Real Estate Investor · Cleveland, OH · Member since 2010 · 31 posts · 18 votes
Is it me or is it harder to find good REOs in the last couple months? I'm looking to buy a few properties to flip and have had a hard time lately. Seems like REOs became more expensive while the retail market stayed the same or even got worse. This obviously creates a problem if you're flipping.
Maybe I'm not looking hard enough. Anyone having the same experience?
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
15y
I don’t think it’s the banks. In my view, the problem lies with demand.
Not three hours ago I received a call from someone who wanted to meet and show me his business plan, in anticipation of borrowing money. (A business plan is always the tip-off.) After a brief conversation, I learned he has no deals and no money, but a plan to get into flipping. He wanted to borrow the purchase money from me (100%, naturally) and borrow the rehab money from “his investors.†Of course, I politely refused.
I’m receiving more and more of these calls in addition from those who are buying at over 75% of ARV using some pretty severe hard money. Last night at a RE club we met someone who is flipping two houses with two loans each and said she will likely lose money. She shared that regretfully, she wanted to get in so bad, price didn’t matter. I know the room was filled with many like her.
Five years ago it was no money down on pre-construction. Today it’s REO’s and short sales. I really believe we’re in a small flipping bubble that won’t last for everyone. Meanwhile, the wannabes and over-payers are driving prices to ridiculous levels. The banks, which seem to have an infinite supply of shadow inventory, could fuel this bubble for a long time. As demand increases however, I can see them releasing more inventory thus stabilizing or reducing prices. Or, the neophytes will simply put themselves out of business causing prices drop. Problem is, there seem to be a lot of neophytes.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
Mike, not sure about Nationwide, but your problem is consistant here in SO CAL, home of the REOs and here is my opinion of what has been going on.
Banks have been slow to get the REO's to market.
Banks took a more relaxed/delayed (for lack of better terms) process to foreclose during the holidays (Nov./Dec)
Many banks for the last 6 months have been testing the market and pricing even the messed up homes at full retail value.
Trustee sales over the last 6 months got very VERY competitive and investors were bidding up homes above 80% of value, this caused the banks to try pricing REO's higher.
I have no idea if I am correct or not, but I do know that times have been tougher to lock great deals so far this year.
That stated, I see a slight pick-up now and for whatever reason, I am now getting deals again.
Just locked a property for $250k with only $10-$15k in rehab and the exit will sell all day long at $400k, $419k likely. I'd say that is a grand slam deal.
Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
15y
Originally posted by Will Barnard:
Just locked a property for $250k with only $10-$15k in rehab and the exit will sell all day long at $400k, $419k likely. I'd say that is a grand slam deal.
Real Estate Investor · Cleveland, OH · Member since 2010 · 31 posts · 18 votes
15y
It seems to be a problem with pricing and not necessarily quantity, although I know the two are related. There are still plenty of REOs on the market, but banks are not as aggressive with the pricing as they were even 6 months ago.
Hopefully that will change as they start dumping more inventory. The time of year probably also has something to do with it.
On that note, if someone has a good deal in the Cleveland area, let me know. Looking to buy 4-5 properties with cash in blue-collar suburbs.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
15y
In my experience, REO availability and the seller's desperation to get rid of the inventory, tends to be very cyclical in nature, at least since the recession started. Certain times of the year tend to be much better than others.
Again in my experience, December through February tend to be great times to pick up great deals, March through June tends to be much worse, July through September tend to be decent and then October and November tend to be dismal.
Could be my area or just my perspective, but that's what I've seen.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
15y
I don’t think it’s the banks. In my view, the problem lies with demand.
Not three hours ago I received a call from someone who wanted to meet and show me his business plan, in anticipation of borrowing money. (A business plan is always the tip-off.) After a brief conversation, I learned he has no deals and no money, but a plan to get into flipping. He wanted to borrow the purchase money from me (100%, naturally) and borrow the rehab money from “his investors.†Of course, I politely refused.
I’m receiving more and more of these calls in addition from those who are buying at over 75% of ARV using some pretty severe hard money. Last night at a RE club we met someone who is flipping two houses with two loans each and said she will likely lose money. She shared that regretfully, she wanted to get in so bad, price didn’t matter. I know the room was filled with many like her.
Five years ago it was no money down on pre-construction. Today it’s REO’s and short sales. I really believe we’re in a small flipping bubble that won’t last for everyone. Meanwhile, the wannabes and over-payers are driving prices to ridiculous levels. The banks, which seem to have an infinite supply of shadow inventory, could fuel this bubble for a long time. As demand increases however, I can see them releasing more inventory thus stabilizing or reducing prices. Or, the neophytes will simply put themselves out of business causing prices drop. Problem is, there seem to be a lot of neophytes.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
15y
We are seeing the exact same thing as Will & Jeff mentioned. We worked hard and had a good December and January and have had a great start to the year.
Now that we are back trying to buy... retail price hasn't moved or dropped slightly and inventory is growing, but pricing is too high for me to make an acceptable margin.
I see a lot of investor owned sales where the investor will be lucky to break-even.
The million dollar question is how things will shake up. It seems for every investor who 'gets hurt' two new ones come in ready to pay-up.
Investor · Fort Wayne, IN · Member since 2009 · 391 posts · 257 votes
15y
We are having the same issues here in Ft Wayne. Banks do not seem to be nearly as desperate to unload inventory.
I tried to get some deals in December and they would not budge. I put offers in on 15 Dec for a 30 Dec cash close. The banks response was only to come down a percentage or two off of the asking price.
Interestingly though, one of the banks came back to us in January and offered enough of a discount to take the deal. That one is now rehabbed and we will put that one on the market next week.
We are finding that we have to be persistent and make offers on multiple properties to get the houses that we want at the right price.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
Jeff points out an interestinjg perspective, one that I agree with but did not mention in my original thoughts.
I think the mass "overpaying" has really hindered us savvy investors from getting good deals in quantity. Overpaying at trustee sales (which I did mention) and overpaying once they are REO's just to "get into the game" is foolish at best.
I am hopefull that enough will get burned and stay out and the balance wanting to get into the game can be educated by us all to not make the same mistakes the rest of the neophytes did.
Costa Mesa, CA · Member since 2010 · 14 posts · 0 votes
15y
"I’m receiving more and more of these calls in addition from those who are buying at over 75% of ARV using some pretty severe hard money. Last night at a RE club we met someone who is flipping two houses with two loans each and said she will likely lose money. She shared that regretfully, she wanted to get in so bad, price didn’t matter. I know the room was filled with many like her."
So true. people overbidding daily and losing. but they were so happy they got the "reo" ... i am constantly calculating how much some of these "investors" are losing as i see their property dropping in price and margin diminishing to even and worse negative.
Flipper/Rehabber · Seminole, FL · Member since 2010 · 859 posts · 316 votes
15y
I have not noticed much of a difference down here recently. Of course we have a large amount of inventory to sell through before we have to worry about that.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
15y
Originally posted by Brandon Paul:
So true. people overbidding daily and losing. but they were so happy they got the "reo" ... i am constantly calculating how much some of these "investors" are losing as i see their property dropping in price and margin diminishing to even and worse negative.
This is a big problem and newbies need to understand that getting the REO under contract and closing is only half the battle. It makes no sense to get an REO if it will lose money and therefore, one must strive to educate themselves properly to get these REO (or any other property for that matter) at prices which can turn a profit and not a loss!
Real Estate Investor · Glen Allen, VA · Member since 2008 · 74 posts · 43 votes
15y
Ditto. Seeing same thing here in central VA. Last year, I exclusively bought REO's - literally stole about 5 properties from the banks, and a few more well under 70% ARV after all my rehab costs.
This year, not seeing squat. Going back to marketing directly to sellers because there's nothing on MLS to look at.
Real Estate Investor · Cleveland, OH · Member since 2010 · 31 posts · 18 votes
15y
I'm thinking that one of the reasons we're encountering this is because more investors (both pros and newbies) are purchasing properties for long term holds. They can afford to pay more for the property and spend less on rehab. I do both rentals and flips and know that there is a big difference in what I would accept for a hold rather than a flip.