PRE-FORECLOSURE- NEED HELP FLIPPING!

[bambifox]

I am under contract with seller and I want to flip to investor...what's the best way to do this

[bambifox]

SORRY...DID NOT GIVE DETAILS...HERE'S THE DEAL
HOUSE WORTH 150k
PURCHASE 115K
HOUSE IN GREAT NEIGHBORHOOD COMMUNITY DEVELOPMENT (POOLS, LAKES, AMENITITES, ETC.)
WHAT TO DO???WHAT TO DO???PLEASE HELP!

[bcrider]

First thing is to locate investors. Best way to do that is through and investor club. What state is the property in?

[bambifox]

PENNSYLVANIA...I REALLY DO NOT KNOW HOW TO LOCATED INVESTORS WITHOUT TIPPING THEM OFF TO MY LEAD...WON'T I RUN THE RISK OF THEFT...CUTTING ME COMPLETELY OUT?  THANKS FOR ANY HELP YOU CAN PROVIDE.

[bcrider]

You have to tie up the property first with an option.
But if you don't trust other people, you will never be successful in life. Paranoia will kill more deals than you can imagine.
Find an investor club and send a query out by whatever method they have set up. Something like "I have a property with $50k equity for quick-turn. I will sell my option to another investor for $1k" or whatever the numbers are.

[bambifox]

Thanks again, but at the risk of sounding stupid here it goes...I'm assuming an option is an addendum to the purchase contract.  Do you know where I might find a good purchase contract with option....do i need an attorney for this or will a general form do it?  thanks over and over again!

[Roger J]

If you have a purchase contract on the property, then you don't need an option to buy, you're already buying it.

It's VERY doubtful that you'll be able to flip this to another investor.  By your figures, most experienced investors would pay only $105K (70% of FMV) tops for this deal, and that does not include subtracting out the repairs, if any.

The best that you can do with this one is to fix it up and retail it.

Raj

[bcrider]

Bambifox;
If you don't know the difference between an option and a purchase contract don't by any house yet. You need to get some more education first. You are going to get yourself in trouble.
There are lots of good educational materials on this web site, and you can learn a lot just by reading the articles. But I would recommend you get a few of the courses or attend a good seminar.
Knowledge is your most valuable asset. Without it, you can find yourself in deep financial trouble on what could have otherwise been a good deal.
You also need to be sure the property you are buying really is worth what the seller says. Good comps, a bonified appraisal, or whatever.

[zepedab]

Hi
I have found a house in my neighborhood that is about to be auctioned next week.  I would like to approach the owners (neighbors) and ask how I could help.  Questions:

1) is it possible to do a ss with the time left, or get the lender to postpone the auction

2) where could I find a sample letter that I could put on their door, should I not find the courage to approach them face to face?

Thanks!

[LeiterCIA]

You want to get the house under contract right?

[chilln2music]

Can anyone else attest to this statement by Roger????

"most experienced investors would pay only $105K (70% of FMV) tops for this deal"

Your telling me most investors turn down a possible 35k in equity in a property? I'm sure there are plenty of investors willing to work with less of a profit margin but at least flip a property and make something...

how about this...property worth 2 million, for sale for 1.6 million (only 80% FMV). If I had that under contract and assigned the contract for 25k the investor could sell below market still (lets say 1.8 million) and make 175k.  Bottom line, if there's money to be made I say find a way to make it. Not everyone is investing in million dollar properties but its much easier to flip 2 or 3 properties like this a month and get multiple assignment checks even if they're not 10k a peice...

[LeiterCIA]

My buddy Ron LeGrand also uses 70% as his maximum offer. In fact, he goes one better:

Maximum Allowable Offer (MAO) = After Repaired Value - Repairs x 70%. Then he adds "And we never pay MAO"

The logic is, 30% is our profit margin, assuming everything goes exactly as we plan -- and how often does everything to exactly as we plan? You also need to leave yourself some room for setbacks.

[chilln2music]

anyone else?

[bcrider]

I respect that approach and truly wish I could follow it. But I have not yet found any deals that fit that criteria in my area. If I do find one I will be all over it!
Probably part of the reason is that I strictly limit my farm area. I live in a suburb of a medium-size city, but limit myself to the suburb. I do this because I am a part-time 'buy and hold' investor. I don't want to drive more than 15 minutes to show or maintain a rental.
I have a 'day job' that I really like and that is (by my standards) fairly lucrative. It provides a good steady income and good benefits. I have been able to build up a nest egg I have been using for working capital to invest in real estate.
So I have chosen to limit my real estate options. That means I must also accept a less stringent criteria for deals. My criteria is $10k or 10% per deal, whichever is greater. That subjects me to more risk, but gives me more deals to choose from.
But whatever criteria you choose to follow, I think the main thing is to have a specific criteria and stick to it. There is always the temptation to lower your standards for a house that really appeals to you, or a seller that you want to help. Don't do it! Set a standard and a goal, then stay with it.

[Roger J]

Obviously, I struck a nerve or something with my comment(s) above, so I'll try to explain in more detail.

Chilln,

Any practical investor, mentor, book, course, seminar, bootcamp, etc., etc., will promote the 70% ARV (that's after repair value, which repairs costs are deducted from to get) rule for a fulltime, professional investor.  WHY?  because there is not really 30% "profit" in any deal.  There are closing costs, unexpected repairs, holding costs, agent fees, etc.  The list is endless of possible problems that need $$$ to fix them that can eat up potential profit.  If you do not allow enough room and problems do arise, then you don't make money.  Now, if you have a day job, then you don't hurt as bad.  If investing is all you do, then you don't get paid.

Now let's look at some of you comments.  You asked if an investor would really turn down $35K equity (using the "deal" that bambifox laid out).  First, there is NOT $35K in equity here.  Bambifox has it under contract for $115K, not the investor.  Bambi wants to flip to any investor.  Let's assume that Bambi does an assignment on the contract for $5K (which also eliminates some extra closing costs).  Now the investor is in it for $120K.

Okay, so investor goes to closing and has about $3500 in closing costs (about 3% of total.  Could be MUCH higher if using hard money, private cash, etc.).  Total now at $123.5K.  Let's assume that there is only VERY MINOR repair work and that it costs $5K in fixup and takes one month to do it.  Total = $127.5 invested.  Investor uses an agent, drops in the MLS and since it's in a really great neighborhood, it only takes 3 months to sell it AND it sells for $145K.  4 months (remember the fixup month) X $1000 (123.5K@7.5%/30yrs=$865/month+taxes&insurance costs)=$4K.  Total now $131.5K.  Hey, still looks good right?  That's a $14 profit, right?  Nope.  Agent takes $9K and closing costs another$4K.  Doing the math, you've now made whopping $3K on your $35K equity, and that's assuming that NOTHING goes wrong, and the property sells quick and close to asking price.  BTW, comparing that to a 40 hour work week, you've earned about $4.50 an hour.

Now back to your question, would most investors turn this down? I would say yes, most investors would not take this deal.  However, you've seen from bcrider's post, that possibly someone would.  A buy and hold investor MIGHT consider the deal, but I'll quantify that by saying again, that it won't be a fulltime investor.  Even buy and hold investors, who use this as their income will only pay a certain amount because purchase price directly compares to monthly cashflow.  I've already shown how a considerable portion of "equity" is eaten away by a conventional sale, so I'd recommend to bcrider, if asked, that he should be looking for better deals.

It's simply a risk vs reward.

As far as your $2M home scenerio goes;  First, you have to be in an area where $2M homes are at least fairly common.  Second, at that price range, your list of investors (and buyers) is cut down drastically.  Third, million dollar homes don't follow the norm in buying and selling.  The are VERY hard to appraise and it basically boils down to "it's worth what the seller is willing to pay."  What this means is that there is a HUGE price variable to consider.  What you think is worth $2M, might be worth only $1.5M to a buyer.  So in high dollar homes, the 70% rule is more important than ever.  Fourth, even if you, as an investor, can find a lender for that amount of money, the closing costs will probably be more, percentagewise.  Even if they're not, plug in the numbers in my example above, and that $175K "profit" is gone pretty fast.

hope it helps,

Raj