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Where are you finding your deals? - 2013 edition

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Karen Margrave Moderator

Developer from Orange County, California

Jan 17 '13, 09:16 PM


Deals? What deals? There's none to be had here in OC. @Will Barnard did your big house sell yet?



Karen Margrave, Parlay Investments, 1st American Construction
E-Mail: [email protected]
Telephone: 949-933-3955
Website: http://www.parlayinvestments.com
PARLAY: definition: to increase or otherwise transform into something of much greater value


Serge S.

Real Estate Investor from Gilbert, Arizona

Jan 17 '13, 09:19 PM


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 Flippers I know are no longer active and buy and hold guys are happy living by the 1% on $100k+ homes.



Will Barnard Moderator Donor

Real Estate Investor from Santa Clarita, California

Jan 17 '13, 09:22 PM


Karen M. - Others would beg to differ!

Big house? Which one? Currently I have the Sherman Oaks property on the MLS still, the Agoura in the middle of the rehab (this is my "Big one") and a new Agoura big house in escrow to buy.



Medium_be_logoWill Barnard, Barnard Enterprises, Inc.
E-Mail: [email protected]
Website: http://www.barnardenterprises.com
http://www.InvestorExperts.com


David Krulac

Real Estate Investor from Mechanicsburg, Pennsylvania

Jan 17 '13, 09:39 PM


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.



Gary Parker

Real Estate Investor from Salt Lake City, Utah

Jan 17 '13, 11:28 PM


Originally posted by K. Marie Poe:

I'm at a crossroad about changing my buying criteria. My husband always accuses me of being too cautious and needing overly wide margins. My thinking is that I don't get burned by deals I don't do. But I don't make any money on the deal I don't do either. His point is someone with skills, experience and capital (me) should be able to adjust to the current market. Still chewing on that.

I too am quite conservative in my purchasing and it has served me well; however, I know from talking with sellers of deals I have lost what others are paying. I have made the decision to slowly move my criteria down. I do about 6 rehabs a year, and my hope is to pick up 2 additional deals a year with thinner margins. One never knows; the larger margin deals could all dry up.



Medium_gary-logo__2_Gary Parker, GaryBuysHouses
E-Mail: [email protected]
Telephone: 801-635-4756
Website: http://www.GaryBuysHouses.com


Gary Parker

Real Estate Investor from Salt Lake City, Utah

Jan 17 '13, 11:38 PM


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.



Medium_gary-logo__2_Gary Parker, GaryBuysHouses
E-Mail: [email protected]
Telephone: 801-635-4756
Website: http://www.GaryBuysHouses.com


Jeff S

Private Money Lender from Los Angeles, California

Jan 18 '13, 12:59 AM


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.

One deal recently presented to us involved buying a $375k FMV run-down property for $350k and spending $100k to $150k to add several bedrooms and a bath, as well as a kitchen upgrade and polishing the rest of the place up. The resulting property in this neighborhood would be worth around $800k or so. Obviously the rehab costs would have to be scrubbed, but at first blush it looked like there was plenty of meat on the bones. We passed, but only because we have plenty of other deals that we’re more comfortable with. The rehabber bought the place and I’m interested to see what happens.

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



Glenn Espinosa

Rehabber from

Jan 18 '13, 01:40 AM
1 vote


@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



Steve K

Real Estate Investor from Orlando, Florida

Jan 18 '13, 06:32 AM


Sounds like everyone is in the same boat these days. Lower margins, less deals. I can still buy and hold here at decent returns however those opportunities are quickly evaporating as well. I'm starting an overdue direct mail campaign of 1000 letters on Monday so hoping that over the next few months that will net a deal or two.

The plus side to all of this is that prices have risen to the point where new construction is feasible again in the upper middle class areas and above.

Has anyone seen any solid stats that show what the % of owner occupants vs investors is on the current buying frenzy? Agents around town all have very conflicting comments.




Account Closed

Real Estate Investor from Central Valley, California

Jan 18 '13, 09:09 AM


@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.



Account Closed

Real Estate Investor from Central Valley, California

Jan 18 '13, 09:21 AM


Originally posted by Karen M.:
Deals? What deals? There's none to be had here in OC. Will Barnard did your big house sell yet?

Karen: I'm getting worried for you. I suggest not even saying the words or thinking the thought "there's no deals to be had". You don't want that to become self-fulfilling. The OC is huge market and I'm thinking there is at least one deal with your name on it. It's probably not going to pop on the MLS though. But it might! It would be easy to miss if you are sure there are no deals there. :)



Karen Margrave Moderator

Developer from Orange County, California

Jan 18 '13, 09:34 AM


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.



Karen Margrave, Parlay Investments, 1st American Construction
E-Mail: [email protected]
Telephone: 949-933-3955
Website: http://www.parlayinvestments.com
PARLAY: definition: to increase or otherwise transform into something of much greater value


Will Barnard Moderator Donor

Real Estate Investor from Santa Clarita, California

Jan 18 '13, 10:02 AM


What do you guys think of this strategy? Anyone do any of these? Thanks.
Jeff
I think the strategy is fine so long as the new and larger home is conforming to the area. if it ends up being the largest home on the block and largest in the area, you will ahve a hard time getting it to comp out and for buyers to buy.

Secondly, for several years now, the cost to build new is much greater than the cost to buy existing and repair, thus, adding on did not make much sense, especially when you add in permit costs along with longer holding times.

As prices continue to climb, costs to build will finally catch back up and the time to spec build will be back. Right now, i believe we are in the middle, so if you can get a small property where all other homes are larger, you may have a deal there.

I would also be curious to know if this rehabber makes out on that deal, please keep us informed Jeff.



Medium_be_logoWill Barnard, Barnard Enterprises, Inc.
E-Mail: [email protected]
Website: http://www.barnardenterprises.com
http://www.InvestorExperts.com


Jeff S

Private Money Lender from Los Angeles, California

Jan 18 '13, 12:32 PM


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



Will Barnard Moderator Donor

Real Estate Investor from Santa Clarita, California

Jan 18 '13, 12:37 PM


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.
I could not agree more!!!

Great speaking with you Jeff, thanks for the call and PM.



Medium_be_logoWill Barnard, Barnard Enterprises, Inc.
E-Mail: [email protected]
Website: http://www.barnardenterprises.com
http://www.InvestorExperts.com


Rich Weese Donor

Real Estate Investor from sioux falls, South Dakota

Jan 18 '13, 02:49 PM


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!



Account Closed

Real Estate Investor from Central Valley, California

Jan 18 '13, 04:49 PM
1 vote


Originally posted by Jeff S:

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.
Jeff

I like the twist of paying full price. That can sometimes be the smartest move. Even experienced investor buyers can lose out when they get hell bent on getting a deal/discount instead of looking at their own bottom line.



Steve L.

SFR Investor from Rancho Cucamonga, California

Jan 18 '13, 06:01 PM


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.



Bryan Hancock

Real Estate Investor from Round Rock, Texas

Jan 18 '13, 06:22 PM


We bid on rehab deals several times a week and almost always lose. Folks willing to make a lot less than us generally pay more. I set our minimum profit margin for these deals at $40k given that we make at least $60k on new construction deals. The velocity of money on rehab deals is much quicker though if we don't need permits. I still like building new stuff because it is easier to sell.

Deals are primarily found from a few selective brokers and agents we work with, but a couple of wholesalers are worth dealing with too. We're considering ramping up a new yellow letter campaign in selective zip codes for some subject-to purchases with thinner equity to add to our portfolio properties later this year. Risking the marketing dollars is something I'd prefer for other rehabbers strapped for cash or wholesalers to do though so that I can pick from their lists ;-).

We also see REO lists from a few lenders and deals from our fund's submission engine. The best deals I find are from our network though.



Medium_inner10_logo__updated_Bryan Hancock, Inner 10 Capital
E-Mail: [email protected]
Telephone: 1-800-577-0401
Website: http://www.inner10capital.com/invest/
Our Recent Austin Business Journal Article - http://tinyurl.com/Inner10Capital


Karen Margrave Moderator

Developer from Orange County, California

Jan 18 '13, 06:40 PM


@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!


Updated: 08:23PM, 01/18/2013

I'm sorry, my timeframe is off, that didn't include the time in escrow waiting for the bank to get their stuff done.

Edited Jan 18 2013, 20:23


Karen Margrave, Parlay Investments, 1st American Construction
E-Mail: [email protected]
Telephone: 949-933-3955
Website: http://www.parlayinvestments.com
PARLAY: definition: to increase or otherwise transform into something of much greater value


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