I looked at three houses on Thursday. 2 were fairly new to the market and needed substantial work. 1 needs only cosmetic repairs. The two new properties had such a flurry of offers above what I was asking, it wasn’t even worth pursing.
For example one property needed 40k worth of work in my estimate. ARV would be 135-140k depending on results of this funky addition off the back. My offer price would have been 47.7k. They had 11 bids some as high as the mid 70k range. Makes me wonder if I am over estimating repairs a bit. The common formula for most is .7 x ARV-repairs=offer. Even if you use the top ARV of 145k x .7 -30k in repairs that is still on offer of 71.5k. Nearly 24k higher then my estimate. My Realtor felt my comps were good at 135-140k. He did think 40k would have been way to much for these properties.
On the other miss, I would have offered 56k. They got offers in the mid to high 80k. I may be a bit to low, but I sure as hell wouldn’t go that high in my most liberal estimates. Even at high comps and .7 formula they would have to do 15k worth of work to make the numbers happen. Not sure how thats possible when it needs a new kitchen, roof, furnace, flooring throughout, mold remediation 3 feet of drywall in the lower section, and all new windows x12. Hell the windows alone are $350/window before the lead laws. Since they are all broken, this is a must for the rehab. I have got a great vendor for windows much cheaper and better then most. The new lead laws will increase the window costs by up to 50%. Assume $4200 for windows, $3000 for all new kitchen and appliances, 1700 sq ft of flooring, $3000 for the new roof and your already at the 15k. The numbers just don’t make sense to me.
My formula and comps are solid, but I do think my estimates need some tweaking. I will hire a GC to walk through a couple props with me and give estimates. That may help me tremendously.
I don’t have doubts on my ability to pick up properties at great prices, but there are some gaps in my immediate knowledge I need to explore. Till then, thats the update for now. I leave you with this quote, “Create a definite plan for carrying out your desire and begin at once, whether you ready or not, to put this plan into action. ” Napoleon Hill
I like how you are sticking with your numbers and trusting yourself. Do you try and explain your offers? or is it hard to do that because you are going through Sales Agents?
I haven’t tried explaining them yet, but I may down the road. I read on BP how it helps with fannie and freddie offers.
Good post Jason. I applaud you for bidding on REOs. A lots of investors in my neck of the woods are in realtors’ pockets when it comes to REO and I felt I was late to the game when I first started because the good deals were gone either before they were on the MLS or the minute they hit. Talk about competition, people were willing to bid much higher than wholesale prices, so I didn’t stand a chance. Might be different in your market, but either way you seem to know what you are up against. Keep on rocking
I am constantly running into the same situation. I am being out bid by a lot. Bids are coming in at a price whereby they cannot possibly make money.
I use the same 70% formula and I am pretty good at fuguring the costs of repairs (although I will admit I am a bit conservative).
I guess it all goes back to the fact that this is a numbers game and there will always be inexperienced investors that you are competing with.
Sharon
Thanks Esi. I agree, to many dogs fighting over the sames bone. I will be pushing towards a niche down the road. For now this will have to work. Just need to get a bit of capital so I can branch out to a good niche.
Great advice for looking at deals. Do you know where I can find a good template for looking at real estate deals really fast? Maybe you can recommend something in excel form.
Download a catalog for free from home depot or a similar store and familiarize yourself with the prices. This goes a long ways with helping to figure repair costs.
Jason,
I honestly don’t have a program for that, although setting up your search criteria in the MLS helps greatly. I look for properties that have a certain amount of seasoning, have changes, and are in my target zone. I’m almost at the point of looking at numbers and streets and being able to tell how close we are in their price and mine. I still have a loooong way to go mind you, but it gets better every time I look. The other item I do to help out is look at all the sales for the last week in my target zones. I want to see days on market and sales price. Plus I get to look at 10 rehab pictures. Its a great way to get ideas without having to walk through each house.
Greg,
Thats a great idea. I will do that tonight.
Jason
Sharon,
your 100% correct with the inexperienced investors. The key is to stay with your numbers and play that numbers game until you get one. I know Ive been very tempted to push numbers this way or that. My coach slaps me back down to reality. It only takes one. If I need to submit 50 offers to get that one, so be it. Good luck.
Jason
Hey Jason, I agree with Greg on a fast way to find prices but I like the idea of hiring a reliable GC to do a walkthrough with you and getting schooling on how much things cost (because the cost of labor is a huge expense). Keep up the great work!
By the way, I’ve been asking all of my favorite bloggers to do this…can you please install a subscribe to comments plug-in so we can subscribe and get all your responses to our comments, etc? Here’s where you find it:
http://wordpress.org/extend/plugins/subscribe-to-comments/
Thanks
Shae,
Good idea on the GC. I have that on my plan to get two GC to walk me through repairs on a property this week. I need to find two first lol. Thanks for the heads up on the plugin. I will get that in asap.
Jason