Is it the market or is it me? - Posted by fin

Posted by nancy on July 22, 2003 at 10:09:00:

Sorry, it was a typo. Meant to type “it’s NOT a buyer’s market”

thanks

Is it the market or is it me? - Posted by fin

Posted by fin on July 21, 2003 at 23:57:43:

I have been reading/researching/studing about REI since last October. I finally took the action early this June trying to get my feet wet in real estate.

I found a real estate agent who sent listing to me weekly. I drove around my ‘farm’ area. I made calls to FSBO signs. I attended Sheriff Sale. I subscribed to a forclosure listing service. I sent out letters to homeowners in foreclosure. I called banks asking for their REOs. I put an ad in the local newspaper offering cash for homes.

But i can’t seem to find a ‘good deal’, in which i mean something that i can make about $10,000 and not the exciting $40,000 i read in the success stories.

The responses i got from my ad are from other ‘beginners’ looking for properties to buy.

For the duplexes we looked at, the owner wanted so much on the property that i can’t see how i can have a positve cash flow after reserves for vacancy, repairs, and management. The ones that are priced right are bought in less than a week with cash offer.

Banks are offering REOs at near if not at market value.

The FSBOs are asking ‘above’ market value because they have done several adds to the properties. I guess if i would assume that the market will appreciate the way it has in the past few years it may not be a big deal. But i want to be conservative, i don’t think that property value in my areas (philly suburbs) will always go up forever. i don’t want to be upside down five years down the road when the market slows down.

Here is another example that just happened to me today. I called up an ad that says fixerupper $49,900 all CASH. He said if we want it fixed, the price would be $80.000. I said, well, we want to fix it up ourselves. So we went to see the property. It is in an ok lower middle income neighbourhood. The building seems to be in good shape with some work needed for the kitchen, carpet, paint (i estimate $5,000). i thought may be if i can fix it up and sell it at 70,000 it could be a deal. So i went on the internet to do my comps. Houses on the same street (similar structure as they are row homes) were sold retail at around $55,000 last year! I thought may be this is not a good site, so i went to another site, and it said the property would sell max at $60,000. So how am i suppose to make money? If i get it for 40 (which is unlikely given how fast things move in the market) + 3 in closing costs + 5 in repairs + 2 in holding costs + 3 selling costs. That leaves me $7,000 profit if i can sell at max price. I do not consider this a good deal given that the figures are best case scenario.

So i am starting to wonder may be there is somehthing wrong with my approach. Other investors and newbies seem to find their deals. Where did i go wrong? What should i do differently?

I will not give up.

Re: Is it the market or is it me? - Posted by Sean

Posted by Sean on July 22, 2003 at 12:45:49:

It doesn’t sound to me like you are doing anything “wrong” per se… you certainly aren’t committing the cardinal sin… PAYING TOO MUCH FOR THE PROPERTY! That is without question the biggest mistake to avoid.

Remember, there are only a few tried and true ways to make money in real estate, wholesaling or Fixing up junkers or buying pretty houses in ways that allow you to make a spread.

Obviously there are tons of offshoots and things, but those are the 3 primary ways. A house only worth 60k needing fix up, no way I am going to pay 50 for it, that would be stupid.

A true 5k rehab is a RARITY in my experience, basically 5K is going to cover paint, and maybe some carpet, and not a whole lot else… a property needing only 5K in fix up, isn’t a fixer upper, its a house that can be sold to an end occupant for a minor discount… which means you are going to have to compete likely with people intending to live there, and sellers know they can sell to an occupant as well… that is generally the WRONG market, unless the seller is really motivated, which with an askign of 50 needing 5k and worth maybe 60k sure doesn’t sound like he’s motivated to me.

ON your example you have a few possible courses,tell him you just can support his thoughts about after repair value, based on comps, and try to get him down… 2 try to set up some insane financing that might make it worth your while, or three, just whack him and move on…

Me personally I would just whack him and move on. I don’t subscribe to the theory that I should “convince” a seller to work with me… This guy just doesn’t sound like the my kind of seller. He wants 50 as is, but if he fixes it wants 80 afterwards, that’s just not reality. You don’t get a 600-700% return on just paint and cabinetry! Particularly in a non-distressed priciing model for a rehab, which this guy clearly is.

Comps are coming in in 50s-60s, which is more realistic return on paint and cabinetry is 5k worht of that might get you a 2-1 return… either his analysis is whacked or yours is… and I don’t know about you, but I ALWAYS give my analysis WAY more weight, than an owner trying to sell on the value of a property.

Sellers are whacky creatures, one house on their block sells for an ungodly amount of money, and they suddenly think their house is worth just as much.

Doesn’t matter that that one house sold far above its worth, because it got some artsy crafty type who wanted to to a full restoration of a turn of the cetury victorian mansion and fell absolutely in love with the original woodwork in 3500 sq ft beast even though it needed 100k in repair, it sold for 175k or whatever and fixed up realistically will only be worth 200-225 on the market…

They don’t get that, in their mind if that dump sold for 175k, then their home, which is a GI Bill brick ranch with 1200 sq ft. with just some spit and polish repair must be worth at least 100k or 125k as is even though realistically its not worth a dime over 60 fixed up.

What you are doing wrong is wasting time with the wrong kinds of sellers, and looking at the wrong kinds of properties.

You want to find the MOTIVATED sellers, and/or the distressed properties. You mention REO’s being listed at market… well if they are in good shape in good neighborhoods why wouldn’t the bank list them at Market? It would be foolish of them not to.

You want to steal REO’s find the ones in lower middle and upper lower neighborhoods, particularly needing repair… and I am not talking just paint, I am talking repair!! A house needing 10k worth of repair in these types of neighborhoods will easily get you 3-4 times that much off its price (ie house after repair worth 60k, needs 10k in repair, a purchase price in the 20s or 30s is almost guaranteed) and the greater the repair it needs the bigger that spread will be!

You mentioned you used “I BUY HOUSES” ad, how long did you run it, and where did you run it? If you only ran it a week, and didn’t get any calls, its not the ads fault. Remember you are looking for the deals, you want the houses and sellers that NEED help.

How often do you check your local multilist? Do you have any REO listing agents or other agents working with you? Have you tried working with bird doggers or wholesalers? Sure they are going to take a cut out of the deal, but if you know what you are doing, you can get properties with more than enough profit left in them if you are willing to do the fix up, and you don’t have to worry about finding the houses… they find em, and bring them to you…

Finally, you mentioned one very important thing… those that are priced right, sell all cash inside a week! That’s the key, if that’s how they sell, that’s how you need to be buying! The real estate cliche at work here is “You can’t steal in slow motion”. If you find a deal get an offer in ASAP… if the seller is motivated, and you are first there with a good deal, you get the house… if you show up a week later, game over its gone.

Re: Is it the market or is it me? - Posted by Nancy

Posted by Nancy on July 22, 2003 at 09:07:34:

Fin,
I’m an realestate agent at Philly Suburb (Collegeville), I know what you mean, it’s a buyer’s market, some times, houses are sold before they are even listed in MLS. However, deals are out there. There are investers working on projects, it’s just harder to find deals. Many people coming to open houses, calling themselves “RE investers” and don’t know anything about real estate. These people are competing with you. Eventually, when the heat cools off, only those who know what they are doing will stay in business.

I’m new to REI and is trying to learn as much as I can right now, keeping my eyes open and seize any opportunity when it arises. Becoming a RE agent is one of the steps I took to gain knowledge in this field. I have learned a lot. My mentor at the agency is working with RE Investor on foreclosures in the area, so I’m trying to be there and learn.
Also, home prices on the internet are often outdated and inaccurate. If you need any information in the future, please do not hesitate to contact me. BTW, where are you at?

Best of luck!!

Nancy

Re: Is it the market or is it me? - Posted by John V, FL

Posted by John V, FL on July 22, 2003 at 02:03:36:

Many will disagree with me but you are entering during a period where everyone and there brother wants to be a real estate investor and is competing with you. You can succeed but it is much harder to get real money making deals than five or ten years ago. Ten times as many people at auctions than a few years ago. More we buy houses ads in the newspapers than houses for sale (okay a stretch…lol) Tons of lists for sale, the internet and easy financing make real estate much more easy to do due diligence and get deals done fast. The cycle will change again once the market gets cleansed. Maybe much higher interest rates or a rolling depression we’ve been in for years finally hits housing would be my guess. When many investors go bankrupt or back to 9 to 5 I’ll be back much more aggresively too. Too many investors you are competing with assume high appreciation and low interest rates forever with no risk these days and that is scary.

Re: Is it the market or is it me? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on July 22, 2003 at 24:39:05:

Fin–(PA)------------------

You are doing everything right. The fact of the matter is that buying bargains means you will be buying one out of 200 or so properties that are available.

You say: “The ones that are priced right are bought in less than a week with cash offer.” There is one answer. Be the first to make an offer. Be set up to get the new listing as soon as possible. Make offers subject to inspection and make the offers BEFORE you look at the properties. Get the jump on the other buyers.

To find bargains, you need a system. You are actually operating several systmes. You talk of a “farm” area. If you stick with one area and become the expert on that area, you may make a deal. Start walking the neighborhoods in the evening and weekends. Talk to people who are outside. Give them a flier about what you want, promising a referal fee (Check legality in your state first). Keep going back. You will become the one who knows first when a property owner is thinking of selling.

Another approach is to specialize not in an area but in a buying strategy. There are many bargain-buying strategies. The best survey book on the topic is Jack Reed’s “How to buy Real Eestate for at Least 20% Below Market Value.” Check it out on his www.johntreed.com website.

Good InvestingRon Starr*

I second the clap-clap ! (nt) - Posted by Matt in Mich

Posted by Matt in Mich on July 23, 2003 at 10:14:36:

nt

I applaud your post. clap-clap - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on July 22, 2003 at 20:56:10:

Sean---------

I like your post. Clap-clap. What is the sound of two hands clapping on the internet? You just heard it.

You wrote clearly. You gave a lot of good ideas. You probably helped out Fin a lot.

Good Investing and Good PostingRon Starr**

Re: Is it the market or is it me? - Posted by Rob FL

Posted by Rob FL on July 22, 2003 at 09:38:26:

You are describing a seller’s market, not a buyer’s market. The seller’s have the advantage because of low supply and high demand.

Re: I applaud your post. clap-clap - Posted by Sean

Posted by Sean on July 24, 2003 at 12:03:39:

Thanks. I hope I did, save him some of the pain most newbies go through.