I have the opportunity to buy 200 spec homes built by a national builder. They are at 70% LTV. Is this a good value? It is in a major city.

I wonder why a national home builder would give away 30% of the value of a house and probably almost all of their profit? The answer, of course, is they wouldn't. I would suggest that you carefully consider the CURRENT value of the properties and the market demand for them. You can bet that the builder would have sold them at the higher price if they could!

Mike

I have the appraisals. Houses are still selling just taking a little longer. Most builders & investors when sitting on inventory will sell at a discount to close out.

Yes, everybody wants top dollar but sometimes it is smarter to cut profits to move on.

Although you might have appraisals that justify the "70 cents on the dollar" assessment, I would argue that this isn't enough for the upside risk (what if prices decline before you liquidate) or volume you are considering (There are guys on this forum that don't budge unless they can pick up 1 property at this discount value---you are considering the purchase of 100s).

Here are some random ideas...

If appraisals were prepared for you by the sellers, I'd seek a second opinion---I'd try to get a replacement cost appraisal to determine how close you are to cost on this particular deal. I'd research the deed records to determine land costs.

Hope this helps.

Regards,

Scott Miller

What if comps in the neighborhoods support FMV?

As presented by who---somebody impartial to the transaction?

If the comps you received are from a third party that is detached from the dollars signs, then it appears that the numbers could make sense by market standards TODAY, but this doesn't address the concerns of ROI and the incentive that should be afforded you for the volume you are considering.

If you can buy 1 or 2 properties at 70 cents on the dollar (and these deals are out there in abundance), why would you want to use the same ratios when buying a couple of hundred?

ROI is a personal decision---if you are happy with 30% based upon today's realities, then go for it...Personally, I would want more of a buffer to account for the unknown and worst case scenario (value deflation and or extended holding periods).

Originally posted by "shayprop":
What if comps in the neighborhoods support FMV?