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flip

Real Estate Deals

Persistence is a Virtue. The Story of How I Got My Latest REO Deal.

by Justin Pierce | October 25, 2009

Let me tell you a story about how I made a bundle of money this week. It’s the story of how I captured my latest deal. Now when I tell you the story you may think that I’m counting my chickens before they’ve hatched but you really do make your money when you buy. Never, loose site of that important fact. In this case the money is made and in the bank. Now until the home is sold the money is mine to loose or keep, depending on how I manage the project.

Persistence and Ambition Lead to a Working Relationship

You could say it started about a month ago. A young ambitious Realtor contacted me when he saw my ads stating that I buy houses. He sent me about a half dozen listing and to my surprise the list had potential. I am a licensed and active Realtor but I appreciate a go-getter when I see one. I can only cover so much ground myself and I love to enlist the services of ambitious people. We looked at a few of these properties on his list and we made some offers but nothing came through. The beautiful thing was that this young Realtor came back with another list of properties. That is how I knew he had the stuff. Many Realtors say they want to work with investors but when they actually see the nature of the game they roll out quite quickly. The fact that this guy came back told me he was real deal.

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Real Estate Investing

How I Decide What I’ll Pay for a Flip Property

by Justin Pierce | October 18, 2009

Knowing what to pay for a home is critical in the rehabbing game. I’ve come up with my own method for determining my purchase price for a property. While I don’t think my method will work for everybody, maybe it will give you a good place to start or perhaps, some new ideas.

There are a lot of different variables that you’ll have to take into account on any specific deal; I’m interested to know from other rehabbers how their math looks.

Calculating the Purchase Price for a Rehab Property

Step 1: Know the value of the property. – That is the resale, after repairs value of the home. Make sure you view actual recent comparable sales. Once I feel confident I know what a property is worth I deduct 26% from that price. 20% is what I like to shoot for in a profit. With the market firming up here lately I’ve been cutting that margin to 16% on real good deals. On bigger deals or on deals that feel a little more risky I stay firm with the 20%. I wouldn’t go much lower than 16%.

Historically homes sell on average for something around 8% less than asking price. If you’re only pricing in a 10% profit then you might end up just doing a practice flip. A practice flip is a deal where you don’t make any money. Essentially you donate all of your time and effort for free to the end home buyer. The other 6% is the number I put in for closing costs when I sell the home. I’m a licensed Realtor so I list the home myself, which will save me a little. So in my case, 4% goes to Realtor fees and the other 2% is what I budget for other closing costs. You can choose to try to sell the home yourself and save the Realtor commission. If you are not a Realtor and you plan on hiring a Realtor then you probably will need to budget 6% for the Realtor fees plus another 2-3% for closing costs. I always anticipate having to pay some of my buyers closing costs.

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Real Estate Wholesaling

Rehabbers, get to know some Real Estate Wholesalers

by Justin Pierce | October 11, 2009

In real estate there seems to be a culture of do-it-yourself. There is a swagger amongst investors who will tell you they can do almost everything and anything in no time at all. Now, I’m sure you could learn how to be a lawyer at the public library but I think formal training might be of some value.

You can’t be all thing or all people in real estate. In the next few weeks I will write a post about forming a Master Mind Group but for now I want to give a special plug to wholesalers. I want to both convince investors to work with wholesalers (specifically rehabbers) and I want to help wholesalers add value to their services. The first step to any business is to learn the business and the next is to learn what you should delegate to others.

Keep Your Friends Close and Your Wholesalers Closer

There is another cultural norm in real estate: if you can be cut out of a deal you will be. I don’t know how many times I’ve seen wholesalers, realtors, and mortgage brokers cut out of deals after performing significant services for which they were never paid. This is one reality that makes it very difficult for wholesalers to provide their best services. They have to spend almost as much time securing their position as they doing trying to get the deal done. Wholesalers don’t have the protections that realtors have. They’re actually a pretty skittish bunch. Cultivating a relationship of trust with your wholesaler will ensure they can give you the best service and increases the chance that you’ll get more good deals coming your way. The wholesaler/buyer team is much like a marriage. It can’t work very well if there isn’t trust or if only one partner is working on the relationship. In fact, I know many would-be wholesalers that leave the business because they bust the humps to find deals but then can’t find reliable end buyers. That is just a crying shame considering how rare the good deals. Help your wholesaler help you.

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Commentary

Will Appraisers Stunt the Housing Recovery?

by Justin Pierce | September 20, 2009

appraiser HVCCAfter the financial meltdown last year lawmakers and regulators were determined to discover who was responsible for the debacle. Yes, the very people who drafted the laws governing mortgages and yes were also responsible for oversight of them went out to determine who was responsible for the melt down. The first culprit, of course, was the lenders. I think we all know how that played out. The next group on the chopping block was the appraisers. If they wouldn’t have appraised the homes then the lenders would not have lent on them, so goes the finger pointing. From that came sordid tales of realtors and mortgage professionals pressuring and even bribing appraisers to up the value of a property.

Home Valuation Code of Conduct – HVCC

After the scapegoats were identified the legislation followed. One prime piece of legislation aimed at appraisers was the Home Valuation Code of Conduct (PDF). The intent of the HVCC was to achieve more appraiser independence to reduce the amount of pressure placed on appraisers by lenders and Realtors. Well, if their had once been undue pressure on appraisers to inflate values it now pails in comparison to looming threat hanging over appraisers and it’s compelling them to keep prices down.

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Real Estate Investing

Rehabbers! Know ALL the Costs to Flip that House

by Justin Pierce | September 13, 2009

Every once in a while I catch an episode of Flip this House; I have to admit, it is entertaining and it does show the drama involved in fixing up a home. However, I am very amused when they show the final numbers. I have watched episodes where a first time rehabber has bumbled and stumbled through the process and yet still manages to make a profit in the end, according to the show. This and other shows might make one believe that a flip is a sure bet. When they do the numbers they normally list the Purchase price, the fix up costs, and the sales price. Wow, are they missing a bunch of stuff.

Please take my advice: Do NOT start that flip if those are the only categories of expenses that you are anticipating.

The REAL Costs of Flipping a House

Here are the actual costs of one of my recent flips.

real costs to flip a housePurchase Price:
Contract Prices: $213,000
Wholesaler: $12,937
Total Price: $225,937

*This deal was brought to me by a wholesaler. So my purchase price consisted of both the amount that I paid the owner (in this case a bank) and the finder’s fee that I paid the wholesaler.

Costs of Money:
3 Points: $7,312.50
Broker Fee: $2,437.50
Holding Costs: $9,500.00
Lender’s Lawyer: $1,220.00
Total Costs: $20,470.00

The cost of money or the cost of capital to me is everything that the lender charges for the use of his money. Note that in this case (which is pretty standard) I paid the lender 3 points and I paid the broker 1 point. Note that there is also a lawyer; this lawyer is not the title company. This is the lenders lawyer who writes up the contracts and the deed. He’s the one who does his very best to shackle me to ensure his client gets his money back. The lawyer represents me in no way at all, but I get the privilege of paying for his services. Most hard money lenders will either have this fee or some sort of administrative fee of about the same price.

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Financing Real Estate

Understanding Private Lending – Part 3: How to Find Private Lenders and Get Funded

by Justin Pierce | August 16, 2009

Oh have faith yea disciples of the deal; it is possible to find a lender who will loan every penny of the purchase price of a property. Just like it is possible to find a property that can be bought with no money down, but know that both endeavors can be laborious. Real estate is one of the few business games where the ante is affordable to anyone with a little gusto, and success is possible for those with a lot of diligence and perseverance.

Where to Find Private lenders

  1. Classifieds advertising sites such as Craigslist.com. Look under services and financials.
  2. Do an internet search using any search engine type in “hard money” or “private money loans” etc.
  3. Check your local newspaper classifieds under money to lend or finance.
  4. Go to your Real Estate Investment Groups meetings.
  5. Patrol real estate investment websites like BiggerPockets.com
  6. Network with other real estate investors to see who they use.
  7. If all else fails you can even call mortgage brokers.

Researching Lenders

Search far and wide and you’ll find a couple of good private lenders. There are no certifying bodies for private money and there is no central association. Anyone with a lot of money can essentially lend it out, so sometimes you may run into a lender who is not legitimate.

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Real Estate

Understanding Private Lending: Interview with a Private Lender Part 2

by Justin Pierce | August 2, 2009

Last week I spoke with a private lender who loaned her own money and brokered here own loans. She operates in Northern Virginia and takes great interest in the borrower. Her operation is small and she does not have any time or desire to foreclose on a property thus she tries to ensure she will not have to by dealing with experience investors who have assets and usually money to put into the deal.

To get a little variation on this topic I spoke with a different flavor of private lender. David Williams is a hard money lender located in Utah. The differences between these lenders are more than just their geographical location.

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Rehabbing

Getting Your Start In Rehab Real Estate

by Richard Warren | November 24, 2008

I am curenlty sailing the Pacific on a 2 1/2 week cruise (yes, this is a great business).  Rather than skipping my weekly posts, I thought I would share a previous article on getting started in rehab real estate investing.  And you thought re-runs only happened on TV!

Getting Started In Rehab Real Estate
You want to [...]

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Real Estate Investing

I Robbed a Bank for $8,500 (Kinda)

by Jason Hanson | September 17, 2008

I’m always learning important life lessons. One lesson I recently learned is this: Don’t eat an entire box of macaroni and cheese and then go for a five mile run…..you will puke your brains out, trust me on this.
In a minute I’ll get to another lesson, but first I have to tell you the [...]

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Blogs

Investing in Real Estate? Be Sure to Plan Your Exit Strategy!

by Richard Warren | July 21, 2008

In his landmark book, The 7 Habits of Highly Effective People, Stephen R. Covey calls the second habit: Begin With The End In Mind. Nowhere is that more true than in today’s real estate market. When investing in real estate, the End in Mind is your exit strategy. Unless you just like to wander aimlessly [...]

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Real Estate Deals

What Are Real Estate Deals and What Aren’t Deals

by Joshua Dorkin | August 23, 2006

With clear signs that the housing market is losing steam (e.g. sales of previously owned homes are at their lowest level in 2 1/2 years), smart investors are finding opportunities where there were few before. I just read a wonderful post in our real estate investing forums from our member Christy. I thought [...]

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