Real Estate Investor · Gainesville · Member since 2009 · 47 posts · 2 votes
I've read and re-read this entire REO forum, and the entire wholesale forum. I've picked up some amazing information, some cool approaches and techniques of the trade. I understand the general approach of REO wholesales, and closing methods. However, I feel that I may not have enough contacts of both potential buyers and REO agents themselves. I guess the true hardest part is finding a good deal that will 'sell itself' to an end buyer. Some buyers only consider deals that are so low in cost, they leave precious little room for myself as the wholesaler, if any.
Maybe this question has an obvious answer, but how does one find a truly good deal to contract on? I know condition, current estimated value, ARV, price per foot, costs of repairs will all contribute to the top price I can bid. Is there some other thing I should add in to this overall method?
I can't shake the feeling that there's something else I could do to maximize my deals, and I don't want to alienate any reliable suppliers or buyers by not being able to either acquire or close, for certain! Any guidance would be amazingly appreciated!! I know Steph and Everlasting are both phenoms with this branch of RE, and I'd love to learn from either one of you if at all possible!
Barring that, should I simply contact my 'potential buyers' and tell them I'm going to be supplied with low cost homes, then get in bids on some REO's and hope they are there to close? Or should I get contracts first and then look for buyers? I'd prefer to maximize a buyer list first, but that all begins with relationships and trust, both of which are hard to establish at first. All insights welcome!!
First you want to have a buyers list first especially if you are dealing with REO's.
Now to find a good REO deal you'll have to cherry pick the current REO inventory where you plan on investing. By doing due diligence you'll come up with a good deal.
I think you may be over-complicating things in your mind..
Once you find some active cash buyers, and you know exactly what type of deals they are looking for.. then go and find deals that fit their criteria. Just make sure that when you are making your offers, you are leaving enough room for you to make a profit.
Once you have the buyers lined up and you know what a good deal looks like to them, it makes it much easier when you go to make your offers.
That's how I approach it, anyway- I line my buyers up first and then work backwards...
Thanks for the replies! Steph, you're right - I may be overcomplicating things. Perhaps it wouldn't be so intimidating if there weren't non-refundable deposit money involved, and possibly alienation of the REO gatekeepers if a close doesn't happen. Seems like REO deals are 'all or none'.
Are you donig REOs strictly in your neck of the woods?
Are you the touchy feely type that needs to drive out at night to see your investments? Believe me here I am not belittling a personal need to make that happen. I am merely trying to gage your personal risk factor.
Would you be open enough to Buy & Flip REOs all over the US of A?
Here's another zinger the risk is the same next door or 3,000 miles away. But you say I won't have a Power Team in place in remote locations. First, I say, determine your market place where you plan to do business, not just one place but 5 to 10 places. Then have Power Teams in those five to ten places with alternate players recommended by the team. For example you have a painter in Houston, TX (greate area for REOs) on your Houston Power Team then out right ask the painter, "Hey suppose you are busy when one of these projects in Houston opens up for me, who would you recommend?"
Here's another thought you don't need much of a Power Team if you are not Rehabbing. Rehabbing takes time and ties up money.
You do NOT plan on living in this property as your "dream home" so don't become personally attached to it. Buy it, Rehab it and Flip it then wash and rinse and do it again. Or better yet, Buy it and Flip it "AS IS" and move on.
Do you have access to a nationwide web site that lists REOs? If not, subscribe to one.
ForeclosureRadar.com is a $50 a month subscription and it is only for CA counties. In Ca try www.HudExchange.com also. If you are nationalwide minded try RealtyTrac.com Foreclosure.com or 4closureAlert.com <-cheapest at $30. Ask around as to what your Investment Club and Cash Flow Club folks use as far as Web Sites go in locating REO, PreForeclosuer, FSBO, Tax Liens oppurtunities.
I like Steph's approach also which is great provided the buyer whose criteria you use does not tie up his/her money in some other deal while you are trying to close yours. In cases like that make sure you have a "Subject To" clause in your Purchase Agreement saying no harm no foul if I can't find funding within ten days. You might get your potential buyer to agree to set aside the funds sit back and enjoy the ride while you do all the work.
But think of this why would a potential buyer apparently that you know pay you for a property that he can be sure of in his mind he is paying maximum dollar for. Greed is a deal killer always leave something on the table for the next guy.
So apparently you aren't using your own money, but rather OPM. Wouldn't it be better if you approached your buyer(s) in this way. Hey I'm putting together a Real Estate Investment LLC that "Buys and Flips" REOs any contributing Investors will earn a Guaranteed 15% Interest per year. Pay more or less interest rate depending on your comfort level. Try to make sure it is a larger interest rate than they can earn in the Stock Market / Bonds / Mutual Funds. I am not talking about creating a REIT here just a business that offers returns to its investors. Talk to an LLC Lawyer in your state as a consultation to figure out what laws come into play.
Make a trip to your State Capital, Rep & Dem Reps, Federal Gov't and their Rep & Dem Reps on the internet or by phone of course to find out what grants might be available to you as a Vet, single black mother, young business man, retired old guy, whatever you might qualify for to pump up your business.
So think about how much money you need to play with to "Buy & Flip" REOs. Say you want to buy 15 to 20 REOs a month at $10K a door and you do not plan to tie up your money for more than 30 days. Your operating costs are Title Ins on a $10K property & Hazard Ins $45 a month on a $20K property. Notice I said Hazard Ins on a $20K property because that is the smallest selling price for you. So you are buying low at 10 to 30 cents on the dollar and selling low at 20 to 60 cents on the dollar, but you are doubling your investment with every sale. Now you don't need your investment buddy as a buyer so you can go national and post your properties on Postlets, Craigslist, eBay, RealNet.com and you can always use the MLS of the RE Agent that listed the property on the Web Site. Even more so you can go to those places and say post a hypothetical home and find potential buyers. I.E. Looking for potential motivated buyers seeking single family dwellings at incredible discounts blah, blah, blah.
So your operating costs amount to $400K for two months at $200K a month rolling every two months. Eventually as each $200K month doubles you'll have more than enough returns to pay for the $400K at 15% a year to your investors.
You can even start cheaper than $400K only buy 5 houses in your closest market with a starting investment of $50K then buy another 10 at $100K when you clear your inventory doubling your holdings every time you clear your inventory.
You are probably saying to yourself where the heck can this guy find properties under $10K. Well I deal with properties between $7 to $18K clear title definite rehab to buy and flip at double my purchase price. The folks I work with have been doing it for 21/2 years.
If you are a wholesaler who aims at other investors, finding a deal is not that easy. Most banks have three streams of disposing inventories. 1. Bulk buyers, 2. Courthouse stairs (Auctions) 3. Real estate agencies.
Unless you are a bulk buyer, you wouldn't have an access directly to the bank. Auctions are possible but only recommended to those who are experienced.
By the time properties arrive at the RE agency, the real good deals are snatch by those who close to the plate, the relators themselves, their colleagues, their buddies, etc.
However if you are a flipper, meaning buying, rehabbing and selling it to retail buyers, it is a different story. There are many good deals out there, but you must know the true ARV of the property otherwise you'll pay dearly. You may also need to hold you financial breath longer. You cannot just find a buyer and then rehab. Retail buyer usually lack the imagination and showing them a house that you see a great potential when it looks like a train wreck won't do any good.
Like Kenneth said, there are lots of sub $10K houses out there. You can find a house for $7,000 add to it another $10,000 in rehab and you probably could sell it for $25,000 pocketing $8,000 in profit.
BTW, if you find the house now, finish rehab by March, and you are ready for the spring sale.... :wink:
I think you would be better off starting out with private sellers rather then REO's. You can still work it the way Steph explained, but you won't have to put down a deposit, you can use your contract w/contingencies, and in the worst case scenario, if you have to back out then your reputation isn't ruined amongst real estate professionals.
Once, you get good at locating deals for investors and you know what a good deal really is, AND, you have some capital or a way to finance the REO if you can't wholesale it during your option period, then you can start doing REO's.
If you are a wholesaler who aims at other investors, finding a deal is not that easy. Most banks have three streams of disposing inventories. 1. Bulk buyers, 2. Courthouse stairs (Auctions) 3. Real estate agencies.
Unless you are a bulk buyer, you wouldn't have an access directly to the bank. Auctions are possible but only recommended to those who are experienced.
By the time properties arrive at the RE agency, the real good deals are snatch by those who close to the plate, the relators themselves, their colleagues, their buddies, etc.
However if you are a flipper, meaning buying, rehabbing and selling it to retail buyers, it is a different story. There are many good deals out there, but you must know the true ARV of the property otherwise you'll pay dearly. You may also need to hold you financial breath longer. You cannot just find a buyer and then rehab. Retail buyer usually lack the imagination and showing them a house that you see a great potential when it looks like a train wreck won't do any good.
Like Kenneth said, there are lots of sub $10K houses out there. You can find a house for $7,000 add to it another $10,000 in rehab and you probably could sell it for $25,000 pocketing $8,000 in profit.
BTW, if you find the house now, finish rehab by March, and you are ready for the spring sale.... :wink:
Hi Eddie,
Wow, $7K property, we flip it for $14K to $20K "AS IS" regularly. Yes, it needds rehab, but we don't do it. Our last batch of 9 homes was disposed of in six weeks.