REO Start to Finish

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REO Start to Finish

Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

This thread is about a recent REO deal I have done from start to finish (well, finish line is in sight) to help educate and inspire others to do the same.

Property details: 4+3, 2300 sq. ft, pool, spa, view, quiet street, great neighborhood, huge open kitchen with island.

This was an MLS listed property (I don't do these often) which was listed too high and received very little activity due to the over pricing. Long story short, I was able to contract it for $266k and I have since put $40k in rehab into the property.

Original estimated rehab budget was $35k so $40k is within the 15% contingency expense I always add on in my estimates.
What created the overage? Pool needed new tile which I did not originally budget for plus the size of the pool replatser job was greater than anticipated. Excess cost $2000
Appliances for kitchen were estimated at the usual $1500 for all stainless steel stove/oven, micro, and dishwasher. Ended up paying $3100 because I used a double oven (GE profile on clearence), & 36" inset range top rather than a slide in combo unit. At the suggestion of my agent, I moved the vinyl fencing seperating the backyard pool area from the front yard and brought it out into the front yard (to increase the backyard size) approx 15 ft. Extra cost $1500. Then there were the usual misc. extras.

Property is rehab complete, placed on MLS at $398,800 and had open house both Sat. & Sun. Received offer yesterday and am in the process of negotiations through counter offers/replys.

Assuming I settle at $390k for this property with current buyer, here are the numbers:
$266k purchase
$ 40k rehab
$ 23k re-sell costs (agent fees + title/escrow + recording)
$ 7k loan interest/costs Took $200k private investor loan at 12% + 2nd investor loan of $25k @ 12% (BP member)
$ 2k acquisition costs - rounded up (escrow/title)
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$ 52k net profit before taxes inside of 3 months! Acquisition close date was Jan 25. so I have until April 25 to close sale escrow and stay inside of 90 days.

Have any questions, ask away, I am hear to help.
- Will Barnard

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Jeffrey K.
Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
15y

I like the gusto Humerto.

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  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    15y
    Originally posted by Will Barnard:
    Does FHA/VA allow the seller to pay for appraisals? If not, I guess a standard seller credit would suffice. Not sure I would like it if I paid for these two items only to have the buyer back out. Then I am stuck with two bills I shouldn't have. Risk vs. reward assessment needed on that.

    Yes, FHA does allow sellers to pay for the appraisal(s). In fact, we often do this for our buyers when they use our broker.

    You are going to be taking the risk of losing that money if the buyer backs out or can't get the loan, but if the buyer backs out, I get the earnest money (which will reimburse me for the appraisal costs) and if the buyer doesn't get the loan, then my broker screwed up (this hasn't happened yet).

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  • Chris Wechner
    Real Estate Investor · Waterford, MI · Member since 2009 · 4 posts · 1 vote
    15y

    Good job with adding that padding to your budget. That's never a bad idea to do.

    This [LINK REMOVED]real estate investing article gives that same tip.

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  • John Hicks
    Real Estate Consultant · Amelia Island, FL · Member since 2011 · 35 posts · 0 votes
    15y

    Enjoyed the post as well.

    Good luck in your future endeavors.

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    15y
    Originally posted by J Scott:
    You are going to be taking the risk of losing that money if the buyer backs out or can't get the loan, but if the buyer backs out, I get the earnest money (which will reimburse me for the appraisal costs) and if the buyer doesn't get the loan, then my broker screwed up (this hasn't happened yet).
    If the buyer backs out inside the inspection period (typically 17 days here in CA), then they are entitle to a full refund,so I would not be allowdd to keep their EMD to recoupe my costs in such an instance, I am sure that is the same for you if it is cancelled inside the inspection clause timeframe.

    @Chris Wechner - Thanks for your comment.
    @John Hicks - Thank you for your kind words, good luck to you as well. I hope this site is a valuable resource to accomplish your RE investing goals. We are here to help you.

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  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    15y
    Originally posted by Will Barnard:
    If the buyer backs out inside the inspection period (typically 17 days here in CA), then they are entitle to a full refund,so I would not be allowdd to keep their EMD to recoupe my costs in such an instance, I am sure that is the same for you if it is cancelled inside the inspection clause timeframe.

    My broker doesn't order the appraisal until the due diligence period is over, so that's not an issue for us.

    And we only give our buyers 7 days for due diligence, unless there is a VERY GOOD reason for it to be longer. If a buyer can't arrange all their inspections within 7 days, they're not serious enough about buying the property and I'd rather find another buyer. That said, I've never had a buyer complain about this.

    Plus, I couldn't imagine taking the property off the market for 17 days, just to have the buyer get cold feet and at the end say, "Nope, I'm no longer interested."

    My goal is to NEVER have a property off the market for more than one weekend without some assurance that I'll be reimbursed for my lost time (for example, keeping the EM). Btw, we've had several agents thank us at the end of the process for forcing things to move quickly...they get their commission more quickly and ultimately, there is much less chance that some random occurrence keeps the property from closing...

    Lastly, I'll never keep a buyer's EM if they use my broker and my broker can't get the deal done (assuming the buyer doesn't screw something up). If a buyer is willing to use my broker, it's no risk to him...if my broker screws up, I'm happy to take the loss...

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    15y

    [quote+J Scott]My broker doesn't order the appraisal until the due diligence period is over, so that's not an issue for us.

    And we only give our buyers 7 days for due diligence, unless there is a VERY GOOD reason for it to be longer. If a buyer can't arrange all their inspections within 7 days, they're not serious enough about buying the property and I'd rather find another buyer. That said, I've never had a buyer complain about this.

    Plus, I couldn't imagine taking the property off the market for 17 days, just to have the buyer get cold feet and at the end say, "Nope, I'm no longer interested."

    My goal is to NEVER have a property off the market for more than one weekend without some assurance that I'll be reimbursed for my lost time These are all very excellent things and I am glad they work for you there in GA, unfortunately, if you were doing this here in CA as I am, you would not be able to contract buyers under those terms, you would likely lose most of your buyers pool. 17 days is standard here, I don't like it, but am willing to give it if my price is given to me. If it is not, I have some negotiating room, either they only get 10 days or they come up in price, or, etc.

    CA is obviously a different animal than in GA. If all goes well with me three large investments I have going (other than my other 4 typical ones, I will strongly consider working with you in GA, if that is agreeable to you. I could be interested in partnering with you, sending you a few hundred thousand (which seems to go a very long way over there) and let you run the deals. Perhaps another JV deal will be completed between two BP Members in the future for the success stories thread! You and I appear to almost always be on the same side of the fence and you run and operate your flip business very similar to how I do it, making us a good potential fit down the road.

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  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    15y
    Originally posted by Will Barnard:
    If all goes well with me three large investments I have going (other than my other 4 typical ones, I will strongly consider working with you in GA, if that is agreeable to you. I could be interested in partnering with you, sending you a few hundred thousand (which seems to go a very long way over there) and let you run the deals.

    Let's definitely chat at some point...

    Unfortunately, I currently have about $200K sitting on the sidelines looking for deals, as I can't find as many good deals as I would like in my area (I'm very conservative)...

    That said, I've been considering branching out to new areas or higher-end properties, so let me know if you ever want to chat...

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    15y

    Sounds good Jason, any time.
    Will

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  • Dustin Gott
    Involved In Real Estate · St. Paul, MN · Member since 2010 · 65 posts · 15 votes
    15y

    Hey will just wanted to make sure I understand correctly: Your inspection has to be completed within 17 days of acceptance? Here in MN we do sometimes as little as 3 days and 1 or 2 days to remedy anything found. How long (assuming im understanding what you are talking about) does it typically take to close from acceptance of your PA till deal is closed?

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    15y

    Dustin, when I purchase via REO, my inspection period is usually very short if not any at all, because I am trying to make my offer look as good as possible. When I am the seller and on the exit side, THEN the standard inspection period (contingency period) is 17 days for my end buyer. During that time, they get the inspection and appraisal ordered and then have the option to ask for repairs, if any. Typical escrow periods for standard sales here is 30 days, and some ask for 45 days as some lenders take longer, or certain situations need it.
    I always counter the 45 day ask time for escrow periods with a 30 day, or use my lender, or release of EMD after inspection period to protect me.

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    15y

    Update: I am in escrow and under contract for the exit on this REO. After 3 weeks on the market and only one offer which did not work out in negotiations, I dropped the price $9k and got an offer shortly after. After receiving the offer, I countered with a price only $2k below new ask price and had them use my lender.
    I am on the home stretch now and the finish line brings the paycheck!

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    15y

    Update (although a little late as this closed back in June)Deal closed.

    The second buyer also failed to perform and I had to place this property back on market, drop the price 2 more times for a total price reduction of $40k. At the end of the day, the property still turned a profit, but a small one as I had to give up $40k in profit to price reductions. (Ouch!!) This happens on occassion, they key factor I want people to understand is when such an occurance takes place, it is very important to get your price reductions done ahead of the market trend. In other words, if I were to drop the price $10k, then wait a month, then drop again another $10k, after 4 months, I would have dropped it $40k, yet the market was dropping so I would have only been keeping up with the market decline. The key factor is to make 410k drops weekly until it gets sold (in the case of this home and other scenarios like it) so that the price reduction drops faster and below the market drop. This way, your list price is at the lower end of the comps rather than at the high end. In a depreciating market where buyers are few and further between, it is important to price your properties at the lower end of the comps to get the best exposure and get the property sold. It is better to take a small profit than to hold on for a higher price, only to have to continue to drop with the market and have a loss as the end result.

    I will post about another rehab I have upcoming as a follow up to this one.

    Happy Investing to all.
    - Will Barnard

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  • Kim Walker
    Orlando, FL · Member since 2013 · 1 post · 0 votes
    13y

    Good Afternoon Mr. Barnard,

    My name is Kim Walker and I live in Orlando, Florida. I am new to
    BP, and I am very interested in getting started in investing. When I was married my husband and I had bought and sold several properties. Unfortunately he would handle all the business for us, so I never learned how he found these places. The only thing I was involved with was the labor part of fixing them. Now that I have divorced I need to rebuild on my income. I have recently enroll in my real estate class and will complete my coarse in June, but I would like to get a jump start on looking for a place to flip. I have started asking people I know to help with the money to get started and hope that something pans out. Do you have any suggestions as far as how to obtain listing of investment properties, and how to go about getting a private investor to put up the money to do so? I would greatly appreciate any suggestions you might have. Thank you, Kim Walker

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  • Wayne Woodson
    Investor · Nashville, TN · Member since 2009 · 483 posts · 228 votes
    13y

    Will Barnard how did you close on/ fund this deal?

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Wayne Woodson:
    Will Barnard how did you close on/ fund this deal?
    This is a very old thread from back in 2011, I checked the first page of this thread to try and remember this specific deal as it was so long ago and many since then.
    This deal was funded with a private money loan along with my own capital as most of my deals are fixed that way.
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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Tough to answer these questions in just one post. I would suggest searching through the forums for that specific topic as both have been discussed in detail on the forums.
    As far as finding deals, you can get access to MLS, you can direct market to motivated homeowners, you can build relationships with agents and brokers who can provide inventory, you can buy bulk, and the list goes on.

    As far as finding private investors, I always recommend that one start with those they know - family, friends, co-workers, dentist, doctor, CPA, neighbor, parents from kids school, etc. I would also suggest learning all about self directed retirement accounts. By becoming an expert in this arena, you can teach others about the option and how to do it. Coincidentally, once they do, they likely invest with you.

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