All Forum Posts by: David Midgett

@Bobby Gillespie - There are hundreds of potential pitfalls buying at the auction.  Unfortunately, most of those are lessons you only learn through experience. You could get a list of 100 things to look our for... and make a mistake not on that list. So be careful. All auctions in Florida are as "buyer beware" as they can possibly be.

Don't buy a house without seeing it and paying for a title search from a local title company. After you've done a bunch of them, you will know what to look for in the title (it is all public record). But starting out, pay a professional.

Just today at our local foreclosure sale, somebody paid a lot of money for a house.... and they bought an HOA lien -- the mortgage is still outstanding. A $75 title search would have prevented that huge mistake.

One practical thing to know - you saw a $200k house go for $135k.  Most newbies say "Man, I could have bought that house for $135,001?!".  Usually that's not true -- the experienced bidders may have been willing to go significantly higher.  You have no way of knowing if that high bidder was willing to go to $150k. 

And a final warning. Especially at a live auction (as compared to online auctions), the people who have made their living doing this for a while will bid aggressively to keep you from joining their ranks. Often to the point that if you do manage to buy something, it may very well be a mistake.

Partnering up with a seasoned investor, or even working for them a while, can be a great way to learn some of the pitfalls without it costing you a lot of money.

@Greg Grant - $90,100 is simply the price listed on the Certificate of Title in the foreclosure case - the price the bank took the property back at auction. In Florida, the banks can disclose a reserve price lower than full judgment, bid with a credit amount all the way to the full amount of their judgment, or mark their reserve bid as "hidden".

So if a foreclosure investor bid $90,099 in the online auction, and the bank's reserve was $300k, then the bank would take the property back with a assumed price of $90,100, even though the amount they were owed was much higher.

In other words, the bank's assumption price is completely irrelevant to your offer.  It is almost always less than the amount of the full judgment (which is principal, interest, taxes, attorney fees, court costs, etc).... otherwise a foreclosure investor would have bought the property at the auction.

Your offer should be based on what you think the property is worth fixed up, how much it will cost you to fix it up, and how much profit you want to make.

But there is absolutely no logic behind bank REO pricing. The asset manager picking a price may have a BPO from an agent, or could be picking the price out of thin air. You have no way of knowing.

Bottom line - your offer should not be based on what the bank was owed. 

@Wendy Gomez, the sweet spot for appreciation right now in Ocala is the $90k-$120k house.  

Typically, our buyer is looking for a 3/2/2 built from 2004-2008, in the 1,200-1,600 square foot range. That's the home a typical FHA/USDA/VA borrower is looking for (which is >90% of the current financing market here locally), and that home has gone up 12-15% per year for each of the past three years.... which is pretty nice appreciation.

Get below that range, however, and you are likely talking about a house that won't pass lender inspections, so you are eliminating most of your non-investor buyers. And the house you've mentioned is either much smaller or significantly older than our target (based on the taxes).

I agree with @Andrew Davis and @Gino Barbaro -- a house in the $50k range is not a great candidate for appreciation many places, and certainly not in Ocala.  

Use the cash flow numbers to determine if it is a good buy-and-hold candidate, but don't count on unloading that house anytime in the near future.

@Daria B..

Why the opposition to well & septic?

Tenants prefer them (no deposits), and most of the small water and sewer utilities around here try to make the landlord responsible for the bill if the tenant skips town... yet they won't give you notices when the tenant gets behind. 

The obvious downside is it is one more system that can malfunction and result in repair bills. But they are pretty easy to inspect on the front side to determine useful life.

But if you are looking for affordable rentals outside of HOA areas AND outside rough neighborhoods, then well/septic may be your lesser of evils. Inside city limits will avoid septic tanks and HOAs... but at our discussed price points won't be in very nice area.

Kind of like the mechanic who says "Good, Fast and Cheap...pick any two".

One thought that might work for you... around Silver Springs the local government has a program to convert over 800 homes from well/septic to water/sewer, to protect the spring-head from groundwater and runoff pollution.

Maybe look for houses within that map that are on well and septic, then apply to have it converted at no cost to you...

David

Denny-

If it is the house I think it is (Juniper address?), the bankrupt owner filed claims for sinkhole damage on most of his houses. Lost all the houses, but made a lot of cash on the claims.

It was a prevalent scam in our area.  Owners getting ready to lose homes to foreclosure were approached by out of town "sinkhole firms", who then filed a one-page executive summary engineering report in the official records, made an insurance claim, and then did a back-room split of proceeds between the engineer and homeowner... with nothing going to the lender.  And the "remediation work"?  Well lets just say it would be hard for you to see any evidence of most of the grouting and pier installation these companies said they performed...  Lots of these guys got $100k from the insurance company and then did less than $2k of actual work...

The major problem is that the tax assessor and property appraiser have to adjust the value of the home to reflect the report stating "can not rule out sinkhole activity". Even if everyone involved knows there isn't a sinkhole.  Even if remediated. And it is almost impossible to get that removed from the property appraiser record. So even 20 years from now, it could be an issue if you go to sell the house.  On the plus side, the property taxes will continue to be artificially very low. 

Again, if this is the house I think it is, there may be no problem at all for a buy and hold investor.  It will be difficult to find an insurer willing to take on the problem. Most have red-lined the subdivision where the house is located as "Karst Sensitive", and won't insure at all... or won't cover sinkholes if they do.

For what it is worth, I bought seven from this auction company last month, all from the same "owner/developer", and the tenants have mostly been good ones.  The auction company and their title company are both easy to work with.

Good luck!

@Andraise Scott

Foreclosures are almost always an all cash-game.

It is a catch-22 for a lender.  They won't want to lend the money to you until you get title. You won't get title until you pay for the property. 

And most hard money lenders won't like your "I could move into it myself" backup plan... hard money lenders prefer "commercial" loans.

That said, you might be able to find a short-term private money partner.

Keep in mind that buying at the courthouse steps is as "caveat emptor" an activity you can engage in as an investor.  You are not guaranteed clean marketable title.

In the past month, I have watched competitors bid on second mortgages, HOA liens, and a partition judgment for mineral rights.... and all of those bidders probably thought they were getting clean, marketable, outright title to the property at our local foreclosure sale.

Beware!

Joe-

We flip lots of houses in Ocala, and I can promise you $50k here is either A) a mobile home B) a house in need of a great deal of rehab work or C) an older home in a less-than-desirable neighborhood.

We bought a foreclosure today for $45k that needs a $20k remodel to be able to flip for $85k.  Its a 3/2, but it is next to a double track rail line, surrounded by low-rent quad units.... and lets just say you wouldn't go to bed without double checking all the locks.

But what exactly are YOU looking to do?  Do you want the $50k house as an owner-occupant looking for long term price appreciation? Are you a buy and hold investor looking for long term cash flow? Are you a flipper?  Your strategy really determines how you should allocate your cash.

But most new investors don't approach investing with the idea of tying up all their cash in a single deal.

With $50k, you could come to Ocala and buy a portfolio of several nice, clean already rehabbed houses, using very conservative leverage, and generate a really nice passive income.

In my experience, $50k in Ocala for an all cash deal sounds like it may be too good to be true, especially for a new investor.

@Account Closed Welcome!

It isn't your competition.... trust me.

City of Ocala and Marion County Code Enforcement Officers take down your signs the first time they see them.

If you put them back up... they start fining you. Starting at $50 for each sign.  

Some people put signs out on Friday evening and collect them Sunday evening on the theory code enforcement doesn't work on the weekend... but YMMV on that one.

Personally, I like having the Code Enforcement guys on our side, so we don't do anything to intentionally get them upset.

You can put up "home for sale", "Open house" or even directional signs without a problem.  But "We buy houses" signs won't work.

@Ashley Gordon Just a tip when you go to your first REIA meeting... know why you are going. Have a specific goal in mind. When someone asks what you do or why you are there, have an answer. Any answer that is honest. Maybe you are looking for a financing source. Maybe you need an appraiser. Maybe you are just there to hear from people who have been there and done that. But "I want to learn to flip houses" works just fine.

Your original post said "we don't know where to start". That's also just fine.  Most people are overwhelmed with the options when they are starting. But if you've really done your homework, you have some ideas of what you may be interested in.  It is not enough to see opportunity as you drive around, and hope someone hands you the road map to wealth.  You have to figure out the specifics for your investing strategy on your own.

As a side note, my personal pet peeve at REIA meetings is the person (usually at their first meeting) who essentially says "I have no experience. I have no money. I have no deal. I have no special skills, ability, knowledge or expertise. But will you partner with me?"

Don't be that person!

A lot of people will mentor you and help you if you show you can bring something to the table.  But the person who asks other people to show them the exact path towards real estate riches usually doesn't attract the best possible mentor.  Instead they usually fall victim to the less-than-ethical gurus, coaches and mentors that are looking to just make money off the newbie.

You are in a great market with LOTS of opportunity.  Keep at it and Best of luck!

@Kathleen Miles -- I don't think anyone here has tried to talk you out of wholesaling, and nobody has said they look down on people who choose to start their investing career as a wholesaler.

You asked a specific question -- why agents who say they want to work with investors treat wholesalers differently than other investors.  I think that's been answered pretty thoroughly.

The next question for YOU to answer is "how do I get wholesaler deals without working with a licensed real estate agent?"

There are a LOT of answers to that question.  Successful wholesalers understand that they can make money in spite of the attitude licensed real estate professionals may have about them.