House #48 was a small and average house on a big lot in a decent area of town, we originally bought it and planned to make it a rental house.  The lot seemed good on paper but in realty it wasn’t easily to expand the property or subdivide the property, so we decided to attempt to wholesale the house while it was in escrow.  The good news was the house needed very little work and was as close to turnkey as anything we buy.

We are a bit different than your average wholesalers.  As we are looking at purchasing properties we are focusing on two strategies: renting it or retailing it.  If we put too many houses under contract we start thinking about wholesaling.

For whatever reason (probably the reasons I mentioned above) I couldn’t get any investors very excited about this house.

At this point most wholesalers would cancel the contract and abandon the deal.  Because we do not want to damage the relationship with the REO company that sold us this deal we decided we would do a minor rehab and try to sell it.

The good news is we sold it just before the New Year, our profit ended up being about 4x what the wholesale profit would have been so it turned out to be a winner. This deal really had all of exit strategies in it: wholesaling didn’t work, retailing did and renting it for nice cash-flow was an option available to.

If you have been following the blog for a while you might know that House #39 was a high end fire damaged property we bought in April.  We did a pretty solid rehab and where WAY over budget (in case you where wondering). After about two weeks on the market we have 5-6 verbal offers (lower offers) and three pretty serious parties interested in the house.

Offer #1 – Was a real estate agent who just got married and a very nice guy.  He knew the area well and was wondering if we could work a deal before he went on a two week European vacation.  My partner and I gave him our bottom line number and told him they had to waive the appraisal contingency and  close within 30 days.  They considered it seriously, looked at the property again and decided they would wait until they came back as they wanted us a bit more flexible on price.

We told them our strategy that if we did not get an offer we would be lowering the price and if he wanted to pay less waiting was his best option.

Offer #2 – Was a young couple that was going to have a family member gift them 50% down-payment on the house.  We where really close to working with them and had verbal approval.  The main sticking point was we required an appraisal contingency removal to move forward.  They initially agreed but after doing some further research decided they would agree to everything but an appraisal contingency removal.  Since they initially agreed and changed their mind this really rubbed me the wrong way and I decided to stop all negotiations.

Offer #3 – Is a successful business man and his wife.  The agent called before they sent in their offer and I told them we where in serious negotiations (with Offer #2).  He put a good sized non-refundable earnest money deposit down and removed the loan contingency from the start.  I let the offer sit for a while because I thought we would be picking Offer #2 that had a better down payment, but once they backed out we got to negotiations.  The Buyer liked the house a lot and was willing to pay over appraised value if required but had a small hitch.  He wanted to use an FHA loan if possible.  To be honest I wasn’t real excited about this, but I talked to his lender at length and felt comfortable moving forward.  His loan contingency was removed, so what do I have to loose?

The appraisal did have a small issue, but the lender was able to challenge it and get it fixed.  It originally came in at our contract price, but the appraisers boss reviewed it and cut it, they challenged it and it got moved back up.   Our Home Inspection went pretty much flawlessly.

At this point the Buyer has removed all contingencies and we should be closing late next week if everything goes as planned.

This is my favorite house we have done so far.  I would happily move in it, but at this point in life I don’t need a 3,500 sq ft house.  The Buyer is getting good value for their dollar too, these have come down a  lot.

I recently listed one of the houses we purchased on the MLS with no repairs, asking for a cash-only investor. Trying to wholesale real quick via the MLS.  Sure enough, I got a ton of phone calls the first couple days and some interesting things happened.

The lock-box combo is not in the agent remarks, they have to call or email to get it.  In the first 3 days I got 4 or 5 offers, only one of them had looked at the property.

• One was for exactly 50% of the purchase price, and was very template offer looking… hmm… I wonder how well this strategy works.
• One was 20% down, the Seller carrying the rest at 4% for 30 yrs.
• Another one was for $30,000 under list price, again they didn’t even look at it.

I also got a bunch of interesting emails.

Investors, if you are presenting this stuff to the bank you will never get any of these accepted.

Be sure to read all the notes and write very clean offers.  Include your proof of funds, articles of incorporation, copy of the earnest money deposit check and anything else the listing agent asks for.  You need to make a good impression on them to get the offer presented!

I have good news, and bad news.  The first buyer on House #26 fell out of escrow, although, they seemed very strongly qualified I think they could not qualify for the loan.  They never really gave a very clear answer, but I got the idea I should find another buyer quickly.

The good news, is we had a cash buyer as a Backup offer.  I was not real comfortable with their original offer, because of the way they wrote it (not the price), but after speaking with the agent and countering some of the things I didn’t like out of it, the Buyer agreed and we where in escrow again.

14 days later they closed and now own the house.  The escrow went really smooth, they removed contingencies and everything.

Purchase 53.8%
Repairs 12.1%
Purchase + Repairs 65.9%

Overall, that is a pretty great deal, especially considering we only owned the property about 3 months. We also sold the value 10% higher than our appraisal, 4 months ago, which is great too.

We are really out there looking for properties right now.  Not finding a lot of exciting stuff, but we are just starting to look aggressively again.  Have a good weekend.

Well, if you read my last post you probably know what I think about most real estate gurus.  I do believe in that a strong team can save you a lot of money, but it doesn’t happen overnight.

For House #16, we put it into escrow on Tuesday.  Last week I sent a informal counter-offer to 5 out of the 8 offers we received.  Basically, explaining how we do things, what we are expecting and what will help their offer stand out above the rest, since the 5 offers all netted us within $2,000.

The three things that would help their offer stand-out:

1. If the Buyer is willing to pay their own closing costs. Since we deal mostly towards an FHA clientele, this is always a tough one.

2. If the Buyer would work with my lender. This is pretty self explanatory, but important.

3.  Escrow must be Seller’s choice.  This is also pretty self explanatory and it is pretty common for the Seller to have their pick of services in this market.

Surprisingly, only two buyers responded.  One raised their offer by $5,000 and the other offered to raise their offer $5,000 and use my lender.  All other things pretty much being equal, you can probably assume which Buyer we choose to work with.

Now the fun parts, this is where things get easy:

1. I call the lender I use and ask him to schedule an appointment with the Buyer and pre-qualify them.

2. I call escrow and let them know the address and the details.

3. The next day the lender calls me back and lets me know the Buyer is easily qualified and he has ordered an FHA case number and had the appraiser give him a verible that she can get the property to come in at contract value.

4. The lender ordered a second appraisal from day 1, so we will not need a review appraisal.  Some banks allow this, since he is the branch manager with a direct lender, his bank rolls with this.

So now we have an escrow with many of my team-mates involved.  If anything goes wrong, I guarantee their loyalty lies with me and they will not delay things.

How did I build this team? Along the way…

1. My escrow lady did a couple purchase transactions early on and simply asked for my business.  I gave her a chance and have not looked back since  (probably 30+ escrows later).

2. Title Insurance I never really get to pick, since I buy Title Insurance Binders that the Seller pays for when I buy property.

3. I have had quite a few loan officers “ask for my business,” this is my second time referring this one a loan, so we will see how it works.  This is always the hardest part to push people on.  But, always, always, always call the loan officer before you do a transaction! You ask them many important questions: “are you a direct lender?;” “are you investor friendly;” “what is the time-frame for a typical transaction;” “how are appraisals ordered;” “how often do review appraisals get ordered, and how;” “what will be the major hurdle for this loan;” “when will you have desktop underwriter approval;” “can you send me a copy of doc and funding conditions when you receive them;” etc…  Can you tell I ask a lot of questions?

4. The appraisers used are usually part of the lenders team, but they often-times do lenders favors.  So, if the lender wants to impress you, they will help protect you from the bad appraiser.

I think it is very hard to build a lot of these team members before you actually start doing transactions.  Everyone wants business, but it is really hard to see how you work together until you do a couple transactions with a person.

Now just for fun, here is the final walk-through of House #16

So Steve, you’ve owned this property for almost 5 months and haven’t sold it or given us an update?  Yes, it’s true, we have owned this property a long time and we just listed it on the MLS 10 days ago.  Why, well a lot of reasons, but no great ones.  We had a lot of different projects that always moved ahead of this one.  Since this was a big rehab that needed permits, we used it as our “utility project.”  Whenever our workers had no other work we sent them here, not the fastest way to finish a project.

This property started out at 1060 sq ft and needed a lot of work.  We added a second bathroom and permitted the porch.  If we bought this property 2-3 months later it surely would have gone into our rental pool.

Now let’s get to the pictures!  PS: a video should be coming soon.

Outside

Before

After

Kitchen

Before

After

Enclosed Porch

Before

After

Bedroom

Before

After

Bathroom

Before

After

We have 5 or 6 offers and it should be flying into escrow on Tuesday (since Monday is a holiday).

Sorry, the pictures are not that great for this one, we have been slacking lately.

House #26 is our most expensive purchase to date, we started the list price kind of high to feel the market out, after feeling things out a bit, we lowered the price a bit and now we have multiple offers on the property.  We made a decision and opened escrow with a buyer, with one big contingency, their appraisal contingency must be removed by Monday (Jan 25).  They are willing to pay over appraised value, but it depends what the appraisal comes in at.

We’ve owned the property for about 60 days now, so I am hoping we can get it wrapped up, closed and sold after owning it 90 days.   Obviously, as this is a bigger loan the pre-qualification process is a bit different than our typical $180,000 sale.  I spoke with the lender at length and this client is the president of a large company in Orange County that is looking to move his kids into a school in Riverside.  They where in escrow on another property, but the appraisal came in 160,000 less than the agreed price.

I will keep you updated on the process, but I am hoping we can get this sucker closed quickly.

I do not have all the answers yet, but I do have a copy of the letter, with the Federal Housing Administration lifting the FHA 90 Day seasoning rule for one year.

http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

Determinations

1. To help facilitate the return of repaired and habitable properties to the market in a timely fashion, additional exemptions to the 90-day resale restriction period must be granted for the purchase of properties by investors.  This policy change will help to sell properties that may otherwise remain vacant for up to 90 days, while offering affordable hosing options to buyers wishing to use FHA-insured financing.

2. All other guidance concerning property flipping prohibition remains unchanged.

3. The most expeditious means of effectuating such additional exemptions is by waiving 203.37a(b)(2).

4. The above findings constitute good cause for the waiver, as required by 24 CFR 5.110.

5. A waiver of 203.37a(b)(2) will not violate any statutory requirements.

6. The waiver shall expire on year from February 1, 2010, unless otherwise extended or withdrawn by the Commissioner.  If FHA discovers that there is significant increase in mortgage defaults and mortgage insurance claims attributable to insured mortgages obtained through this waiver, the Commissioner may, at his discretion, withdraw this waiver immediately.

Waiver

Section 203.37a(b)(2) of the FHA regulations (24 CFR 203.37a(b)(2)) is hereby waived for a period of one year from February 1, 2010, with regard to subsequent sales by purchasers, subject to the conditions of this waiver.

This is going to be a game changer.  I think we will see fraud increase substantially.  Investors snatch a property and sell it within 14 days for 150% of what they bought it for, doing next to no work.  I am surprised that no rumors surfaced, when the email came across my desk it was a complete shock to me!

I should have posted about this before Christmas, because this house sold on December 21.  But I am way behind, as you know.

We bought this house at the end of July and ended up owning it almost 150 days (you got to love the FHA 90 day rule).  The house had slight fire damage and needed a lot of repairs for a small house, the listing agent was someone we have not worked with before.

The original offer was way above what I thought it would appraise for, with us paying for some closing costs.  I spoke with the buyer’s agent and he let me know if we did run into appraisal issues his client wanted the house so bad they could pay their owning closing costs.  I was sold, and we opened escrow.

Everything else went pretty smooth, we did have a break-in, which was pretty bad (cost about $3,500 to fix).

Purchase Price were 34% of sales price.  Repairs were 28% of sales price (with the break-in), so that totals 62% on the dollar.  We did sell this property 16% above the original appraised value.

Overall, it was another great deal.

We just got our third offer on House #17 today, and it was almost full-price cash.  The family is wanting to move closer to their sick mother and sold their house closer to LA.

This is not the first offer we have received on one our properties, someone gave us a cash offer on House #11, but we had already accepted another offer, so it was too late.

I issued a counter to this offer pretty quick, nothing major, just named the escrow company and increased their earnest money deposit a little bit.  They have not sent back the executed counter back yet, so we will see what happens.

I do have two other offers in, one is higher and one is pretty close.  They did offer a 15 day close of escrow, which would work for us and definitely save us some closing costs.   Hopefully we can get escrow opened up on Monday.

The marketing is a bit slow on House #15.  Our FHA 90 day period is just coming up, so we started marketing the property to FHA buyers.