well my partners and i are ready. we've been going about our investment strategy very conservatively and a recent meeting just had us saying, "let's do something different."
we're excited about it. i want some opinions on it.
this is it:
10 - 20 offers a month on houses site unseen except for pics online.
some foreclosures (on market over 3 months)
all 20 - 30% below asking + a 5k pad
all in zips that show pleasing comps
all sub2 inspection, buyers inspection and partner approval
all submitted with $200 earnest
all in a different state (i used to live there) - best friend lives there - will check out any that accept (buyers inspection)
through our realtor who we're going to work to the bone. if he is not into it, we'll find another one.
questions? holes? recommendations? "what are you freakin crazy?" comments all accepted. :D
i know this isn't a novel idea, but for us, it is a new investment strategy.
Well Noobdog, its good to see your excitement. Enthusiasism is important to this business.
I do have a couple questions/comments on your strategy.
First, why in a different state? Long distance property can be a nightmare. It limits your exit strategies (you didn't go into your exit strategies?), and hampers project and property management.
Why only 10-20 per month? If you are utilizing the MLS or some other public listing site, then you will need to make quite a few more offers than that to get a good bite. Maybe 20-30 per week minimum, and I would recommend more like 50 a week. You will probably be going through 100 or more houses to find a deal so you will want to factor the amount of offers off of that.
Why 20-30% below asking? Listing price and actual value can be two very different things, especially on fixer-uppers. Most realtors will mistakenly list a property that needs work very closely with what its comps are. So taking your factors off of list price could be dangerous. What if the property needs 20% of the list price in repairs? Most realtors also put in a 5% pad for negotiating room, and then after factoring 12-15% in holding costs, closing costs, and realtor/advertizing fees to resell, you are sitting at almost 80% of list price already. That doesn't include your profit and any necessary repairs/updates to resell.
In most markets 70% of After Reparied Value (not necessarily list price) minus repairs is the place you want to be on offers. That gives you roughly 12-18% for profit after repairs are done (depending on sell time, financing costs, unexpected repairs, and other issues). Now market variables and strength of competition can push that percentage up or down, but to make offers of this nature in a different state I would be overly conservative with my offer price. Maybe you could pull general comps in that zipcode and factor a price per square foot ARV to factor your offers off of rather than off of list price. This would be a safer estimation than list price. I would then be looking around the 65-70% or less of that ARV to make my offers. Also a 5K buffer for repairs/updates means ONLY paint and carpet pretty much on a 1500 square foot house, which for any house that is over about 10 years old is not a reasonable budget at all.
Noobdog, I like your enthusiasism and your idea, but I think refining it a bit could prove to be more profitable for you.
absolutely. thanks for the FB. long distance because current market is HIGH in price and not selling at all. sellers have still not caught onto the fact that it is becoming a buyers market. prices are falling, but still haven't caught up to what buyers will pay. average holding time i'd say is around 8 months. but that's a best guess.
the strategy for the long distance projects would be simply to rehab and sell. i know this presents some inflexible options as we are not looking to rent, at all, long distance. partner (who's not really a partner yet) living in the area has not fully committed but said he would check out properties that accept offer. he's an estimator for a stucko company. when he becomes partner - our exit strat options might expand.
i may have written the numbers wrong - yes - offer price would use the 70% ARV rule - i put the 5k down as "padding", but you're definitely right - possibly we should bump that to 12 to 15k. i wrote 5 because that's about the type of rehab we want - carpets, rugs, "splurge" items like updated appliance, ceiling fans and a cheap/nice tile in Baths.
what about the reo situation - your thoughts (or anyone elses) on offering well below their list prices?
[side note - we saw a house, in nice area, with the backyard falling into a ravine (soil clay) - the house is in a bad situation, as it is a foreclosure and no one has bit on it in over 180 days at 92k - comped at 129k. quick thought - offer 65k sub2 civil engineer inspection/estimate - may reduce it another 25 to 30k for constructing barrier walls and filling in...maybe about 150 yards of soil? - just me thinking outloud]. it's a beautiful home...that is going to fall into the ravine within 6 months to a year.