Hello BP Members, I am a newbie in the central Florida area. I have yet to purchase my first property. I have spent the last several months educating myself on general real estate investing, flipping and buy & hold strategies. I am a member of the local REI club and have attended numerous meetings, seminars, etc. Here's my problem. I have looked at numerous bank owned properties with a realtor, plus several wholesaler properties thru the REI club. As soon as a REO property hits the MLS there are multiple offers on the property which drives up the price and makes the property too expensive to be a good investment for me. The wholesale properties have either been too expensive, or in an undesirable area (I don't want to be a slum lord), or in a location too far away.
So I am rethinking my focus area and thinking I need to learn more about short sales, foreclosures and perhaps auctions. Any recommendations as to the best books on this subject? Any other general advice for a newbie starting out in this area of investing. Any advice would be appreciated. Thanks in advance!
First of all, welcome to reality. You'll find the same competition with the other properties. Also, if you don't actually have the ability to buy yourself, please stay away from preform closures and short sales....you're likely just going to tie up someone's property preventing them from finding a real buyer, then being foreclosed on.
First of all, foreclosure laws are state specific. If you are looking in Florida, you should familiarize yourself with how foreclosures work there and the required steps in the pre-foreclosure process. From there, you will be able to identify borrowers who are at risk of losing their homes.
Second, all bank owned properties are listed on the MLS. There is no way to back door this. If the REO market is too competitive, you should look at other ways of sourcing deals.
Keep in mind, a lot of buyers think they will get a good deal if they buy an REO. There are just as many listings on the MLS that are private sales that also have value. These are probably pretty competitive as well, but REO's are just one strategy of very many.
@Elaine Jordan welcome to the world of REI,
I am in the same market and can echo your sentiments with respect to wholesale deals offered. Overpriced, repairs underestimated, estimated ARV based off of comps that aren't comparable.
Some in our area have had success with REO auctions although I am not aware of any courses available, however, each auction platform has its' own process which they make known and the rest of the process is fairly straight forward auction protocol. An agent who is familiar with the real estate auction process can walk you through. I personally wouldn't recommend short sale auctions or sight unseen auctions.
With regular listed REO there is a strategy involved with selecting the property, making a strong offer, recognizing marketing patterns. Deals can be found but this isn't a low hanging fruit market.
To target short sales I suggest a course on marketing to pre-foreclosures as you want sellers who have yet to start the process. You will also need a real estate agent who is well versed in short sale transactions, for investors. Emphasis on for investors. There are a lot of agents who market themselves as short sale experts and they are familiar with the standard short sale process where the property is listed and an owner occupant end buyer is the buyer. The negotiation usually gets shipped off to some third party attorney or mortgage broker. For investors the process is a bit different and you need more input/incite into the negotiation process.
Also, look into FSBO's. No idea what kind of deal you are looking for but FSBO's can be a good source for rentals. See the number call them. Check FSBO listings on Craigslist.
My last suggestion would be to look at your price range. The low low dollar price range can be significantly more challenging.
Thank you for the replies. As a newbie, I am surprised at how much competition there is for investors. There are hundreds of foreclosures in this area and I suppose I was naive to think it wouldn't be a challenge to find the right property. John, thank you for your thoughtful response. I had forgotten about Craigslist! I will do a search there for sale by owner and see if there are any properties that fit my strategy!
@Elaine Jordan this waa excellent advise.
Welcome to Biggerpockets @Elaine Jordan
A foreclosure auction is a great way to find a deal. My advice is do your research on the property, get the title search BEFORE going, look at the page and book numbers and make SURE it's the first that is foreclosing and don't let an IRS lean scare you. Best of luck!
@Elaine Jordan I think it's a bit late to be starting brand new in the Orlando area. As you've experienced it's going to be very competitive. I did a turn-key tour there last year and they were pretty far out in Deltona because of the light rail. I liked the area and would probably buy there if I didn't have better opportunities closer to home.
But I think you can learn from them. Go out farther from Orlando and look at other towns. The whole I4 corridor from Tampa to Orlando looked good to me.
Also, rather than relying on wholesalers why not try looking for yourself? Since you're new, research the direct marketing techniques and give that a try?
Central Florida health right here Deltona Orange City DeLand DeBary very active let me know if you need any help.
help not health LOL
Thank you all for your replies! Love this website!
Yes, I know I am late to the game, but I still believe I can make a go of it (hoping, anyway!) I have a realtor that I like and he has numerous investor clients so I feel he understands my needs and understands that the numbers have to work to make a property work as an investment. I have searched "for sale by owner" and I think I may have found a 2/2 condo that may possibly work. Going to view it tomorrow. Fingers crossed!
Suzanne Mark, thanks for your suggestion to consider other towns in central FL. I would love to consider Lakeland, Deltona, DeBary, etc., but since I work a full time job, I feel like the distance is a hindrance to me right now. But perhaps in my future endeavors that will work. Good suggestion though.
I am thinking that I do want to learn more about auctions, how to properly research the property, etc. There is a big learning curve in this business!
@Elaine Jordan feel free to reach out if you decide to invest in West Polk County. :-)
Prices were great 2 years ago. Prices has gone up as the market has settle. It's a double edge sword for me as a Buy and Hold I want prices to up but as at same time I'm paying more now. But the deals are there still but not as visible it use to be. If you got the cash you'll be moved to the front of the line. Good Luck.
As a newbie you should stay away from auctions as they are sight unseen and the competition is pretty tough. If you actually win you probably overbid a pro which means you overpaid or bought the wrong kind that comes with a huge defaulted mortgage attached. Make sure you do your homework and learn the rules of the game before you go play with the pros.
REOs are also tough but if you have cash or some cash and a fast hard money lender you can make competitive offers. Ignore the asking price and work your numbers backwards. ARV-rehab+holding costs= purchase price. Learn how to inspect the house yourself and waive your inspection period, then inspect the property within 24 hours before you send the deposit. Usually the banks take a few days to accept an offer so your offer may have legally expired by the time they accept it so your not really on the hook until you submit the deposit.
Beware of savvy sellers. You could go wrong dealing with a distressed homeowner that knows more than you. So make sure you do all your due diligence if theirs no Realtors involved.
As Wayne mentioned above, welcome to reality. Best of luck.
Ivan Vargas, thank you for your comment regarding savvy sellers. That's the first time I've seen a warning about FSBO sellers who would not allow realtors. I just ran into that situation last weekend. I found a small home FSBO at an open house. It was perfect for me; in a good part of town, great school district, small home that would rent well. The couple had bought it as a foreclosure, rehabbed it and were selling. The price was high for the neighborhood, but had been completely renovated including new roof and a/c. I knew they had another offer and so I offered slightly over their asking price. I also told them from the beginning that I would financing it with 20% down and a generous earnest deposit. They submitted the contract to me the next day and I had a real estate lawyer review it who found inconsistencies. To make a long story short, the negotiation process failed and I won't be getting the house. I believe the sellers wouldn't allow realtors in the hopes of taking advantage of an inexperienced buyer and passing on closing costs to the buyer that the seller typically pays. So glad I had an attorney review the contract!
Bidding for Profits at Public Auctions can be exciting and profitable or expensive, what you do, where you stand and who and what you know and the information obtained can be a great deal or a tremendously bad deal!
As an auctioneer and owner of an auction company, I have had time to lean some things that will help investor succeed or fail while bidding at auctions.
We do about 200 auction sales a year, no foreclosures or bank sales, all owner, investors, wholesalers, assignment ordered auctions of real estate only.
Here are some ideas when considering buying at auction:
Often times potential bidders will ask, "what's the opening bid?" not to worry about an opening bid, its not what you open with it is about the final bid that counts
Don't jump in and be the first bidder, wait to see what others are bidding, when the bidding slows down to almost a stop, that is when you may want to consider a bid (if it is the price you set for yourself)
At the auction, try to stand parallel to the auctioneer, this way you can see who is bidding and who is not ----- meaning at times the auctioneer will create false bids in order to get the price up. This is not legal, unless it is disclosed
Be ready to do business, since you are paying cash, have that cash ready; get credit lines, borrow money and put it in account for your auction business, have partners (preferable family) with the cash ready to use
Get your name on the mailing list of all of the auction companies in your area so that you are notified of sales
Talk to the auction associate in charge to try to get some inside information about the sale; is it owner ordered, bank auction, foreclosures, will they accept a precaution offer
Ask questions, what is the reserve (sometimes they will tell you, sometimes they won't, what is the balance of the mortgage, if your are the high bidder will you get the property free and clear of any liens
What is the first deposit, what is what is the second deposit
is there interest on the high bid from the day of sale to day of settlement (this could be very expensive), there are times when due to a legal situation, the trustee can't settle the property immediately and it may take 6 months or longer, this means that you may be paying 1% or more per month until settlement.
How soon will you have to settle, 5 days, 10 days, 30 days
Can you have possession immediately (you should get this, it will give you a head start on cleaning the property up and prepping for re-sale or rental
Will the auction company disclose any known defects (septic system failure, well failure, termites, water problems...etc,
Ask for a copy of the auction contract and forms you will be required to sign and read every word......make sure you understand what you are committing to do (many of those contracts have hidden clauses that will hurt you
Will they accept your business or personal check (try to get approved to use your checks (most auction companies require certified funds, if that is a requirement, get a certified check made out to you)
Make sure you have good comparable sales data, you need to know what the value is and what you can sell it for immediately if you have to, try to understand the repair cost also
You may want to consider selling the property (assignment) before settlement
Set your high bid price and don't go higher
Check out your competition at the sale, most of these folks are professional buyers (predators) and will out bid you or give you a chance to out-bid yourself......be careful, try to get to know them (you will see them at every auction sale, they are really good at what they do. Ask for their business cards, learn about them. You will be better prepared the next time they bid against you. You may even want to get them to be your mentor.
Check MLS to find any history of the property; this will give you some clues as to what price the auction company is looking for. Talk to the agents who had the property listed. Ask them questions, who is the seller, what was the problem, how long was it on the market, how can you reach the sellers, let the agent know that you'll pay them a fee if they help you buy the property before the auction.....this will eliminate your competition
Be pro-active, do your research, don't just show up....you need history of the property before you bid, do this and you will succeed, do not do it and you will over-pay
Visit the property before the auction sale, try to find the owner, ask questions (sometimes you can stop the auction by making an offer to buy directly for the owner (always check the local laws about buying directly from owners in foreclosurs, you would be safe by using an agent, called arms length agreement, you pay the agent for this service.
Talk to the neighbors, find out what's going on, the history of the property and the ownership, neighbor usually love to talk and will give you some great insights
Is the house vacant, for how long, can you get inside to do an inspection
check the public records, what liens are on the property, what violations, back taxes, water bills etc
If buying directly form the seller (using an agent), make sure you have a lien and title report to protect you from buying a property with other liens or judgements
Other ideas for you that may help you understand the auction business better:
Contact auction companies (always talk to the principle of the company).
Do some research of that company; what do they primarily sell, stuff (assignments), antiques, coins, real estate, foreclosures etc.
attend their auction, get to know them
At my company we have auctioneer associates, their job is to run my leads and to create leads that we can sell at auctions. They are on commission only
When you talk to the owner of the auction company, let them know that you are actively involved in real estate and would they consider hiring you on a part time bases and pay you a commission for every transaction you bring them.
Make sure you have something in writing as to the amount they will pay you.
Ask if you can become an auctioneer associate, ask if they will train you and if you can your their facilities to help get leads
My auctioneer associate's average earnings is about $90,000 a year
Use the Control and Roll system to increase your income.......that is control a property at a price that you feel you can sell for more, put it up for auction (while working for the auction company) and sell it for more, ( Example: your contract offer ----with special clauses and disclosures---is for $100,000, you book the property with your auction company and sell it at auction for $115,000, you make $15,000 equity plus 25% of the buyers premium commission paid to you form the auction company. This means you have a great opportunity to DOUBLE DIP your fees and equity. Do this a few times a month and you'll make a ton of money.
What if the property does not sell at auction? here are some ideas.....
If it is a Trustee sale, go immediately to the office of the trustee with your written offer to purchase the property.
Make sure your offer is all cash with no contingencies
Make a copy of your deposit to be attached to the contract offer
Let the bank know that a $5,000 deposit is being help by your lawyer or title company
With your offer attach a HUD-1 to show the bottom line the lender will receive (remember you are paying all settlement charges). Ask your friendly title company to create a HUD-1 for you
With the offer attach pictures of all the ugly things about the property; the landscaping, broken windows, bad walk ways, bad fencing, green water in the pool, any nasty pictures of the interior, the estimate amount of renovations needed
Write a cover letter stating what you will do if they accept your offer; secure the property, insure the house, pay all cash, take care immediately of the roof problem, protect and secure the house form squatters, have the electric turned on, notify the water department, notify the local police to keep an eye out for vandals...etc.
Since no one at the bank can make a decision as fast as you want, put a drop dead date in your offer. If this offer is not accepted or countered by January 1, this offer becomes null and void and all deposit help by the title company will be return
Remember BANKS are NOT human.......they are machines.....they don't really care about you or your money, sometimes I think they don't care about the house, there are too many levels in banks for anyone one person to make a decision (unless it is a small local bank or S&L).
Send all your correspondence by certified mail, receipt requested
You should also understand that banks usually do not have legal ownership of the property being sold at a trustee sale and that the final ratification is not completed until the sale is advertised and a judge sign the documents. This means, even after a sale at the auction, the door is still open to you to stop the auction with the cooperation of the the seller. More on this at one of my posts or blogs.