Advice on Buying, Realtor and Property on First flip

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Advice on Buying, Realtor and Property on First flip

Raj Kumar
Investor · Austin, TX · Member since 2014 · 34 posts · 4 votes

I started working with a investor oriented realtor on my first flip. He sent me a property in Alsip, IL (Chicago Suburb) saying a HUD property which he bid for me as it got re-activated and he thinks its a good deal. I have no knowledge of Alsip, IL until now

House price: 117K

I saw comps on zillow ranging from 140K to 225K. He sent me some comps which are properties in 0.5 to 1 mile radius around 200K-250K. He says that this property should be easily sold between 200 to 225K.

I asked him that some comps are around 140K and he mentioned that we will do some high end rehab with some modifications(adding extra bed room) which should give an ARV ~225K. His quick estimate for rehab would be around 35K.

Master bedroom and 2nd bedroom on the second level. There are 2 bathrooms in the house and both the bathrooms are on the first level. Some of the comps around 200k price range also has bathrooms on the 1st level based on info 

Given this scenario, I have two questions:

1. Realtor says that this property is a HUD property and I do not see this in www.hudhomestore.com . I am assuming that the subject property should be on the HUD homestore even when in the pending state. Do I have to be worried that it is not in HUD home store and realtor claiming it is HUD property?

2. Even if we make high end rehab, if 2nd level does not have bathroom, would this property still be desirable at high price?

It seems there is an opportunity but I want to take steps with caution. Please advice.

Thanks,

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Greg H.Pro Member
Moderator
Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
10y

@Raj Kumar

Once a HUD property is pending, it will no longer show up on HUDhomestore.com

I am in Texas and do not know whether the property is a good deal or not. You say your Realtor bid for you ? I am assuming he has a HUD under contract and wants to wholesale it to you. It seems to me that you do have some reasons to be cautious as a Realtor bringing you one of his deals may not necessarily have your best interests in mind. You might want to contact another agent to get a 2nd opinion on value or contact an appraiser in the area for an informal appraisal($200 or so). Do be hesitant to walk away from a deal that you are not 100% confident in. There will always be another "deal"

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    @Raj Kumar

    Once a HUD property is pending, it will no longer show up on HUDhomestore.com

    I am in Texas and do not know whether the property is a good deal or not. You say your Realtor bid for you ? I am assuming he has a HUD under contract and wants to wholesale it to you. It seems to me that you do have some reasons to be cautious as a Realtor bringing you one of his deals may not necessarily have your best interests in mind. You might want to contact another agent to get a 2nd opinion on value or contact an appraiser in the area for an informal appraisal($200 or so). Do be hesitant to walk away from a deal that you are not 100% confident in. There will always be another "deal"

    3Reply
  • Hattie Dizmond
    Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    My first thought is why is your realtor telling you that"we" will do some high end rehab? Is the realtor doing a JV on this with you? Does he have any financial stake other than the commission, of you purchase?

    Second...how in the heck does he think you're going to add a bedroom and get out of a "high-end" rehab for $35k????  I'm calling BS on that right now. And what are his qualifications for estimating rehabs?  Just saying. 

    Finally, no baths on the 2nd floor, where all the BR's are would be a non-starter for me. Things may be different up north, but I'm not going to trek downstairs at 3 in the morning to pee. I will wind up in the hospital with any number of things broken. 

    My advice, if you're really interested in this property is to pay for a BPO from another brokerage, if you don't feel you can estimate the ARV yourself. I have a realtor I trust, but he doesn't calculate my ARV,...ever. Also, if it's really a HUD property, it should be on the HUD store listing. But, it's possible it is some other insurer and the REA is using HUD generically. Press that issue.

    1Reply
  • Tom T.
    Investor · Cumming, GA · Member since 2015 · 79 posts · 72 votes
    10y

    Here is a suggestion. What if you purchased the house. Fixed it up some and rented it out? Downside is it ties up your cash for longer however it could or at least should be cash flow positive. Secondly, once you wait for a year and a day once you do sell it you can pay lower taxes. (please consult your tax people, I am not a tax accountant)

    My point is this, maybe there is an interim step for you to analyse from.

    If you are saying it is a 2 story house and all the BR are upstairs and there is no bathroom upstairs, that would be unusual for my neck of the woods.

    How old is this house?  Any lead paint issues?
    And like was said above, there is always another deal.  
    "Luck is what happens when preparation meets opportunity"
    Make it a great day!

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  • Raj Kumar
    OP
    Investor · Austin, TX · Member since 2014 · 34 posts · 4 votes
    10y

    @Greg H.

    Thank you for your advice. I want to be cautious because this is my first flip and first time working with this realtor. He was mentioning that I have 48 hrs to send the earnest money and has to send the check overnight to the Asset Manager. If he has HUD contract and wholesaling, would he be still sending the check on my name? I would take another agent or appraiser opinion today and walk away if it still does not convince me. Thank you for your advice.

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y
    Originally posted by @Raj Kumar:

    @Greg H.

    Thank you for your advice. I want to be cautious because this is my first flip and first time working with this realtor. He was mentioning that I have 48 hrs to send the earnest money and has to send the check overnight to the Asset Manager. If he has HUD contract and wholesaling, would he be still sending the check on my name? I would take another agent or appraiser opinion today and walk away if it still does not convince me. Thank you for your advice.

    No this means that he placed the bid in your name and it was accepted by HUD and y'all have 2 business days to get the contract in. Did he have your permission to place the bid(He would have needed your SS#) ?

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  • Raj Kumar
    OP
    Investor · Austin, TX · Member since 2014 · 34 posts · 4 votes
    10y

    Hattie,

              Thank you for your response.Sorry for not being completely clear in the first post.

    He is not doing joint venture. He does not have any financial stake other than commission. He also said that he will be listing the property without any commission. I think he said "we" to make it feel like I and him are on the same team.

    This is 4 bed room house. Two bed rooms, Master and 2nd bedroom are on the 2nd level and 3rd, 4th are on the 1st level. When I saw that 2nd level does not have any bathroom, I first thought exactly the same way that I am not going downstairs in the middle of the night to use bathroom.

    Thank you for offering to help. How much does BPO from another agent cost ?

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    @Raj Kumar

    Is he a 50-50 partner ? IMO, this type of partnership is not a good deal for you as described.  You are risking $117k + the rehab and he is essentially risking nothing.  Did he forfeit his commission on the front end(Meaning put $0 under selling agent) or is he collecting and then contributing to the project ? 

    My advice is to pass on this one if:

    -You are not 100% comfortable of the numbers independent of his

    -You do not have an understanding of your agreement together and his obligations are spelled out

    -Your agent has more skin in the game other than commissions

    You can always pass on this accepted bid and re bid when the property comes back on to give you more time to gather information.  No deal is always 1000x better than a bad deal !

    0Reply
  • Raj Kumar
    OP
    Investor · Austin, TX · Member since 2014 · 34 posts · 4 votes
    10y

    @Greg H.,

                     I have given permission in general for submission of any investment property. He forfeited his selling commission upfront as a listing agent for the flip. I will do some research and take opinion from another agent and will decide on this one.Thank you for your advice. 

    0Reply
  • Raj Kumar
    OP
    Investor · Austin, TX · Member since 2014 · 34 posts · 4 votes
    10y

    @Tom T.,

                     Thank you for your advice and providing another perspective.  This is 55 yr old house. Will take another opinion with local agents and take a decision. Will keep you all posted.

    Thanks,

    0Reply
  • Al Canaveral
    Residential Real Estate Broker · Chicago, IL · Member since 2015 · 51 posts · 21 votes
    10y

    Hi Raj, 

    The highest selling price in all of Alsip over the last 6 mos was 227k. So you would be selling at the top of the market. You need to check the comps in the area of the subject property to make sure you can get that ARV being its at the top. Those homes that sold are all around 2300-2500 sq ft. Good luck.

    0Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    10y

    @Raj Kumar, Alsip is kind of hit or miss. @Al Canaveral gave you some hard numbers. It doesn't sound like $117 is a good price for a property that needs a lot of work and a city that had a top range of the very low $200s. 

    How did you find this agent? What are his investor qualifications?

    [email protected]Podcast Guest on Show #261
    BiggerPockets
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  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Raj Kumar:

    I started working with a investor oriented realtor on my first flip. He sent me a property in Alsip, IL (Chicago Suburb) saying a HUD property which he bid for me as it got re-activated and he thinks its a good deal. I have no knowledge of Alsip, IL until now

    House price: 117K

    I saw comps on zillow ranging from 140K to 225K. He sent me some comps which are properties in 0.5 to 1 mile radius around 200K-250K. He says that this property should be easily sold between 200 to 225K.

    I asked him that some comps are around 140K and he mentioned that we will do some high end rehab with some modifications(adding extra bed room) which should give an ARV ~225K. His quick estimate for rehab would be around 35K.

    Master bedroom and 2nd bedroom on the second level. There are 2 bathrooms in the house and both the bathrooms are on the first level. Some of the comps around 200k price range also has bathrooms on the 1st level based on info 

    Given this scenario, I have two questions:

    1. Realtor says that this property is a HUD property and I do not see this in www.hudhomestore.com . I am assuming that the subject property should be on the HUD homestore even when in the pending state. Do I have to be worried that it is not in HUD home store and realtor claiming it is HUD property?

    Pending properties do not show up in the hudhomestore.com for the public.  They do show up for realtors for properties under contract.

    2. Even if we make high end rehab, if 2nd level does not have bathroom, would this property still be desirable at high price?

    You need to examine the details of your comparables to determine what the potential ARV is:

    • Are the comparables all in the same city or village Sometimes using the radius for comparison results in spillover from another city or village into the comparables.  You have to delete those properties
    • Bedroom/bathrooms- Do you're comparables have the same bedroom/bathroom count.  +/-1 is usually ok
    • Basement/no basement
    • Square footage about the same give or take 
    • Exterior building type- brick versus everything else
    • High end rehab- Not sure what this means but when I hear $35K I don't think high end.  Again you should examine the comparables to see what kind of finishes you need to get the value you're looking for
    312-681-7487
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  • Justin Pillion
    Investor · Naperville, IL · Member since 2015 · 166 posts · 28 votes
    10y

    @Raj Kumar I wont beat a dead horse too much. But the agents above have shown hard numbers. Having looked myself as I'm an agent as well, I would have your attorney kill this deal. 

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