Attn flippers: Am I doing this right? (long) - Posted by Jim Beavens
Posted by Jim Beavens on April 15, 1999 at 23:31:38:
It’s kind of funny, I got so excited at the convention when I heard both Bronchick and LeGrand talking about how to make money with pretty houses, of which there are tons and tons around where I live. So I bought both their courses and have been studying their material for a few hours every night after work, concentrating on the lease-option and wraparound parts of the business. This weekend I was planning to go over all of the contracts on the various disks I got, and create my own contracts based on my state’s standard realtor contract. Then next week I was going to meet with an attorney to review what I was planning to do. I also need to go through Bronchick’s course on corporations and set up my business entity, and then figure out how I’m going to answer calls that I generate with the newspaper ad I’m going to run, along with other marketing efforts to reach FSBOs (whew!).
Almost as an afterthought, I listened to LeGrand’s wholesale/retail cash flow course last weekend, and I realized that wholesaling properties is something I can get started on right away while I try to get all the above stuff done around the schedule of my J.O.B. So I basically just jumped in, and I’d like to relate my progress over the last two days and see if I’m going about this the right way (yes, I called in sick today ;).
Following LeGrand’s advice, I decided to search for realtors that were already listing junker houses, following the logic that they would be more knowledgable about the market. Since my “ant” (wife) didn’t want to drive around neighborhoods aimlessly looking for junkers, I searched the RMLS on the internet, which has almost no information on properties, but does have the text description, and the listing agent’s name and number. I manually clicked through a bunch of listings and found about 20 properties that mentioned “fixer” or “as-is” in the text descriptions (Yay! They are in my city!..yes, I was doubtful ;). One agent was on 4 of the properties I found, so I called him yesterday to have him fax me the listings. I asked him if he could pencil in what he thinks the houses might be worth after they’re fixed up, but he said that he’d have to do a little research to find out. He was reluctant to do this at this point, so I didn’t bother asking him if he would search for more properties for me.
Today I called two more agents…one of them seemed very excited to talk to me, until I made it clear that I would most likely offer a pretty low price (this was in response to him telling me one offer $15,000 below the listing price was rejected). He said he would fax me the listing and some comps in the morning, and promptly got off the phone (not rudely, just promptly). He mentioned that he usually doesn’t work in that area, and he wasn’t sure what the ARV would be (I get the impression he doesn’t work with many junkers).
The other agent, I left a message with asking if she could fax me the listing on the one property I found that she had listed, along with any others she might have on hand. She didn’t even bother calling me back, instead she simply faxed me four properties that she had listed. (Bonus! - getting the listings without dealing with the realtor ;).
So I had info on eight properties, which I figured was good enough for my first time out. So yesterday and today I spent a couple hours driving to each one, looking in any windows I could, and coming up with very general estimates for repairs. These repair estimates are what I’m most worried about. I followed LeGrand’s advice, and simply assumed the worst for anything I couldn’t see. As I look back at my repair estimates for all the properties, it seems like I’m assuming the worst for everything. There were a couple houses that looked like their roof was in good shape, or the kitchen was ok (albeit outdated), but for the most part I put in dollar amounts for just about everything on LeGrand’s inspection checklist, with adjustments made based on square footage. My repair estimates range from $13,000 on a dinky house with a nice roof to $25,000 for a 2,300 sf house I wouldn’t mind living in and fixing up myself (most are clustered around the $20,000 range). I’m not sure if I’m being too conservative in my estimates since frankly I have no idea how much any of this really costs…
I was going to use LeGrand’s formula for my offer:
MAO (max allowable offer) = (ARV * .70) - Repairs
My offer = MAO - $5 to 10K (which is my profit).
Does this sound right?
The other thing I’m curious about is why none of the listing agents I’ve talked to know what the after-repair market value is (I admit 2 agents is a small sample). Do they think this isn’t important or something? When I asked the guy who brushed me off what the comps were, he gave me a number based on its as-is condition. Like that makes any difference! I didn’t get home in time to call the other lady who faxed me her listings, I’ll see what she has to say tomorrow.
So anyway…this is where I was planning to go from here. I called the first agent back and said I’m willing to make offers on all 4 of his listings, but I’d like him to pull a few comps (I told him I usually have a pretty good idea of what the ARV will be, but I make it a policy to have a realtor pull comps from the MLS since I’ve found there can be such a difference between neighborhoods…the truth is that I have NO CLUE what the market values are like in this part of town ;). He said he’d do this for me today and fax the info to me tomorrow, after which we can get together to talk about the offers.
So I’m making progress, but in reality my goal here was to find a realtor that I could work with on a consistent basis to find me various listings in the MLS, and so far I haven’t really gotten far on that point…I’m just working with a bunch of listing agents (yes I admit I’m intimidated by them, especially after talking to the guy who didn’t like lowball offers). What I was thinking was that after the first agent faxes me his comps, I’ll use them to construct my offers, and fax them to him, along with an explanation of exactly what I’m doing…how I pay all cash with no contingencies, can close in 30 days, and that I’m looking for an agent who will work with me to find more properties like this…I figure it might help ease the sticker shock of my low offers. I realize I probably should have told him what my objective was all up front, but I really wanted those listings of his. =) I haven’t even told him how I want to handle the earnest money yet (one deposit into escrow to be applied to the first accepted offer)…I hope it’s ok with him. =) I also thought of telling him that these offers are based on the fact that I couldn’t see many parts of the house, in which case I assumed the worst, and that if the bank came back with a reasonable counter-offer then we could get together and go look at the house then to see if my repair estimates needed adjusting. Or maybe I should give him my offers with no apologies (somebody once said here that if they weren’t embarrased by their first offer then it’s too high, and I think I’m going to be very embarassed by these offers ;).
I also had another thought that I’ve been considering, that I wanted to run by the folks here. I think one of my problems with dealing with agents so far is that I have a hard time steering them away from their top priority: selling their listings. They only want to know what I can do to buy their listings, and I think it takes a little persuasion to get them to look at the big picture of what I’m trying to do (persuasion which I still find myself lacking in). So I’m wondering if it was smart to start with a listing agent in the first place. I’ve actually thought of contacting the agent who listed my own residence about a year and a half ago before I started educating myself about the REI biz. He often acts as an exclusive buyer’s agent, and he’s actually pretty tech saavy…has a web page, answers email, and whips out comps in the blink of an eye. The downside to this is that when I last worked with him, I acted like a country bumpkin when it came to real estate, and I’ll have to drop my confidence act I use to make it sound like I know what I’m doing. =) Also, I KNOW that he and his wife do a lot of business with high-end houses, so this isn’t his specialty at all. I suppose that shouldn’t make any difference, though. I figured I’d see how it goes with the agents when I talk to them tomorrow and then fire off an email to this guy explaining what I want to do and see if he can help me.
What was the point of this post anyway? Sorry, I have no idea. It’s just been a hectic two days, and I needed to sit back and collect my thoughts. The good news is that I should have about 8 offers going out tomorrow. Now I just need to figure out how to make my future offers easier to put together than these first few ones. Any tips on this would be appreciated.
Hey, at least I’m DOING something! =) (I don’t want to admit how long I sat there with the phone in my hand before gathering the nerve to call that first agent