Posted by Steve (Atl) on February 10, 2003 at 15:05:59:
Actually I was posing this question to KGrant. I was curious if he had used these methods yet. One problem that I have is people coming along and placing an offer on a house only to back out when they can not sell it. This not only shows a disregard to the individual that needs to sell their house, but it speaks volumes to the ‘investor’s’ lack of professionalism. You have a newbie wanting to do deals and he goes all over town and signs up the houses. HE goes to market these houses, not having a clue how to do this and ultimately backs out of these deals. Now I have purposely exagerated this, but tell me, how many of this deals would he have to back out of before he has a ‘spent’ reputation. Would this be a reputation that you would want? Personally, I would never make an offer on a property that would not go through with personally if I had to.
Now there are times when doing this type of deal might work. Three years ago I had information that a development company was wanting to construct a light industrial park near an area that I grew up on and hunted on in the past. I had a very keen knowledge of this land and of the owners. This land was mixed use farm and residential land (all total about 675 acres with 19 owners/families). I went to each family and asked if I could purchase an option on their property. Now of course they were curious, because they knew that I was purchasing and selling real estate for years. I just told them that I was privy to this information and that I knew that a company was interested in building in the area. I knew that if I could get a large enough contiguous tract of land that I cold make an extremely strong case to this company. I was able to convice 12 families to allow me to purchase options to their land. It was for nine months (to allow me time to get all of the legalities assembled and the company to evaluate it as a legitimate site; this was not just a quick flip of a house) with my option to extend it if I needed to (of couse with an additional fee). I was able to get approximate 325 contiguous acres. I took this package to the company. Now while this land was not their first choice, they soon realized it was their best choice (when you factor hwy accessibility and expandibility). They ended up purchasing 225 acres with the option of purchasing an additional 100 acres for the next ten years (they actually have first right of refusal). When the smoke cleared, my option price ranged from a low end of 26k/ac to 42k/ac with my selling price ranging from a low end of 39k/ac to 56k/ac. This little deal then netted me about a million and a half dollars with an initial investment of little over $15k (you have to keep your investors happy) for a little over 7 months work. Now why am I rambling you ask and tooting my horn? Well I don’t think that I am. Simply becasue if you know what you are doing, and have a strong foundation with which to manage your business, options and contracts are a wonderful tool by which to succeed in real estate. However, you have to realize that your actions have ramifications and will have effects of your sellers lives. What caused this to succeed? Simple, and I am sure that Ed Garcia can not toot this enough (if he is loking at this board): YOU HAVE TO HAVE A PLAN. A plan not only to get in, but more importantly a plan to get out. Anybody can get into a contract, but only a true investor can get out when there are unexpected bumps along the path. You ask what would have happened if I was not have been successful in closing this deal? I would have gone through with it personally. Granted it would have been smaller tracts and probably getting extened, but I was prepared to do this (alnong with my group of local investors) This tract was just a prime piece of real estate.
Folk, have a plan. I know that I am going to buck the system with this, but if you get contracts on properties with the hopes of selling it and then use some lame clause like ‘my partner did not approve of it’ to break it when it did not sell, its really, well second grade and very unprofessional. You essentially missed investing all together and became a speculator. And you know what, a few people made it rich speculating for gold in the California gold rush, but a lot more starved. Folks, get a plan and work it.
Sorry for the rambling and if this gets deleted, well I understand…
Posted by JC in Seattle on February 09, 2003 at 22:16:31:
I am out looking for my first wholesale deal. I’m considering making ffers on properties listed in the MLS. However, I am worried I will get one under contract and be unable to find a retail buyer. In that case, I would have to buy it myself and rehab. This worries me as I have no experience in re-habbing. Any ideas on this? Thanks!
I doubt that this is a good plan. When properties are listed in the MLS all of your prospective buyers can easily buy the properties directly from the listing. If they are active investors, they probably have one or more real estate agents who alert them to the good prospects that get listed. The only way that this makes sense to me is if you can somehow get a property under contract for a much lower price than the listing price. Then you might be able to do a flip and make a profit.
Sorry to rain on your parade, but didn’t it seem just a little too easy to you? Just find properties that are listed for sale, get a contract, and then make a profit on the flip.
The flipper folk, such as Kristine(CA) get out and scout up properties that are not listed for sale and get contractors on them. Properties in probate, vacant, rundown, perhaps in foreclosure, delinquent property taxes, etc. And advertising for sellers.
Posted by Kristine-CA on February 12, 2003 at 01:45:08:
Jaycee: this is valid and important concern. Learn what a deal is for your market and buyers and then you won’t need to worry so much. Call those “I Buy Houses” ads now and find out what those investors think is a deal for rehabs–how much they want to make, neighborhoods where they’ll buy, how much repair they will take on, etc. And then remember that you have to make some money too.
So, if the rehabber tells you he/she needs to profit 20K and the property needs 10K in repairs and you want to make 5K and the ARV of the property is 100K, how much can you offer? $65K? Where I am, it would need to be even lower to accomodate holding/buying/selling costs and some margin of error for the repairs. So, more like 50K.
If you find an owner/occupant buyer that has cash to close, they can often pay more because they are not looking to profit in the same way as the investor.
I would also consider looking elsewhere for rehab deals besides the mls. I suggest using mls as one of many sources of leads. You can read about finding motivated sellers in the articles on this site and in the archives. MLS is the first place everyone goes–even for junkers.
Posted by Cat - TX on February 09, 2003 at 23:34:10:
Put the home under contract with a clause that says, “subject to my financial partners approval.” If you can’t find a buyer, then you have a way out. Call the “We pay cash for your house” ads in the paper and tell them what you have. If you have a deal that was bought at a deep enough discount you will be able to find someone to buy it. If not, then you paid too much in the first place. Most cities have the “We Buy Ugly Houses” billboards everywhere (Homevestors). Call them… they are great for flipping to. They have deep pockets and they can close quickly. I use them all the time and have not had any complaints. Hope this helps…
Posted by kgrant on February 09, 2003 at 22:38:14:
Hi Jaycee:
Why don’t you put the house under contract with the contingency thay you must be able to secure financing within a specified time so you can get out of the deal. If you put monies down they would be refunded. I would put the money in escrow so it is easier to get it back.
Thanks Ron. Yeah, if it were as easy as just picking them out of the MLS, everyone would be doing it. So far I’ve been driving the lower priced neighborhoods, taking lots of pictures of ugly houses, putting out bandit signs, finding owners in tax roles, calling & mailing to the owners, running comps. Still no motivated sellers. However, I’ve only been at it for 40 days. I’ll keep at it 400 days if I have to.
Hi Kristine. Thanks for the follow up. So far, I’ve been using the Le Grand formula of Max Offer = ARV * 70% - REPAIRS - COST OF MONEY - My Profit. In other words… dirt cheap. I’ll take your suggestion to call some of the ‘I Buy Houses’ folks to learn what they want.
So far I’ve been driving the lower priced neighborhoods, taking lots of pictures of ugly houses, finding owners in tax roles, calling & mailing to the owners, putting out bandit signs & flyers, running comps. Still no motivated sellers. However, I’ve only been at it for 40 days. I’ll keep at it. It’s gonna happen!
That’s the attitude. And, you really don’t need “motivated” sellers–aka desperate sellers–when you do wholesale flipping, I feel. While I have not pursued that investment approach, all you really have to do is get rundown properties somewhat below market value for rundown properties.
