Bank REOs: What Is Realistic Discounts?
February 22, 2009
Right now, people are really starting to recognize that there are tremendous discounts available to them by buying distressed properties (foreclosure or bank REO).
Talking with investors from around the country, however, we find that there is a ton of misinformation that is out on the web, especially as it relates to discounts.
Let’s step back for a second to see what kind of discounts you can expect. Of course, this greatly depends on the property and the area.
Discount Rel
ative To What?
We hear many brokers stating “this property is 50% off the peak price”. Our response is who cares? The only thing that counts is the discount to market value TODAY. When you hear us quote discounts, then we will be referring to the discount relative to the true market value in this environment.
New Properties
One type of property that we like is new bank owned foreclosures. In this case, then a builder or developer was over extended and the bank had to take the property back. As a general rule of thumb, these properties are EXTREMELY marketable if priced correctly. Regardless of market conditions, local home buyers will come out in force to buy properties that are a legitimate 80% of market value today. Now realize that today’s prices are very, very low. By buying at this kind of discount, then as soon as you get some sort of market rebound (yes, it will rebound at some point), then you can truly be in a great equity situation.
Older Existing Properties
This is where the real discounts are to be had…. the market is not as large as for newer homes to banks really do have no outlet for these properties. In this case, single buyers can expect to purchase these homes at 60-70% (30-40% discount) of today’s prices if they do a fair amount of searching.
However, by purchasing in conjunction with a much larger buying group (like BankREOSpecialists.com), you can easily get properties at 40-50% of current market price (our typical properties of this type are priced at 45% of current market value or less)!
Is Now The Good Ole Days Of Real Estate Investing?
February 16, 2009
Are The Good Ole Days Here Again?
I was thinking the other day, boy, do I miss the good ole days…… You know, like back in 2005 during the heyday of the real estate bubble.
At that time, it was actually very simple to buy & sell houses and put a six figure income in your pocket. I personally was doing this and will even share my “secret, can not fail, so easy to do it my dog makes money” GURU System. And I won’t even charge you.
Here were my steps from back then:
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Step 1: |
Be located in a hot area; |
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Step 2: |
Convince a good local realtor that you are in position to close houses fast, all you need is deals that are “below market”. In my area, these are referred to as “back pocket” listings and they were not on MLS yet; |
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Step 3: |
If the property was in good shape but maybe needed a LITTLE cosmetic work, then buy it and get permission to market and do alterations before close of escrow; |
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Step 4: |
As soon as people moved out, order a “mow & go” which was a quick yard clean up, maybe do some touch up paint, etc. but keep expenses below $1,000; |
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Step 5: |
Have the same realtor from Step 2 start “spreading the word” that they have a hot new listing coming on the market; and |
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Step 6: |
Sell & close in about 45 days. With a small market discount, a little clean-up, good remarketing, and 45-60 days of appreciation, this was a little goldmine. |
While there were fancier methods to avoid some of the expense and risk, this approach was easy and could be implemented by the realtor, my wife, and about 2 hours total of my time per home.
Net Profit Per Home? About $15,000 to $20,000.
Boy I miss the good ole days…..
One interesting note here is that while this was QUIETLY going on, most other investors were whining about they couldn’t find a good deal anywhere.
Are The Good Ole Days Here Again?
It does not take a rocket scientist to know that we are in a very unique time in real estate history, although depending upon your age and experience, you have also probably witnessed some other “interesting times” like in the RTC debacle.
Like during every other real estate market, I am hearing reports of some individual investors “slamming it” and a bunch of people saying, it’s impossible to get anything done (some things never change). The people that are really making hay during this market (no, not the ones trying to sell you guru courses) all have systems in place that are working in their market.
The ones that are saying its impossible are saying
- Banks are being uncooperative;
- Takes 4-5 months to get a short sale approved;
- Everybody is upside down with no equity;
- As soon as somebody shows up on a pre-foreclosure list, they are hammered by every realtor and would-be investor in town;
- Etc, etc.
Even with these issues, there are a few people that are putting 6 figures in their pocket annually and some of them are doing it monthly…..
For them, THESE are truly the good ole days.
This Approach Is A BUSINESS, Not A Hobby
I have to laugh every time I hear a “Guru” advertise their latest product or coaching course as “work only a few hours and make XXX/Month”.
In actuality, they are right about that but only AFTER you have the business set up and IF YOU set it up correctly. Let’s return to my example of the good ole days. If you look, I was averaging $7,500 to $10,000 per hour of MY TIME.
With that statement and the proof I could provided, I could have gone out and sold courses, coaching classes, workshops, etc. But here is what I know (and the Guru’s know it too), that to get to that stage usually takes a heck of a lot of work.
Nothing wrong with that but to generate active investment income like this, you will need to be IN THE BUSINESS of real estate.
Usually what this means that you take somebody else’s concept, you adapt it to your market (lots of trial and error), you then assemble an external team around you, and then you are in a position where hopefully this is highly profitable.
Right now, I see a few people that seem to have a “good system/business” for making great money in this market. Each has there own little twist, and many of them have learned it from a guru. However, they have then worked hard to adapt it to their market and style.
I can assure you that there is very big money to be made in this market given all the turmoil that we are in. However, you need to decide “are you looking for just a couple of investments” or “are you looking for an active business”.
If you are looking for a way to make active income and are willing to put in the effort to establish a good business, then there are great opportunities out there right now. If you do not want to take on this much activity, then you may want to consider looking at what we call Assisted Active or Passive investing. These topics will be covered in detail in our next two e-mails/articles.
What’s Your Investor Type?
February 10, 2009
Introduction
Have you noticed that everywhere you turn, people are highly excited about distressed properties and their profit potential? By distressed, I mean:
- Pre-foreclosures;
- Short Sales;
- Motivated Sellers (but not in trouble yet);
- Courthouse Step Sales;
- Bank REO’s;
- Cash flow Deals (or steals);
- Subject To’s
- Bird Dogging;
- Wholesaling; and
- the many other buzz words floating around the industry.
In addition, anytime something is a hot topic with profit potential attached to it, then the “guru” crowd runs wild with the latest and greatest offerings since sliced bread. I literally get 2-3 “releases” each day for something that is going to make us all rich.
Over the years, we have developed a database of over 31,000 real estate investors and needless to say, I have had a “few” conversations with most of the “gurus”. One place where we see a tremendous amount of confusion is in the realistic expectations for the amount of time required vs. the expected risk & returns for a given type of investment opportunity.
That probably doesn’t surprise you, given all of the “false” advertising that exists across the Internet….. So for example, consider this headline that I just saw:
XXX Students Have Made Over $230,000 last year while only working only 2 Hours Per Day.
Pardon me but I call “Bull” on this claim… While one guy may have gotten lucky (maybe), the odds of you accomplishing the same are slim to none.
Different Investor Types:
Knowing The Difference Really Is Important
Based upon our years of experience, we find that most investors fall into one of these 3 different categories:
Active Investor:
This is a person that makes real estate investing their “day job”. Typically, they invest only in their backyard, work this as a business, and many people in this category have teams of 2-5 people to make this work successfully. On a daily basis, they are constantly working on identifying motivated sellers utilizing a variety of resources, including foreclosure lists in order to find investment opportunities that make sense. We have found that these investors sometimes need to identify 20+ motivated sellers in order to get one deal that works. In addition, they are actively marketing their opportunities to end-users who will ultimately lease/buy their property (flips, lease-options, wholesaling, etc., etc.). Make no mistake about it, if you have a regular day job, you should realistically analyze if this approach is practical for you.
Assisted Active Investor:
This person typically has a regular job or business but has several hours per week to put into their real estate investments. This person is frequently active both in local markets and/or out of town/state markets. To compensate for the reduced time availability as compared to the active investor, they use other professionals to either locate great deals, or find new buyers/tenants and manage, or both.
The hardest task for the Assisted Active Investor is usually getting the TOP local experts interested enough in really working on bringing them good deals or good buyers. Note that I said “TOP” local expert because the run-of-the-mill Realtor/Broker will just not do in most markets. These top experts usually are working with past proven clients, so you really have to get their attention in order for them to work for a new unproven investor.
Passive Investor:
This person always has a day job and has excessive funds that they want to put to work. They are typically very busy (doctor, lawyer, engineer, business owner), have little time, but are looking for great ways to deploy their capital.
Unfortunately, too many of these people get convinced that they can get “rich” by simply buying the latest course, or buying the latest property “while supplies last”. In actuality, this type of investor can make OUTSTANDING returns. However, having looked at almost every passive real estate deal over the last several years, I can tell you that it is not likely to happen overnight. If you want very good returns, with low risk, with minimal time involvement, then there are definitely good deals out there for you in this category.
So, before you get too excited about “getting rich” on someone’s latest course or property offering, I strongly encourage you to decide your investment type and then manage your time/risk/reward expectations accordingly.
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Who Is "REALLY" Making $ In Today's Real Estate Market?
Our 29,689 Members Tend To Agree...
It's Usually Not The GURUs
Have you ever noticed that every "Guru" real estate pitch sounds the same........
They once were poor, but now are rich working only 5 hours per week, and you can be rich too if you just buy their "can't fail system".
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