BiggerPockets

Definitely been an adjustment in Arizona. 2012 was the year the big hedge funds came in and ate inventory. It feels like they have slowed down, most likely one of the major 3 stopped buying. I have taken what the market has given me meaning changing target cities as necessary. We are buy and hold and strict staying at the 2% rule while staying out of war zones. It was nearly impossible in 2012 but some cities have started to soften up. This is using MLS and trustee sales as the main sources of inventory. Flippers I know are no longer active and buy and hold guys are happy living by the 1% on $100k+ homes.

Deals in 2013

I've never stopped buying and have been consistently been buying double digit properties for something like 21 years in a row.

MLS
FSBO
Courthouse foreclosure sales
Solictation
Abandoned properties
Not for sale properties
Referrals
Word of Mouth
REOs
HUDs
Neighbors of existing properties
Subdividing to create new lots

All properties must have positive cashflow, I look for properties in good neighborhoods with low crime and good schools. That hasn't changed.

Doing less land subdivision and less non-residential due to the economy.

Originally posted by K. Marie Poe:

Dell Schlabach: What's your selling price on a house with a $13-17K profit? Nothing wrong with those numbers if you don't have to tie-up $100K for 3-6 months. But that's me. That being said, I may be in for an attitude adjustment about margins if I want to stay busy this year.

If I reduce my criteria, I am looking at $15 with $110 tied up for 4 months. I also feel like my risk is lees in this market. I am OK with less as long as the risk is lower too. O course I have not pulled the trigger on one of these yet either.

@Jeff S Did the neighborhood have existing home sales of comparable properties in the $800k range? Or was the new ARV derived from avg sq ft.

I ask because I have thought about that exact strategy but decided against it because of my fear of neighborhood price ceilings. I don't want to be a 3,000 sq ft mcmansion in a nice neighborhood with avg sq ft of 1,800.

I do know of one BP'er who has had success breaking previously established neighborhood price ceilings. Check out Tom Tarrant. He lays out his deals on his blog and he's done that exact strategy in his market. One key takeaway that I got from his blog is that that particular strategy best works in gentrifying areas. Also, once he has broke the ceiling in a neighborhood he continually targets it since he created his own comps per se.

Glenn

@Jeff S

Originally posted by Jeff S:

It's a bigger risk but a bigger profit and presumably less competition for the purchase. There still seem to be enough "normal" flips around to keep us busy and we haven't done any of these (yet?) -- just reading some handwriting on the wall.

What do you guys think of this strategy? Anyone do any of these? Thanks.

Jeff

Jeff: Did the rehabber in this scenario actually have less competition when buying this property? I feel like there is no lack of rehabbers with backing looking for deals like this in the better areas. There are few to no "normal" flips in some markets. Here in Santa Barbara, the rehabbers are always looking at adding value by building out, even in marginal neighborhoods. While they aren't competing with many owner occupants buyers, they all want these deals and are competing with each other. The main issue is the permitting time. You have to be in for the long haul on adding square footage here. OK in an upswing. But declining value during rehab was not on most rehabbers radar in 2007.

@K. Marie Poe You're right I shouldn't say there are NO deals. The fact is, we don't KNOW all the areas of OC, having just relocated here a few years ago, and have our areas where we are comfortable. The areas that we do look in are pretty healthy, and sellers list for market value. Not many fixers or REOs around, and when there is a fixer, they know the cost of repairs and just back their price down that much, with no room for any profits. What I look for are the ones that are in good areas, where there's potential to add value through increasing square footage, or on large lots with potential to split.

For buy and hold investors, there's more opportunity, as properties are appreciating.

Our focus mainly is more on new construction, and hopefully getting a commercial deal that we are working put together. It's a great project if it all comes together, but takes some time.

Sounds like you're doing good in your niche! Keep it up. Glad to see you back on here posting more.

@K. Marie Poe, @Will Barnard, and @Glenn Espinosa
I'll certainly let you guys know what happens. This would not be the largest nicest property in the area. On the contrary, compared to the surrounding homes, it screams "rehab me." ARV is based on numerous actual comps, not square footage. I'm half sorry we didn't participate but it looks like we'll be doing some other deals with this rehabber and I know I'll be hearing all the stories.

I didn't ask how much competition he had but he didn't suggest there was any kind of fight. My guess is little. Paying full price on a relatively expensive dumpy property, that couldn't be sold easily unless it was improved, is not likely to appeal to many flippers or lenders, at least at this point. Unless he had a hoard of cash or a sucker like me, it would have been difficult to put this together. In fact, he did have cash and wanted us to fund the purchase so he could fund the rehab.

Good point on the permitting, Kristine. We never worked in this particular city (way too high class for us) so I have no idea how long this could take. Remodels and additions are typically faster than new construction, but you never know. This was somewhat of a transitional project; somewhere between new construction and a standard flip. The twist was paying full price for it.

This thread is a great illustration of the current split I see in our industry. Those with lots of experience have to work at least twice as hard to find great deals, but are still successful and busy finding new niches. Others, who are just getting their feet wet or new to the area, haven't developed the resources or relationships and are having a really hard time. We'd all be naïve to think the gravy train will last forever, so it's important to think ahead strategically.

Keep your chin up Karen M.

Jeff

I'm creating my own deals by finding land or lots and building smarter and less expensive than my competition. I've been very happy with the recently constructed homes. I have another one here in southern Utah that I just listed yesterday and will finish by February 1. I wanted it done in time for the giant parade of homes that occurs mid February and I will be surprised if it isn't sold by the end of February. I'm also working on another small lot subdivision here that I hope to be able to turn into a gated community just like my subdivision in South Texas. Rich

P.S. building in South Texas and southern Utah, I just can't relate to some of the prices and rehab costs being discussed in this thread!

Originally posted by Jeff S:
Here's another option. We're getting more and more calls from some experienced rehabbers who want to pay close to full market price for relatively expensive, yet run down homes in really nice areas. One criterion is they have to sit on lots large enough to build out and expand the footprint. They are typically older properties and can't command the rent that would result in a positive cash-flow, so they'd be of little current interest to a hedge fund.

We've done 2 of those. One in OC and one in Inland Empire. Both of them were profitable and we learned some things.

1. You will own it longer than 6 months.
2. City Fees vary greatly. We added 800 sq ft in both cities. One was 2k in fees one was 18k.

I think Will makes a great point that the resulting property must be conforming and that was a big qualifying factor for us.

We have not found the magic City that allows us to buy these with ease and when we do I probably won't be talking about it.

@Jeff S @K. Marie Poe We actually just finished construction on a new 2350 sq. ft. house in Lake Forest. (I will post pics later) We built it on a lot that was a REO. The house had burned down and we picked the lot up. From start to finish it took about 6 months to buy it, do plans, get permits and final. Closed a few days ago. One of the neighbors asked us to try to split his lot so he can build a new home, so we're working on that too.

@Will Barnard, you're right in that the cost of purchasing older properties and rehabbing reaches the point to where new construction makes sense, and that's where we are. I'd love to do some more of those, but lots are a rarity, as are "deals" on houses.

We have a pretty good market here in many parts of Orange County.

@Rich Weese I wish we could find some of those lots!! I don't know how you guys build for as cheap as you do!

Helpful hint to builders: regarding permits, if you buy a lot and there's ever been a home on it, talk to the building department about giving you credit towards new permits. We do it all the time!