Investing during the boom vs. investing now . . .
Joshua D.Pro Member
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votesHey all -
I was contacted by a reporter who is working on an article about investing during the boom vs. now and she is looking for feedback. I make no promises, but jump in and leave your feedback and perhaps we can get you in print (large market newspaper).
--Where do investors typically find future investment properties? Auctions? The resale market? Both?
--What’s a typical deal like?
--What’s the expected profit now?
--What are some limits investors face now that they didn’t have to face back then?
--Who’s buying these rehabbed investment properties?
--How are these investors finding buyers?
So . . .
Not sure what you mean by 'future' investment properties, but I will let you know where I am getting deals. The REO ballroom auctions are a waste of time. They have figured out how to get maximum dollar out of these properties and almost exclusively sell to FHA buyers which is in their best interest. Even if an investor 'wins' the bid, more often than not, the bank comes back and rejects the bid.
Court house auctions have a lot of action. Competition is very tight and it is an experts game. Uneducated buyers really take a lot of risk going down there with a pocket full of cashier's checks. Margins are not very good there either. Even the experts are getting less than 20% on their money.
Short sales can be profitable, but this has turned very risky with the FBI calling short sale deals where investors flip these properties for a profit fraud. If I buy a short sale listing, I am holding it as a rental.
REOs are the low hanging fruit in this market. The most successful investors have teamed up with REO Brokers and are fed the best deals. It is really a relationship game. However, good deals can still be found by hunting in the MLS and making lots of offers. The majority of my deals actually come from equity sellers. Even in this market 30% of the houses in the country are free & clear. We market to these property owners and do very well focusing on this niche.
I'm happy to answer these questions, as I'd like to hear from other active investors as well -- plus the shot at getting published ;)
1) Deals are found in multiple avenues as they need to be. For me this includes auctions (a recent purchase was where the bank auctioned a property that they wanted to dispose of), MLS, marketing directly to targeted homeowner lists, and wholesalers.
2) Experienced investors are getting the same deals as always. The difference is that if it's not priced right out of the gate, the holding time could be much longer. Each area of town is it's own micro economy and supply/demand can be different in each at different points in time. But as a general (very general) rule, we're using a 60-65% LTV (minus repairs) for our purchase price (depending on our money costs)
3) The difference now is that the end product isn't necessarily flying off the shelf. In the boom, anyone could enter the game and make money. Now, I would highly recommend you being fully aware of the costs/risks/market/etc. before acquiring a deal.
**You can still have your product fly off the shelf, but your product has to be of a higher quality at an equal or lower price than the competition**
Not sure what you mean by 'future' investment properties, but I will let you know where I am getting deals. The REO ballroom auctions are a waste of time. They have figured out how to get maximum dollar out of these properties and almost exclusively sell to FHA buyers which is in their best interest. Even if an investor 'wins' the bid, more often than not, the bank comes back and rejects the bid.
Court house auctions have a lot of action. Competition is very tight and it is an experts game. Uneducated buyers really take a lot of risk going down there with a pocket full of cashier's checks. Margins are not very good there either. Even the experts are getting less than 20% on their money.
Short sales can be profitable, but this has turned very risky with the FBI calling short sale deals where investors flip these properties for a profit fraud. If I buy a short sale listing, I am holding it as a rental.
REOs are the low hanging fruit in this market. The most successful investors have teamed up with REO Brokers and are fed the best deals. It is really a relationship game. However, good deals can still be found by hunting in the MLS and making lots of offers. The majority of my deals actually come from equity sellers. Even in this market 30% of the houses in the country are free & clear. We market to these property owners and do very well focusing on this niche.
I think Aaron did a great job with his response. If a comparison for a longer period of time (say 40+ years) then I could be pretty helpful. I've seen many changes and concepts come and go in my experience of buying over 1000 sfrs in 40 years. Rich
p.s. I don't really care about being published, would even be happy doing it anonymously since I'm not peddling anything.
My experience is very similar to Aarons.
We have purchased quite a number of rental homes over the last 3 years. We purchased all through the MLS and almost exclusively REO's. We did bail out a few investors who just wanted out and they were willing to sell at really good prices. We were able to get one package of homes prior to them hitting the MLS. We had purchased enough homes that this particular broker gave us access to the homes prior to listing them. The prices that we paid were good but not that much better than what we were used to paying. It was nice to have more time to review the houses prior to them being listed and then to close 6 houses all in one closing.
We have also been rehabbing homes to resell. We have purchased all of these through the MLS with a mix of REO's and estate homes. Many of the estate homes are initially listed at full market value but cannot compete with the other homes on the market. The heirs eventually realize that they do not want to invest another 20-40K to make their homes competetive and we have gotten the homes at enough of a discount to make a profit.
Our profit margins are right in line with what Aaron described: between 10-20% depending on the deal. We are generally turning the homes in about 4 months because lenders all seem leery of the 90 day rule and do not want to see a contract prior to the 90 day point. We have held several deals for weeks because the lenders are so afraid of the 90 day criteria. Then, they still make us adhere to the pre 90 day rule criteria for 2 appraisals even though we are not inside 90 days. There are times that we have actually purchased a property and just waited 4 to 6 weeks to get started so that we would not have to be concerned with the 90 day rule and to line up with more favorable selling times.
We list our homes on the MLS. Our buyers are almost exclusively FHA buyers. We generally target the price range for first time home buyers although we have done a couple of homes that our buyers have been on their 2nd or 3rd home.
I purposefully did not read any of the responses before I posted this so I would not steal any ones thoughts, so here are mine:
--Where do investors typically find future investment properties? Auctions? The resale market? Both?
Both. Most investors I have interacted with attempt to look wherever possible for future properties. The current market in most areas provides a range of methods for investors to find properties that meet their criteria; foreclosure auctions, estate sales, short sales, MLS, etc.
--What’s the expected profit now?
We try to make at least 20% on our properties but we consider several things when setting our goal, especially scope and time of the project. We are always willing to take a smaller profit on a property that requires very little work and we can turn in a short period of time.
--What are some limits investors face now that they didn’t have to face back then?
Financing! My company, K&V LLC is lucky enough to have a great relationship with a regional bank, which has helped us tremendously. Even with this relationship we are limited in the financing we can receive, something we would not have faced as quickly several years ago.
--Who’s buying these rehabbed investment properties?
FHA buyers make up the large majority of buyers in our market. While it is good to see the qualified buyers, it is somewhat disturbing that so many buyers are only able to purchase a home with an FHA loan.
--How are these investors finding buyers?
Our buyers are coming almost exclusively from the MLS. My business partner, Ryan Kenimer, is a licensed real estate agent in Kentucky, so he handles the MLS listing and sale of our properties.
Having been investing the last 10 years I can tell you there are several differences.
Hardest Part pre crash was finding a deal that made sense as listings had multiple offers inside of 24 hours most times
Hardest part post crash is investor financing
Easiest Part Pre Crash Investor Financing
Easiest part Post Crash finding a deal
Rental Rates are fairly stable if not rising in single family homes
Quantity of renters is much higher post crash
Pre Crash Everyone loved real estate
Post Crash everyone hates Real Estate
In the end everything is reverse of where you would think it should be
It pays to go against the grain.
For the record I like investing post crash :-)