Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
10y
@Account Closed
I think it is about right. I'm about 90 miles away from you and today's prices here are still not as high as the peak prices. Depending on the area, some here are close to peak prices other areas are way off.
In one of the markets where I'm at today's prices are off 50%-60% from peak prices. I know there are some areas of the country where prices might even exceed peak prices but not here.
I was looking at a comp in Altoona today which was an REO, with nice siding, replacement windows and a fair interior. It was listed for 15k. I am looking at buying a 12k house up for sheriff sale thinking how can any make any money here. Rehab materials are up, taxes are up and sale prices are flat at best. I always would get a kick out of agents who would boast "we are back to 2006 prices", because that's still way behind inflation. I can understand they want to promote the area and such, but it just kinda stinks.
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
10y
@Account Closed
I never bought in Altoona, but I think of it as many other towns across PA and the country outside of major metro areas. Building materials as you point out costs basically the same at Home Depot and Lowes, regardless of the real estate market in that area.
Around here you get 50 miles away from the center city and you're beyond the normal commuting area.
General population, school population and employment in the area are factors I would look at. I met somebody from a small town around here who graduated from high school in 1964. He told me that the graduating class numbered the same now as in 1964. Right off that told me that it was not a growth area, and that young people moved away, because there are not many employment opportunities in that town/area. There are lots of towns like that all over the country in "fly over country".
I think the real estate play there is to buy cheap, rent at good rents like 2% or better, and hold the property for the cash flow. But often in these types of places there is little or no appreciation. A lot of places got caught up in the price run up of 2000 to 2008, but if you look at the price changes prior to that you see little change in prices. People buy a house, own it for years and then sell for the same price they paid, no appreciation.
Somebody I know bought a 4 unit in such a town for $24,000. It was rough, but he fixed it up and rents it for the income. The rents are low compared to the big city 50 miles away, but many of his costs are lower, like dumpster.
You mentioned my book. In Chapter 36, I wrote about a income play where I suspected that there would be little to no appreciation. I bought for $32,000. It had been extensively remodeled by a previous owner. That's part of the play you should look for in the small town or foreclosure market, properties with extensive recent improvements. The former owner had put in all new drywall, all new windows, all new plumbing, heating and electric, new siding, 2 new full baths and a new kitchen. Then they sold it for $56,500 and that owner lost it. The last tenant stayed for 5 years and was paying $950 rent, and I sold it for $64,000. Before I bought this property it had sold for $56,500 in 1996. So from 1996 to 2015 the price only rose $7,500 or 13% over 19 years.
Great approach. There certainly is a large range, relative to updates needed, in the foreclosure space. Being selective can save you a bunch in the long run.
Over the years how would you say the competition has progressed at you mortgage sheriff sales. Are there still deals to be had? In know o can ask cause in your podcast you mentioned you have kinda moved away from them:)
Real Estate Investor · State College , PA · Member since 2009 · 594 posts · 173 votes
10y
My approach for flips is to leverage as much of the homes equity as I can. So if it is acceptable, say kitchen, leave it. I give folks good window, roof, walls, basement. The basics and I sell in that 60-90 range. The more I spend on my rehab and the more I spend on the home itself the less I make. That's with me doing the work with my own employees. Buyers have no clue of. the costs involved In fixing up a house.
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
10y
@Account Closed
I do more renting in that space than flipping.
At sheriff sales, about 1/3 are postponed, and 1/3 are cancelled, leaving only 1/3 left at the actual auction. It used to be that maybe 10% of that last 1/3 were sold to third parties. The other 90% go back to the lenders.
There are some recent changes that the banks are willing to let properties go for less than is owed on them. That has caused more of that last 1/3 to go to third parties.
I read somewhere that on a typical foreclosure that the banks lose 30%-40% of what is owed to them. If they are rational, which they are not always, they would let every property go at the sheriff sale for that same 30-40% los, but they do not.
Given what you said and given the complexity of title searches / lien searches and the uncertainty that a deal will even be there to bid on, that investor participation is low.
I just submitted an offer to the bank on a house went thru sheriff sale last week. Well, I email the law firm who said they would present the offer. How have well do the banks react to these offers. Provided they are uninsured mortgages. I guess I would expect, they aren't to responsive to said offers simply based on the fact they could have started at a lower price.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10y
Big gains I see are NOT from cash flow.
They are from finding value add properties in great locations and timing the market cycle correctly to cash out after full stabilization.
A rural to one economy town semi-suburban areas might be cheap and have higher cash flow but it's for a reason.
These areas are dead towns that have minimal to no growth over decades. In market cycles those areas are last to recover and first to fall down. This is why people focus on deals in urban core and strong suburban markets. These properties might dip a little with cycles but tend to hold value and not take you under like those other properties.
The small towns if the main employer goes out you have a mass exodus of net migration elsewhere. The only people that then stay are lifers. Buying in urban core and strong suburban is not fool proof. Some prices in areas are already past the last 2007 peak. Still deals to be had but also people way overpaying.
My friends that have millions to tens of millions are cautiously investing right now and buying only when the numbers are right and then growing liquid money waiting for the next downturn. It might not be a severe as 2009 but there will be a dip again.
