HUD Only At Market Price??? - Posted by Mike in WI

Posted by Ronald * Starr on July 08, 2001 at 19:38:15:

Nate (DC)------

Thanks for the assist in helping Kris.

Good InvestingRon Starr*****

HUD Only At Market Price??? - Posted by Mike in WI

Posted by Mike in WI on July 07, 2001 at 18:23:56:

I recently went to the U.S. Housing & Urban Development nationwide website and in their FAQ section they mentioned that in a HUD foreclosure, they pay off the lender and then HUD sells the property for Fair Market Value.

They are very clear about selling at market value only and also clearly state that the infamous “$1 house” does not exist.

Now I have seen posts in the Success Stories section of CRE-Online where people tell how they bought HUD homes for $2,000 or so that were worth $60,000 after a few fix ups by rehabbers.

Question: how did they get HUD to sell to them at only $2,000? Was fair market value really only $2,000 at the time they bought it? Even though a rehab fix up would create a FMV of $60,000 after repairs? I find this a bit suprising in contrast to HUD’s own claims of how they sell.

Anyone want to let me in on the little secrets I’m apparently missing? :slight_smile: Any help is appreciated.

Additional Note: I have ordered Steve Cook’s course/book as well as William Bronchick’s paperback book on flipping, but have not received them yet. If there’s something in those books that covers this, please let me know. Thanks!

~~ Mike ~~

Re: HUD Only At Market Price??? - Posted by TJ

Posted by TJ on July 07, 2001 at 23:21:41:

I just bought my third HUD property. All three were good buys. At the same time, most HUD listings are not such good buys. The thing with HUD, as best I’ve been able to figure out, is this: It is the HUD policy to sell properties at market value. I believe this is because as a government entity that deals in a lot of foreclosed real estate they feel it would not be proper for them to be having an effect on the open market by undercutting it with cheap houses. However - if you keep looking at the HUD properties for sale on a regular basis you will sometimes find good deals. The reason is simply that HUD does a very poor job at appraising the properties to arrive at a sale price. Oftentimes the properties are OVERPRICED - lousy, beat-up substandard things with wierd do-it-yourself add-ons and such. But by the same token, along comes the overlooked diamond-in-the-rough. For one thing, I believe the HUD appraisers just go all over town to any area they’re sent to for an appraisal job. They probably do their comps by zip-code or some equally crude parameter and have no clue about the particular location. And Hey! if the apparaisal is way off, what’s gonna happen to them? Nothing. (Wish I had a day job with the government.) In summary, HUD REOs are not as attractive as lender REOs, but still worth checking out.

Location, Location, Location - Posted by PBoone

Posted by PBoone on July 07, 2001 at 20:25:49:

That is one of the keys to buying in an area If you are in St Louis, Baltimore, many areas of Texas or some other city/state that has experienced low growth even through the imagined “Booming Economy” You to can find the deals like you are looking. Next time you are on the HUD Website go to some of these city’s and compare the quantity of listings.
You can make good money in REI, you just have to stay flexible enough to know and work within a given market.
Pat

Re: HUD Only At Market Price??? - Posted by SCook85

Posted by SCook85 on July 07, 2001 at 19:34:35:

Mike,

I buy HUD homes frequently and yes HUD does sell for Market Value. But you must understand that Market Value is what the market is willing to pay. If you are the only buyer at $2000 and no one else wants to pay anything for the home then market value is $2000 regardless of what the comps are.

I buy many homes for 10 and 20 cents on the dollar, but I have studied the HUD list, banks lists etc… I know when to offer to increase my chances. I make many offers and the majority of them get turned down. But I make so many offers that I can still buy ten homes a month.

As Ron Starr stated, you need to study your market. Study HUD, study the MLS, study the trends. There are markets where you can literally buy homes for 2 and 3 cents on the dollar. I know this because I do it and I know others that do it.

If you ever want to buy a home for 10 cents on the dollar you need to know what you are doing and be ready to act immediately. Also keep in mind that if you don’t offer 10 cents on the dollar you will never buy for 10 cents on the dollar.

Steve

P.S. I don’t want you to think that you can buy anything for 10 cents on the dollar. I buy many homes for 50-70 cents on the dollar and I am happy to get them when I can. I buy for 10 cents on the dollar in neighborhoods that I wouldn’t pay 50 cents on the dollar for the homes and the only way I will touch the home is if I get it at my price.

Re: HUD Only At Market Price??? - Posted by Ronald * Starr

Posted by Ronald * Starr on July 07, 2001 at 19:04:41:

Mike in WI---------------

It will vary from location to location. You have to study your own market and nearby markets to answer your question.

That person who paid $2,000 for a HUD house was investing in a poor area of Baltimore. There are probably a lot of foreclosures there and not many buyers. The real rundown properties could sell for a low price in circumstances like this.

There are sometimes a few good deals on the HUD or VA lists, but not many, at least here in the Northern California area. If you study the lists carefully and you know the neighborhoods, you might want to put in some offers for the HUD properties.

They will require you to already be preapproved by a lender for a loan large enough to buy the property upon which you put an offer. Either that or proof that you have the money available in cash.

You might find youself getting just an occasional good deal. One investor who did this told me he got a property for about every 25 offers he made. Of course, he was buying significantly below market value.

Hud bid-openings are a public event. You can go and see what is happening locally. You can study already sold properties to learn what they will or will not do.

Good Investing***Ron Starr

Re: HUD Only At Market Price??? - Posted by Kris

Posted by Kris on July 08, 2001 at 03:25:25:

But, acutally, how attractive are lender REO’s? Can you buy them at a great price? Can you purchase them at 30% or more below market value these days? I mean geez, let me know. I"m having much trouble finding those kind of deals. Are they out there and if so, how do you purchase them without any money down? Do you do the “hard lender” approach and have another buyer lined up at closing? What gives.

Thanx

Kris

Re: Location, Location, Location - Posted by Kris

Posted by Kris on July 08, 2001 at 03:30:11:

I live in L.A. where, obviously, growth is exploding here. So are you saying that in order for me to find good bargain deals in realestate then I’m going to have to look outside of my state and find something thats in a state like texas or baltimore?

Re: HUD Only At Market Price??? - Posted by Kris

Posted by Kris on July 08, 2001 at 03:48:41:

10cts. or 50cts. on the dollar may be fine for your area, but I’m not finding anything remotely like that here in Los Angeles. Frustrating. Unless I"m doing something dreadfully wrong (I probably am), I’m seeing these hud homes and other forclosures selling at around 85-90% of its value. Certainly not the deep bargain discounts I"m hearing… Where should I be looking to find these type discounts (10, 50-70 cts. on the dollar) your suggesting.

Re: HUD Only At Market Price???Hi Steve. - Posted by John

Posted by John on July 07, 2001 at 20:38:35:

Steve, I have a question for you. I know this is a decision I must make on my own, but I thought your opinion would be of some help to me. Do you think becoming a Realtor would help me as an investor, or do you think it is best to just work with realtors?

Whaddaya think?

Thank you,

John.

Re: HUD Only At Market Price??? - Posted by Kris

Posted by Kris on July 08, 2001 at 03:41:54:

You just mentioned that hud bid-openings are a public event. How do you justify that statment? I bring this up because I, as of a few weeks ago, called hud to ask them about their properties available and never once did they mention a public local auction of any kind (I live in Los Angeles). Instead I was told that they gave their contracts to sell their property over to, of all people, an agent. I was told that if I was interested in their property that I have to call them. They also gave me their website of properties on market, but not any info on a public auction. I don’t know, maybe things have change a lot recently.

your thoughts…

Re: Location, Location, Location - Posted by Ronald *S tarr

Posted by Ronald *S tarr on July 08, 2001 at 14:25:01:

Kris-----

P. Boone has hit it right on the nail. I like to suggest YES for Success:
Y----You-------------Enuff said, you’re you
E----Environment-----Geographical market, time
S----Strategy--------Your program for moving dollars from E to Y.

Your strategy should be something that fits you well. Takes your strengths and converts them to actions which are successful. You use your assets, imagination, and guts to get the deals that work for you.

If you are not being successful there are two things you can do. 1) Change your strategy. 2) Change the environment in which you operate that strategy. I like tax sale buying, but I’ve never tried to do it in Los Angeles county. I understand that there are about 4,000 people who show up at the county tax auction to bid. That suggests to me that I would probably not be successful with my strategy there–too much competition.

Last month I bought three properties in OK at the OK county tax resales – a bid auction for tax delinquent properties. One I paid $2,510 for. Assessed value about $13K. I expect to get about $300 a month rent from it. If that is accurate, I will have bought it for less than one times the annual gross rents. I doubt that I could do that in Los Angeles.

Another one I got for 1/2 of assessed value. I may have bought it for about three times the yearly gross rent. If so, this will be a money-maker.

If you don’t want to move from LA, develop some approach you like which works there. Study other people’s approaches, study your marketplace, as P. Boone recommends. Steal ideas from other people, add in your own twists. Cobble together a strategy that you feel good about and that shows promise of working in your marketplace. This is a “do it yourself” project. Other people can only talk about what works or not for them. You have to figure out what will work for you in your environment. Get it right and YES for Success!

For instance, the prices of houses in LA is greater than in places like Balitmore or Oklahoma City. You don’t have to buy at such a deep percentage discount to have a high absolute dollar discount, which means potential profit. Suppose you could find a way to intercept potential sellers just before they went to list with a real estate broker. Then you make some sort of deal whereby you get control or ownership of the property for about 10% to 15% discount from market value. You then resell at full market value because the market is hot. And you resell “for sale by owner”–no real estate commission. If you deal with properties that are worth about $ 300K to $500K, how much money could you make? Maybe $30K to $50K on each property? Maybe even more? If you did four or five deals a year you might be making $200K a year. Not too bad, right?

Don’t try this in Oklahoma City, where the average selling price is probably somthing like $60K. Different environment, different strategies are successful.

Good Investing******Ron Starr***************

Absolutely Not - Posted by PBoone

Posted by PBoone on July 08, 2001 at 11:21:33:

Kris,
What I am saying is If your marketing agenda is to buy properties for $2000.00 or 10-20% of RMV before fix up, then go to the areas that will allow such a purchase. South Central is a good reference point. The areas like Baltimore, St Louis or areas in Texas that was mentioned are some examples of “pockets” on flipping opportunities.
Now, Everyone in REI lives in different marketing areas. The goal for each of us it to find our starting point including location, property type, and income opportunities, then locate the buyers, their needs and market trends. Exaample:IF the people in your given market are buying properties for resell @ 80% of RMV and you want to flip properties to start, then find properites for 75% of RMV. Looking for them @ 20% of RMV is probably unrealistic.
The moral of the story is: Know your product, know your market!
Pat

Re: HUD Only At Market Price??? - Posted by SCook85

Posted by SCook85 on July 09, 2001 at 08:36:27:

Kris,

Don’t get me wrong. I can’t just go onto the HUD list or MLS and buy whatever I want for 50 cents on the dollar. I live in an area where home values are appreciating very rapidly and the market is HOT. Many of our HUD homes sell for Market Value and some I feel sell for above market value. Many REO’s sell for market value or above. But the key is that not ALL of them sell for market value. It is a very small percentage of homes that sell for pennies on the dollar.

Please do not get hung up on 10 cents on the dollar. I can assure you that these are not good areas. If you want to steal homes for that little you need to start exploring your war zones and the fringes.

You need to probably keep looking in the same places that you are looking, but start making offers. You need to offer 50 cents on the dollar in order to buy for 50 cents on the dollar. You will get turned down most of the time. In addition you must take into consideration that if you are offering only 50 cents on the dollar that you better be willing to settle quickly, include no inspection clauses etc… You can’t buy for 50 cents on the dollar with long settlements, inspections, financing contingencies, etc…

Believe me when I tell you that the houses don’t always come out listed at 50 cents on the dollar, I need to offer that to get them. Rarely do I offer what someone is asking, and if I do they probably could have gotten more from someone else if they asked more.

I hope this helps,

Steve

Where Bargains? Baltimore, Chicago? [nt] - Posted by Ronald * Starr

Posted by Ronald * Starr on July 08, 2001 at 14:00:05:

no text

Re: HUD Only At Market Price???Hi Steve. - Posted by SCook85

Posted by SCook85 on July 09, 2001 at 08:27:34:

John,

I never became a realtor myself, mostly because everyone said not to become one. I do not see the disadvantages of being a realtor. I think that the advantages can far outweigh the disadvantages provided you have clear cut goals of what you are trying to accomplish. You must keep one thing in mind. If you become a realtor you are going to be dealing with realtors and their mindset as opposed to investors and their mindset. You may end up being a realtor as opposed to an investor.

Steve

HUD has changed quite a bit… - Posted by JT - IN

Posted by JT - IN on July 09, 2001 at 06:53:36:

In fact, when dealing with HUD, you are not dealing with HUD, at all! What I mean by this is, that in May of 99, HUD basically got out of the business of managing & marketing it’s own foreclosures, (darn), and hired M & M brokers in diffeent regions of the counrty. In your area, Golden Feather Realty is the M & M broker. Then G.F. Realty or (GFR), 2500 Michelson, Ste 2500, Irvine, CA 949-477-6300, www.goldenfeather.com , hires Broad Listing Brokers, (BLB), in each city that lists the properties with MLS, and puts signs on the property, and performs local agent type things. The BLB’s in your area are: Prudential Cal., attn: Corey Shepherd or Gloria Silveyra, in Irvine, CA @ 800-852-9889 or Realty Exec., Rod Gaston, Newport Bch, CA @ 800-960-2526

Prior to HUD getting out of the business in May 99, they were very inefficiently doing all this mkting and managing on their own. You can immagine how the typical butt-end joke of the gov’t workers, etc., well they must have fashioned those stories after HUD employees, because they were so bad, that some of the deals that would get by them, were pretty darn good deals, but that all came to a skreeching halt several years ago. In the old days, (prior to May 99), everythign that had been previously described to you in earlier posts, was accurate. However, today, there are NO public bid openings, just the behind the scenes of quite efficient property marketing and daily bid reviews, and either sewlling to a bid that is close, or sometimes above FMV, or continuing to market the property until such is received. The deals are gone!

Darn it anyway! I used to profit handsomely from the HUD inefficiency. I liked the system that they used, cause it was like getting a tax refund almost every month, when the Gov’t gave me (I bought), equity in a house worth $ 20 grand, or so more. What a Country, but that, like many things, has changed. So, I have had to get more resourcefull at finding deals, as we all have had to do. The deals are no longer with HUD, (I mean Golden Feather), however there are still deals in your market, like every market, you just have to learn how to find them, or have them find you.

Happy hunting…

JT - IN

Re: HUD Only At Market ?[long] - Posted by Ronald * Starr

Posted by Ronald * Starr on July 08, 2001 at 13:36:32:

Kris------

I apologize. I should have added that “the last I knew” that was the way HUD operated. It is possible the do things differently now or do things differently in Los Angeles.

When I said there are “public bid openings,” that was exactly what I meant. I did not say anything about auctions. Here is the way the HUD offices work, as far as I know.

The HUD office puts up properties for sale. They have a list with the property addresses, property characteristics such as square feet, bedroom and bathroom count, and a suggested sales price. The lists go to real estate agents. They also may publish the list in a classified advertisement in the local newspaper. Agents and brokers submit bids from individuals who wish to buy the properties, such as yourself. The bids are opened up and read aloud at a set time and place. Agents, bidders, and anybody else who cares to be there can hear the bids. This is the public bid opening that I mentioned earlier.

For each bid the HUD folk subtract from the gross bid price the cost of the agent’s commissions and any other expenses that HUD is asked to pay. This net price to HUD is then divided by the suggested sales price to get a percent. There is some threshold percent that the bid has to reach for the offer to be accepted. It might be 90% or 85% or 80%. Those above this are acceptable, the highest net bid for a property being accepted. Occasionally, if the highest bid’s percent is below the threshold bid, but very close, they will throw up their hands and say “oh, what the heck,” and take the bid.

If you attend these bid opens for a few weeks you should learn things to help you bid more successfully. Suppose that none of the bids are accepted for a property. You can probably use that information, along with the percents on some of the successful bids to determine the threshold percent being used. If you look at the list of properties offered and there are no offers for some properties, you might target them for offers in the next bidding round. You might not face competition on that round and thus get the properties. You might find out that properties in some particular town or area are not being sold. You could concentrate there.

If you made lots of offers just at or slightly below the threshold percent, you might get a few offers accepted.

They probably drop the suggested price on properties until they get bids. You say they are listing the properties with real estate brokers. This is something I have not heard before. Perhaps they do this with the ones that they can not sell in their traditional procedure within a few months? Why don’t you ask them about this?

It is possible that things are done differently now. Or that they do things differently in Los Angeles than in other areas.

The time to bid on HUD propeties is when the real estate market is depressed. There are few consumers trying to buy homes for themselves and thus few bids for HUD properties. The low competition mean the opportunity to get good or even great buys.

When the real estate market is hot, there will be few good deals to be gotten from HUD. That should not stop a determined person. The determined person will study the HUD offerings and try to work the system as well as possible, using techniques such as I mentioned above. However, even the determined person might find that there are too few deals purchased here to put in very much time. The successful investor might make a few offers on properties that look special for some reason, such as an error in the reported squre foot of the building, or those in some small area that the investor wants to try to buy, even if there are few accepted offers. Or, the investor might just decide that it is not worth it to work the HUD houses at that time.

I’m sorry I rushed my answer to you and was not very complete. I hope that this is a better help to you.

Good InvestingRon Starr*

Re: HUD Only At Market Price??? - Posted by Kris

Posted by Kris on July 10, 2001 at 03:32:45:

You mentioned that you don’t nessasarilly see those type offers jump out at you, but you make the offer to the seller at around 50% of the value. Do you put the offer in writting or do you just tell them that over the phone, after you’ve looked at the comps in the area and drove over to take a look at the property and the neighborhood?

Also, Do you have a book out that I can buy on effectively flipping properties. Don’t have quite the cash to buy the full blown course at this time.

BTW, Thanks a bunch for you timely response.

Re: HUD Only At Market ?[long] - Posted by Nate(DC)

Posted by Nate(DC) on July 08, 2001 at 16:46:04:

Kris,

Ron is basically correct about the public information. For HUD resales, it is now available on-line. You don’t even need to go in person to get it.

For southern California, the website is

http://paris.towerauction.net/g1/sca/

and to get the information you need, click “Bid Results” under the “Homebuyer’s Corner” on the left side of the screen.

HTH,
NT