Rehabber · Minneapolis, MN · Member since 2011 · 47 posts · 2 votes
newbie here so please be patient with me :) my business partner and i have been working with a real estate agent who's cdpe cetified and have found some good properties for us. we have been looking for about a month and a half and haven't gotten a property to work on. we have found some potentials and have put in a couple offers at asking price. with those offers, we have gotten beaten out due to owner occupants or other investors who bid a lot higher than asking price. we are looking to make about 15k-20k per property and sticking to that because anything under 15k isn't worth it to us, we would rather wait for a better potential which is possible in my market since we put in 2 offers that would have made at least 15k. we like to have guidelines for purchasing our properties and stick to a game plan.
with that being said, do we need to adjust or re-strategize our game plan with this dry/competitive market right now? are there other avenues besides a real estate agent where we can find properties?
Tony, I don't know how many hours per day you're devoting to this, but I don't think it's abnormal to not have found a deal in six weeks if you're new at this and still learning.
There are avenues like wholesalers and bird dogs, but I haven't had much success with them. You have an ok game plan if you are making offers on REO's. That's all I would focus on unless you want to wait for Short Sales, but that can throw your timing off.
15k is kind of tight. You can get that eaten up pretty quick. Every house is different so if you're saying 15k NET then your numbers might work better, but just saying buy at 100k and sell for 125k or something like that is going to hurt you.
Stick to your numbers that break down what the property needs and what it's going to cost for you to get it, hold it, fix it, and sell it. If you are being realistic, DO NOT GIVE IN! Just make more offers or look for more deals. The minute you try to make a deal work by offering a little more or something like that you get burned.
I know it's tough when you haven't seen one through to completion, but when you do, you'll be glad you stuck to your numbers.
Tony, I don't know how many hours per day you're devoting to this, but I don't think it's abnormal to not have found a deal in six weeks if you're new at this and still learning.
Thanks for the input Ryan, I appreciate you taking time to educate me. As far as profit goes, yes, 15k would be our net profit after all costs and acquisition. I am being realistic with my numbers and i'm trying to not get burned at the same time, but it's tough to find properties right now with low inventory and lots of investors. I guess I will just have to wait patiently. Thanks again Ryan :)
Yup, stick with it, just be patient. You don't want to jump in over your head on your first deal, or it could derail your whole business plan. I'd say that for every house we buy, we look at 20 and make offers on 5 or 6. If your first couple of offers were accepted, you probably would have been paying too much.
I agree that 15k is tight, esp. with a partner. With that thin of a margin, you had better be pretty confident in all your numbers - rehab, holding costs, and ARV.
Bienes, my partner (who has done 6 flips already) and I (with no experience) consistently look at properties that our agent gives us on a weekly basis. we both have full time jobs and that's why we had to hire an agent with a solid team to go through and filter properties for us. If you are saying it's not abnormal to find a deal in six weeks, then it makes me think i'm right in sticking to my game plan and waiting is the name of the game right now. my partner and I communicate well and thought we needed to strategize differently due to market conditions.
Bienes, my partner (who has done 6 flips already) and I (with no experience) consistently look at properties that our agent gives us on a weekly basis. we both have full time jobs and that's why we had to hire an agent with a solid team to go through and filter properties for us. If you are saying it's not abnormal to find a deal in six weeks, then it makes me think i'm right in sticking to my game plan and waiting is the name of the game right now. my partner and I communicate well and thought we needed to strategize differently due to market conditions.
Right, that is what I'm saying. The mistake would be overpaying or buying a piece of junk just to make a deal. So you're doing the right thing.
Chris, I completely agree with you on looking at 20 and making offers on 5 or 6 because that's exactly what we've been doing. We are just simply getting beaten out. My attitude is just "oh well, moving on to the next one."
As far as 15k net after all costs/expenses, that's our bare minimum. How much would you say is a good realistic net profit number for a partnership? We are pretty confident with our numbers since my partner is the contractor himself and will be doing all the work. Plus, he has done 6 flips already, and we trust our agent with the ARV pricing because she too has experience and a solid team behind her. If we end up selling a property and not making at least a 5k profit on it, her commission is at 0% and that's in writing.
I feel like I have a solid team put together, it's just a matter of time. When sometimes what i'm doing is at a stand still, I question it and always try to continuously improve upon it. This site is awesome because you get other people who are willing to help educate and pass on their experience to me, which I appreciate greatly because it's pointing me in the right direction. If I seem to naive or newbie about something/topic, please educate me I want to learn. Thanks.
Hi Kyle, I don't mind the Minneapolis south area but the north side I would rather not deal with. I've looked at properties basically half hour away from Minneapolis in all directions.
Tony, I think your attitude is great and you're way ahead of most new investors because you have a plan. I was just saying that if you're splitting 15k 2 ways, that's only $7500 a piece, and that's not a lot of profit for the time, stress, and risk that you put into the deal. Also, if your ARV is off by $5000 and you have to replace a heat pump you thought you could save, there's half your profit right there. Just that with a tight margin, your numbers need to be conservative and well researched.
If your partner is a contractor, he could probably do a kitchen remodel and turn a $7500 profit with no risk. But then again, I work in a partnership as well, and as long as you get along, I like it because you can keep each other in check and have a second set of eyes on everything.
... I completely agree with you on looking at 20 and making offers on 5 or 6 because that's exactly what we've been doing. We are just simply getting beaten out. My attitude is just "oh well, moving on to the next one."
...
So why not more closely consider the other 14 or 15? Did those get offers that were accepted, or are they still available? If they have received accepted offers, what type of buyer took it?
Since you are indicating that these might be REO, there's another thread running that might hold some more info ...
Chris, thank you for the compliment. I understand where 15k split 2 ways isn't a whole lot, but i'm fine with it for now until I gain more experience but 15k is the bare minimum.
With your partner, in your area, what's your average if you don't mind me asking? What is a good average return (w/ a partner), in your opinion, to make it worthwhile for myself?
100% I agree with you on why having a partner is great. I like to have check and balance on everything as well.
Steve, those other 14-15 REOs were taken into consideration but it lacked either 1) a good location 2) profit margins were below 15k 3) upon showing of property, more work was needed and 4) beaten out by other investors or owner occupants when putting in bids.
I am in the same boat as you. I have a little experience, but I got lucky my first two deals, and already had buyers lined up.
Seven years later I am back at it again in a new state with new rules, but way smarter than when I was 22 years old!
I was beat out 5 times and you have exactly the right attitude...."NEXT".
My minimum profit margin is 30k and I have no partner...just me so you may want to revise that a little.
Also, you may want to check and see if any of your rejected offers are still on the market. Resubmit the offer after 30 days and you never know what can happen ;)
Also, you may want to check and see if any of your rejected offers are still on the market. Resubmit the offer after 30 days and you never know what can happen ;)
I have landed some of my best deals going back to sellers months after an original offer.
When you first make an offer, sellers can get an amazing amount of self confidence. They start having unrealistic expectations on what their properties are worth.
When you withdraw an offer it can really be a setback for them...a reality check. They have a lot of time to reflect. They wonder if they blew it. They wonder if your offer was the best they would get.
The next offer that comes in likely will be treated a little more cautiously. If they really want to sell, then they will likely be less aggressive the second time around. The difficult part is that in a falling market, an offer 30 or 60 days later might need to be lower to make sense for the buyer.
Tony,
If you've only put in a couple of offers and haven't closed anything, you should not get discouraged. It's a numbers game and you will probably have to put in a lot more offers to get any one accepted. If you have a well thought out strategy and criteria that you have bounced off an experienced investor, the worst thing you can do so early is to change course out of frustration. In my experience, that's a recipe for disaster. It's tempting to alter your strategy and take higher risks out of desperation which is a dangerous thing to do. As some others have mentioned, $20K doesn't leave you much wiggle room. Make sure you factor in ALL costs, including all your "soft" carrying costs. That's where margins can get eaten away quickly. Hang in there and good luck.
Tony-you mentioned trying to profit $15-$20,000 on the transactions. What percentage does this represent? If you are investing $100,000 or more on a particular deal and only receiving profit of $10,000, that is very tight. If you are buying a $15,000 property and selling it for 30,000, obviously the percentages are much better.When I was doing a lot of flips in TX/FL, I was making 20K-40K net per property which represented 35% profit per deal or higherwith an annualized ROI of 100%+. I realize margins are shrinking as more flippers chase the inventory. I agree with most of the other posters in this thread that you just need to keep presenting offers and waiting for a particular seller to blink. Some of the best deals you will ever make are deals that you end up not getting into.....Rich
Tony: Trust me i know how you feel. I am new to this business and im looking for my 2nd deal and it is kind of taking a while but like some of my fellow friends on BP would say "its a marathon, not a sprint"
Chris, thank you for the compliment. I understand where 15k split 2 ways isn't a whole lot, but i'm fine with it for now until I gain more experience but 15k is the bare minimum.
With your partner, in your area, what's your average if you don't mind me asking? What is a good average return (w/ a partner), in your opinion, to make it worthwhile for myself?
100% I agree with you on why having a partner is great. I like to have check and balance on everything as well.
Tony, we're averaging just over $30k per flip, which is our target when formulating offers. Just recently, we've been lowering the target a little bit to around $25k to account for the more competitive environment. This is on houses that retail for $115k-$150k. Only you can decide how much you need to make for yourself.
Mike, Chris, Reese, I agree with you that 20k is kind of tight, but my agent is telling me that normally it's 20k-25k for average returns in my state. Honestly, i'm really going by her information, I don't know for sure. I've done some extensive research months even before getting a partner and planning how I want to invest in real estate. Honestly, I do believe that 25k+ per property is very doable, but I do understand where 25k would be good in this market right now do to the competition and low inventory right? so would 30k be a good norm for most states when inventory is even key?
Chris, I assume you are talking 30k net average after commission and all expenses paid correct?
My initial meeting with my agent, my partner and I told our agent we want properties that have profit potentials of 30k-40k. This is due to the research i've done on mls/comps/dom etc where I derived at 30k-40k margins. Quite frankly, all the analysis/comps/research/cdom is doing my due diligence, but honestly no one knows when and how much the house can sell for. It is really an estimation of time and value from previous and current statistics correct? Now having said this, Is 25k-40k unreasonable or a realistic profit margin? How would I be able to find out the average return for my state and region? How do I know my agent isn't keeping the better ones for other clients or herself? How do I know that an offer I put in wasn't to raise the price of the property since there is more interest in the property? (not bashing agents here just would like to understand more on this topic)
My formula is basically having acquisition at highest 85k and 25k average for rehab so 110k highest with closing costs and holding costs included. We are looking for most properties w/ acquisition and rehab w/ closing costs and holding costs to average out to be 100k. Obviously the higher we go, our profit margins need to edge up to 30k+. So with a partner investing 50k for 10k which would be 20% profit is that a good profit margin for just me?
Sorry so many questions, but I would like to understand and have more knowledge in regards to what's a good return and if my agent is right when she says 20-25k average for my area. Please HELP :) any response or replies would be greatly appreciated. Thank you to all who have posted and replied to all my questions so far. I appreciate the time everyone takes out of their schedule to answer questions for a newbie :)
Could someone break down these questions for me please? I'm just a little stuck and would like to know how to move forward. Any response would be greatly appreciated. Thank you in advance.
the best deals i've had were where there was no competition..motivated sellers, probate, absentee landlords, inherited properties and widows, etc. maybe contact a wholesaler or two and see if they have anything in your area..research old expired listings that never sold..call the sellers if they never relisted..search on mls by DOM, and find distressed fixer uppers that have been on market over 360 days...find a pool of houses you like and look up at register of deeds..out of these homes, write down the ones where the owner owes little to nothing...a lowball offer of 50k may be more than he owes and a good offer for him after a while on themarket... the MLS is a feeding frenzy for anyone with cash that recently liquidated stocks in a falling economy...these people can afford to pay more bc A...they don't know what they're doing, and B...they're richer than i am :) you can only afford to pay what you can afford to pay..stick to your guns, but look for other ways to buy properties..foreclosures and agents aren't the only ways
Hey Tony, I definitely think your numbers are viable in the area, as long as you do you due diligence on the properties, not just go by what your realtor says. I just picked up a single family in NE minneapolis that I expect to return 25k, but it took me around 10 offers to finally land one, and even then I bid higher than asking price and higher than I probably should have. It was my first property and I was gettin antsy. I'm glad I am conservative with my numbers so I will still end up in a good position, but I had to change my rehab plan.
Every single offer I put in resulted in a 'multiple offer situation' where you have to put your highest offer on the table. Part of me thinks that is a good thing because I found a good deal that others are interested in, but part of me also thinks the realtors have a hand in this. Nothing against realtors but my mind tells me they are going to do whatever they can to get the best price on a house. All I can say to this is do enough research to be confident with your numbers and if they don't work, step away. It is better to put in offers that don't get accepted than raise your price, get a property, and end up losing money on it.
I completely agree with what Bryan said, the MLS right now is crazy and good properties are getting eaten up pretty quickly. Finding some creative ways to locate properties is definitely worth the time.
I'm just speaking for myself here, but I think it would take quite a bit of time and energy to track the market for everywhere 30 mins-ish outside of the cities. I was suggested to pick a pretty specific location and learn that market like the back of your hand, to the point where you can look at a house and pretty much guess what it would sell for. In Northeast minneapolis I know where there are pockets of nice, quiet neighborhoods and which ones to stay away from. I know at what streets the house values start to increase drastically.
Another thing to keep in mind is the city permits. In Minneapolis and I believe St. Louis Park they are really strict on permits. My fault for not doing my research, but for everything I did in my house I had to have a contractor licensed by the city of minneapolis. My contractor wasn't, so it was kind of a pain. I don't know much about the south metro because I am from the north, but I've heard there is a lot of activity in the Brooklyn Park area. Something to look into if you have some time...
I'm pretty new to RE investing so I'm sure there are some people on here that can provide a lot more insight, but hopefully this gets you thinking a little bit..
Keep pluggin Tony G, the deals will come. As time goes and you keep your eyes open you will learn what are deals and what are not. The more deals you do, the more will come to you. I don't touch anything I can't make less than $20k, if it fall short and I make $8k I take the money and move on to the next deal. If I would have waited for a ends all formula for my first deal, I never would have started.
For me there was a slight learning curve. The properties became more profitable for me as I improve the process of selecting properties, determining what to rehab on the property, areas that were in more demand, and the type of home investors wanted to purchase from me. Learn from your first one and move on to the next. Even if you make no profit, the learning experiences they say will be"priceless". Rich