 sqft for $300K MLS sold 3/19/10. And the subject prop above is 2616 sqft. Is the subject really worth the $515K? I will defer to you Edgardo because I do not know the area and was interested to see the numbers.