Buying And Exit Strategies - Please Advise
Okay, Ron LeGrand indicates in his short formula to offer 70% of FMV, minus repairs.
I am still in a relatively hot market, and for a while some people were actually making offers over asking price.
I just made an offer on a fixer yesterday, HIGHER than that formula, and they more or less laughed in my face. Is that formula suitable for a hot market?
Also, should I be flipping to rehabbers? It seems that the few I've talked to are also into buying dirt cheap, would not want one ounce of profit to go to anyone else, and they're terribly concerned about high holding costs, raised title company fees, ect. Most of them I've talked to don't want to make $10k, but rather, they want be certain that they'll make $50,000 net.
I don't see how can ever come across enough properties to buy and sell. On a typical property which is worth $275,000, I'd have to offer maybe $100,000 less. It's appears to be a waste of time.
Would I be better off, say, to try to flip fixers to retail buyers? Then, I could make some sort of half-way reasonable offer.
At this point, I don't know what I should really offer, or to flip them to.
I think your main problem here is that you are going after 'listed' properties. In a hot market, MLS Listed properties is not the way to go... You need to deal with properties that are vacant and boarded up or 'Absentee' owner properties that are owned by either people living out of state or out of the area....
Another thing, you dont have to offer $100k below market value either. Most investors I know are happy if they get a $40k split between what the house is worth and what they are buying it for. If you could make $15k-$20 consistently on deals and do 10-15 a year, that is a good living. More than what most doctors make!
You should retail houses and wholesale your overflow. You just need to 'tweak' your buying systems.
Best Riches,
Jeff Adam
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Then why dont you run a title search and contact the owner of these properties and make a cash-offer to close in 7 days or less with the tenants in place. You need to make a decent offer that will get accepted. For example, if the house is worth $300k, try to get it for $250k, a price that would make you around $20k.
If you are trying to steal properties for $100k below FMV, those deals in an uprising market are harder to find. Concentrate more on doing more deals that will net you $15k-$20k after all the dust settles!
Best Riches,
Jeff Adam
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Jeff,
Thanks, this sounds like great advice. I wrote another question in my post above which was about retailing (when I revised the post). Could you please reread it and advise me concerning that?
Thanks.
Jeff, you say:
"Most investors I know are happy if they get a $40k split between what the house is worth and what they are buying it for. "
Does this mean after figuring in the cost of repairs? For example, if a house needs $15k in repairs, the $40k split would go to $55k, right?
Jeffrey Adam:
I was going to pm you with these questions, but I think all of us rookies can benefit from your knowledge. I have a couple more questions about "wholetaling"
-When you wholetale a prop. are you assigning the contract to the end user or did you buy the property and then sell to the end user?
-If you are assigning the contract to the end user, are they getting a loan from a bank? if so, aren't banks a little wary of dealing with assigned contracts?
-Doesn't this strategy only work if the house is in good to excellent condition? I imagine too many repairs may scare and end user away.
-I assume that you would use this strategy when there is not enough room in the deal for two investors to make a profit, but by selling to an end user who may be willing to pay full price or close to retail, you can create more profit for yourself. Can you give an example of a deal that you closed with this property?
Sorry, this post may lend itself to creation of an article but I am REALLY interested in this concept. I have kicked it around in my brain before, but never had anyone to bounce it off of.....
Thanks!!
LEzly
Great advise Jeff!
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On 2004-08-19 20:26, JeffreyAdam wrote:
Results:
Great questions.
"...With all the new seasoning laws out there, this has been harder to do as of lately..
Anybody that says there are no seasoning issues does not know what they are talking about as I am going thru that right now on 3 properties.
>>> Can you please explain more about seasoning?
"....Before I 'assign' my escrow, I collect my fee and then hook them up with the financing. It is a win-win for all.. I have never had any problems with banks and assigned contracts personally.. As long as everything makes sense.. It is totally legal, just closing the deal in someone else's name.
>>>So here is a flip. What is the typical fee one should charge, and how do you structure the fee..$1000-2000 range?
When dealing with a fixer, yes, I will not let them go get an "A" type loan. I will either have them pay all cash or use private investor or hard-money.
>>> Don't quite understand the reason behind this. Is A loan a conventional loan? So we should only deal with cash end-user only correct?
Jeff
what should i do if I' m summitting all all cash (the cash would come from my wholesale buyer) offers without existing finance.
The reason i asking is because i don' t have a private lender.
Murphy
James:
Lenders have been burned in the past where an investor goes in, purchases a house at lets say for example 50% of market value and then re-sells it a month later for 100% of market value. The new buyer moves in makes and within a year or two, they default on the loan. The bank takes the hit. What happened is a lot of investors were giving away the down payment, assisting the buyers with fake taxes, documents or whatever needed to get a loan. A lot of financial institutions really took the 'hit'. They researched and found out that most foreclosures came from 'flips'.
To put an end to this, FHA put out some sort of regulation stating that a property could not be 'flipped' within X amount of time. ( believe it is 90 days, but dont quote me). Then also, if the owner did not own it for more than a year, they are requring you to have 'seasoning' meaning you have owned it for almost a year.. So what everyone is know doing is Conventional FHA look-alike loans. However, even some of them now are asking for 'seasoning' or documentatation to substantiate...
There is not rhyme or reason. Some deals I have done go thru with no problem and some dont. Others require all sorts of documentation. The key is knowing which lenders to work with and submit to. If I am going to flip to a retail end-user, I will not let them get an FHA loan as it is too dificult to get thru. I will have them go conventional and recommend a lender to use. I am not the "seasoning' expert. I have just had problems with this the past couple years, even with buyers with a 730 FICO Score...
In terms of your wholesale fee, it all depends. If you buy a house for $100k worth $200k, you could ask $50k... The price does not matter as long as there is still room in the deal for the investor.
I dont tell my wholesale buyers what I paid for the property, I tell them the price and then if they want to buy it, I tell them how much I need. They dont care as long as there is room in it for them..
In your area, since you are my neighbor practically, I would shoot for a $3k -$10k wholesale fee.... You will get the $20k deals if you look hard enough.
Best Riches,
Jeff Adam
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Murphy:
This is even better! Simply collect your fee from your 'wholesale buyer' and then assign him and let him close it. You can tell the seller that you are closing in your partners name for tax reason. Theoretically you are as you are taking some from the 'front-end' and he is making money on the 'back-end'. I would hold on to this wholesale buyer, sounds like a good one.
Best Riches,
Jeff Adam
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Thanks for all of your responses, Jeff!
Results
Hey Jeff,
Would the Listing agents have a problem with this. I' m not the one who would be showing proof of funds, but I' m summitting all cash offers.