Too Much Due Diligence?
Currently, I'm looking at REO properties. My first step is to look at the property with my Realtor and make a list of potential repairs. Then I have at least two contractors look at the place and prepare estimates. Thirdly, I have my Realtor pull comps and I go out and look at the comps.
In doing this, it never fails that by the time I’m ready to make an offer, the property already has a contract on it. This has happened to me three times.
Is there a way to avoid this? Since, I'm a newbie I want to be do my due diligence but I don’t want to keep losing deals.
Yaisa
In regard to the contracts are they priced above, below or right about where you were going to place your offer?
Were any of the properties asking price anywhere near what you were going to offer?
This all just happend within the last two weeks.
My Realtor said it will take awhile for them to show up on the MLS to find out the purchase price.
That's true, but your realtor shouldn't have a problem getting the listing realtor to tell him what the offers and selling prices are. Even though they technically aren't supposed to do this I find about 9 out of 10 have no problem telling your realtor what is going on behind the scenes.
I had similar experience. The first REO I looked at went on the market on a Friday afternoon. I looked at it on the following Monday at 6:00. When we tried to submit my offer the listing broker said the bank had already accepted on of the 5 offers they got over the weekend. The 2nd one I looked at came on the market Friday afternoon, also. I made my offer on Sunday, it went to the bank on Monday (along with at least 2 other offers) and they accepted it on Wednesday. Both properties were largely cosmetic fixers (under 15K in rehab) and they both sold for above the listing price. Listing price still left plenty of room for profit, though.
My realtor told me that this is the way the REO's have been here lately. It's a hot market right now with a lot of new development, but all that new housing is in the $200K range. These older houses that will sell in the $100-150k range don't last long.
So if your area is like mine you have to trust your own judgment on what is needed in terms of rehab cost. There just isn't any time to have multiple contractors, etc come out to inspect. Also, my realtor told me that the banks are wanting no-contingency offers. I was comfortable doing that for these houses because there is enough "slop" in the price to handle a minor surprise or two. I just made my best estimate of rehab cost, doubled it (Murphy's Law), added in closing/holding/selling costs and my profit, then subtracted that from a conservative ARV. That was my offer.
[addsig]
You've got to remember that the MLS is out there for all agents to see. On top of that Agents can set perameters with-in the MLS system to have the NEW listings emailed to them OR their clients at 4:00 am. by the MLS database automatically. So, how to avoid it, you cant beat them you have to join them.
Set some buying criteria of your own into the system and check your email early in the morning. The best you can do is be the early bird that gets the worm.
Also, dont forget there is a network out there too that can work for or against you. Starting out it will work against you. Realtors especially the "listing" agents, of course know about a listing before it is ever posted on the MLS and they have "friends" in the biz to tell about these deals. So, you gotta get up early AND make "friends"
[addsig]
SIMPLE ANSWER...
GET YOUR SALES AGREEMENT IN FIRST...AND THEN START THE DUE DILIGENCE.
Of course, make sure you have a realtor who knows how to write good contingency clauses
Yahgood, Why look at the props with a realtor. Is the realtor finding the props for you? How long to get the comps done? An experinced contractor could walk through the homes and give you a VERY good estimate of rehab costs. Comp reports can be purchased on the web.
After a period of time of looking at comps diligently, you will learn entire neighborhoods. You will know upon seeing the address in writing what the comp will be.
Education may take a long time. And its never a waste.
Like the education I got when I learned that REOs almost always go too high.
Good Luck
N.
Neil7 is right. Find a general neighborhood that you are familiar with and get to know it intimately. You should be able to quote property values per sq ft and estimated rental values off the top of your head.
Once you get to know a particular area intimately, work on documenting and refining your personal investment formula. This is the important part: ONCE YOU FIND A WINNING FORMULA, DON'T DEVIATE FROM IT (at least until you get more experienced).
Personally, I only try to buy 3BR 1950's brick ranch homes zoned R2 with full size basements in west Denver, Colorado. I have become so familiar with my given area that there are not too many unexpected things that pop up during rehab. I know that a 50 year old house in this area usually requires $2K in electrical, $1K in plumbing servicing, $8K for a new kitchen, $1K for wall repair and painting, $1K in hardwood floor refinish or new carpeting, etc...I'm sure you get the point...I convert the properties to upstairs/downstairs duplexes...
There's an saying that you don't have to reinvent the wheel to become successful...it's true.
also, I would recommend becoming knowledgeable about accessing county tax records for comp sales records instead of relying on MLS - here in Colorado anyway, MLS tax & sales records are generally 60 days behind county records! Plus, county records are free...
when you see a property you like, always be prepared to make a formal contract offer on the spot with subject to property inspection contract clauses - keep a sales contract with you ready to go at a moments notice!
best of luck in 2004
Bretton Seyfarth
1.866.931.6161
www . REOdispo .com
email: bs @ REOdispo .com
legend, wrong.
what do you base your agreement on? YOu can only shotgun offers/deals for so long until you realize you are wasting people's time.
Somewhere between yhagood and you is the answer. An ongoing understanding of the market would help make faster and better judgments.
Hey,
I buy most of my houses through MLS. Many of them have been REO.
Near the top of the list of importance is SPEED. When my agent find a house, I go look at it THAT DAY. I make an offer immediately.
LIke others mentioned, you have to know an area like the back of your hand. But in a greater sense, your own finances dicate the price of the house you are looking at and so based on that you should have a good idea of the selling price. In other words, in a ten plus mile circle of me a nice 3/1 goes for around $100k.
You should be able to ESTIMATE repairs. I forget how many houses you said you looked at, but use those numbers. If a kitchen cost $2k, use $2k on the next house. NO it is not 100% accurate, but it is ballpark. If you are off my a couple thousands in repairs, that should not be your make or break point.
Lastly, you are DEAD in the water, if you put funny clauses in these contracts. The bank will not touch them.
I can tnot ell you how many times after my offer is accepted, the listing calls my agent to tell her there are 5 or 10 more offers on the house and "Are you SURE your buyer will close???".
SPEED, baby.
Make money while you are learning:
CRE offers newbees at list 5 other ways to make money by avoiding rehabs. Birddog-ing and wholesaling are some of the safest was of making $dough$. People that do rehabs know that if you are not crafty or knowledgeable about the necessary repairs, this process can be extremely risky and costly. Even having contractors look your REO job does not guarantee you that you'll not be subject of paying for extra work that truly make the contractors buck. To be more specific, to one who do not know how to figure out the finical, emotional and time consuming costs, the first deal can be the last one if the proper parameters are not figured out in advance.
What I can suggest is Ron LeGrand cash flow course. For what you are trying to do is more then enough since it explains buying ugly houses technique in a lot of details. Both wholesale and retail. That course is now offered on this site for about $239.00, while the original price was about $1,500.
Well, if you're not full of answers yet, here's another.
I got to know my realtor well. She now calls me just about first with rehabs and foreclosures.
I go look, I call my partner from the property and tell'em what I've seen and what I think it'll take to rehab. He then decides to either write an offer or not.
I'm familiar with the three towns in which we invest, so based on what I see and suggest, we either bid or we don't.
Bottom line? Get the comps from your realtor for the area the REOs in. Go look at it with your contractor (after a few houses, you'll not need to bring'em with), and write on an offer or move on to the next.
Trick? Get the realtor to call you first for all rehabs and REOs.
Thanks,
OnTheWater