All Forum Posts by: Derek W.

I am starting to see the lenders discount the opening bid at trustee sales so they don't have to take it back as an REO. Some of these have been good buys. I saw a good article from foreclosurer radar that explained the moratoriums on foreclosures and why we should see a flood of new inventory this summer. the consensus from asset managers i talk to is that some lenders will dump invetory, some will trickle.

I wanted some other opinions on the state of rehab/retail investing. Some call it buy/sell, some call it “flipping†but specifically I mean purchasing a distressed property at a discount and rehabbing so it is in move-in-ready condition and reselling it to an end user for a profit. I am in Riverside County, California, an area hit especially hard by foreclosures. The problem recently has been getting the end buyer’s loan to appraise for the purchase price. Most of the sales in Riverside County are FHA buyers, so I understand that most of what I am talking about doesn’t apply to cash or conventional mortgages. The average hold time from purchase on my end to close by an end use buyer is 5-7 months. (FHA 90 day title seasoning anti-flipping rules, 30 day or less marketing, 60 day escrow is best case scenario right now.) In a market that is declining 4% a month, by the time we get to the end buyer’s appraisal even if we have multiple willing buyers to purchase at asking price, we can’t get the appraisal to comp because FHA underwriters are asking for additional comps above our asking price that are 45 days old or less and ¾ mile radius or less. We have tons of comps at purchase, but 7 months later are fighting all of the “as-is†low sales price. Is anyone having luck retailing in this market? Any tricks you have learned to help a brother out?

It is now 3.5% down for FHA buyers. That extra 1/2% should prevent a lot of future foreclosures! The reason for figuring out a way to get someone into the "flip" right away is to avoid having a vacant house sitting vunerable for 4-6 months after rehab is finished while paying holding costs on the property during this time. I am finishing rehabs 20-30 days from close of escrow. So I still have two months to hold the property until I meet my 90 rule. Then assuming I immediatley have a buyer at the end of the 90 days I will still have a 60 day escrow ( I know FHA is SUPPOSED to be 45 days, but they are closer to 60 days right now) So the LEAST amount of time I will hold a property is 4 months, but it seems to be averaging closer to 6 months. FHA requires the seller to sign an addendum that states that the buyer will get their earnest money back if the escrow doesn't close. So there would need to be a seperate agreement that would hold their earnest money until close of FHA escrow. So a lease option-type agreement would be neded, but I wonder if a lease option agreement would conflict with the FHA purchase agreement and be null and void.

Money lives on the other side of fear.

I am just elaborating on Jason’s idea as I think out loud. It has been frustrating to “flip†in this market with the 90 day seasoning, and average 60 day FHA escrow. (I know it is supposed to be 45 days, but they are so backed up they can’t close in 45 days.)That is a lot of holding time in a declining market. I have thought about having my mortgage broker of choice also pre-qualify the buyer for my “flip†and if he says the buyer is solid, and then do an inter-occupancy lease agreement while waiting the 90 days. That way they get the house and I get paid while I hold the property. I thought the same as Tim, that if the buyer doesn’t perform, now you have an eviction on top of everything. We are a talented bunch of people, there must be a creative way we can come up with to outsmart this weird market.

Thank you, Bob. Great reply!

I hadn't gone to REDC in a year after feeling like it was simply an excercise in futility. But I went this last weekend to the Southern California auction. I previewed and researched 136 properties, and bought 1. The three other guys I know who went didn't get winning bid on anything. So, even though I did get one property, I doubt I will attend again until I hear things are different with them. Honestly, haven't had any better luck with Hudson Marshal or Williams lately.

I don't think you are getting "bashed" I think you are being gently nutured by your elders. Our elders ae so annoying when they tell us practical advice from their life experience that gets in the way of our vision and wants. But what is worse is years later when you have to admitt they "told you so." Seriously, read the Dave Ramsey book. That was great advice.

Since you are buying with cash, it isn't relevant. But for the buyers I am working with they are more concerned with terms. The prices already cash flow now. But they are afraid interest rates are going up soon and want to get the lowest rate possible. With all of the money we are printing it seems pretty inevitable that we will see double digit interest rates in the next few years. Then even if the prices have come down another 20%, they lose that savings in interest paid. But I agree that in SoCal we will see prices come down through 2009. Bruce Norris recently released his 2009 market predictions. i summerized it in a b.p. blog here http://www.biggerpockets.com/blogs/238/blog_posts/605-california-market-predictions-2-9

So for a person to wholsale an REO property, do you see this as the best option to get around the non-assignability of an REO contract?