Real estate

[Karma]

I've gotten into "flipping" houses with some success. Anyone else doing or have done this? I'd like to hear some experiences and learn a bit.

[ricepig]

Buy low-sell high?  Sorry, no help on housing, I've flipped several farms over the past 20 years, if that's any help, haha. I suppose it's the same, fix them up right and make them appeal to those driving down the road, or in the market.

[Karma]

Buy low-sell high?  Sorry, no help on housing, I've flipped several farms over the past 20 years, if that's any help, haha. I suppose it's the same, fix them up right and make them appeal to those driving down the road, or in the market.

That is solid advice. There's a lot of moving parts to doing this, but hopefully can make some money.

[ricepig]

That is solid advice. There's a lot of moving parts to doing this, but hopefully can make some money.

I'm sure it depends on your local market, as in any investment, don't get overextended.

[Karma]

I'm sure it depends on your local market, as in any investment, don't get overextended.

For certain.  Goal is to buy a house for $50k, put in around $20k and sell for mid $90s.

[Dr. Starcs]

How do you go about finding foreclosed houses?

[ricepig]

How do you go about finding foreclosed houses?

Several options, MLS listing from an agent, county courthouse(public record), bank, websites(Realty Trac), even the classified ads in your local paper.

[Karma]

Several options, MLS listing from an agent, county courthouse(public record), bank, websites(Realty Trac), even the classified ads in your local paper.

Best option is realtor, but check hud.com and auction.com too.

[hoglady]

I've gotten into "flipping" houses with some success. Anyone else doing or have done this? I'd like to hear some experiences and learn a bit.

My advice - from experience of 2008 is don't get too heavily invested in too many houses at one time especially if using bank financing. My experience from 2008 is the banks will call those notes as soon as they can if the market collapses. I had many investors I was working with at that time end up in bankruptcy - most just had too many houses (that they were in the process of rehabbing) that had lost over 50% of their value and their banks would not hang long enough to let the market recover.

[hoglady]

How do you go about finding foreclosed houses?

Send me a PM - I can probably help you.
I may know a realtor in your area I can recommend.
Try to use a realtor that specializes in the foreclosure market.
Some of the larger banks and loan servicers are selling these properties without a local realtor via online auction sites.

[Karma]

My advice - from experience of 2008 is don't get too heavily invested in too many houses at one time especially if using bank financing. My experience from 2008 is the banks will call those notes as soon as they can if the market collapses. I had many investors I was working with at that time end up in bankruptcy - most just had too many houses (that they were in the process of rehabbing) that had lost over 50% of their value and their banks would not hang long enough to let the market recover.

That's very good advice and part of my strategy. I'm trying to never have more than 2 houses at once, and to use no financing.  It limits the upside, but more importantly it limits the down side.

[Pulled(PP)pork]

My advice - from experience of 2008 is don't get too heavily invested in too many houses at one time especially if using bank financing. My experience from 2008 is the banks will call those notes as soon as they can if the market collapses. I had many investors I was working with at that time end up in bankruptcy - most just had too many houses (that they were in the process of rehabbing) that had lost over 50% of their value and their banks would not hang long enough to let the market recover.

Dave Ramsey recovered!   


PP

[hoglady]

That's very good advice and part of my strategy. I'm trying to never have more than 2 houses at once, and to use no financing.  It limits the upside, but more importantly it limits the down side.

That's good strategy - if the market collapsed you would be in a position to ride it out and possibly rent out the houses until the market recovered. There are still many areas that values have not returned to 2008 values, but they've recovered enough over the last few years investors that were able to ride it out - have been able to recover at least break even.
I'm pretty jaded and view everything from the perspective of riding out a collapse. I guess because I saw first hand the emotional and financial toll 2008 took on so many business colleagues, friends and clients.

[Karma]

That's good strategy - if the market collapsed you would be in a position to ride it out and possibly rent out the houses until the market recovered. There are still many areas that values have not returned to 2008 values, but they've recovered enough over the last few years investors that were able to ride it out - have been able to recover at least break even.
I'm pretty jaded and view everything from the perspective of riding out a collapse. I guess because I saw first hand the emotional and financial toll 2008 took on so many business colleagues, friends and clients.

Do you/did you work for a bank during the 08 collapse?

[Ragnar Hogbrok]

Remember to make your money at the closing table.

[Karma]

Remember to make your money at the closing table.

What does that mean?

[McKdaddy]

My advice - from experience of 2008 is don't get too heavily invested in too many houses at one time especially if using bank financing. My experience from 2008 is the banks will call those notes as soon as they can if the market collapses. I had many investors I was working with at that time end up in bankruptcy - most just had too many houses (that they were in the process of rehabbing) that had lost over 50% of their value and their banks would not hang long enough to let the market recover.

Mark-to-market accounting was killing the banks. Not coincidental that once the SEC suspended it in spring of 2009, the financial crisis calmed down (relatively speaking).

[snoblind]

The mentality is to always go after foreclosures.  Sometimes, a better bet can be estate type sales, especially if the surviving spouse is going to live with family.

[hoglady]

Do you/did you work for a bank during the 08 collapse?

No - I'm a realtor who at that time was mostly selling foreclosure property to investors for them to flip.
And then tried to help them salvage what they could when it all came tumbling down.
Some of my co-workers were in the middle of a couple of subdivision developments in 2008.
2008 and it's aftermath was the worst I've ever seen - and I was a realtor during the 17% interest rates of the early 80's and the S&L collapse.

[Karma]

No - I'm a realtor who at that time was mostly selling foreclosure property to investors for them to flip.
And then tried to help them salvage what they could when it all came tumbling down.
Some of my co-workers were in the middle of a couple of subdivision developments in 2008.
2008 and it's aftermath was the worst I've ever seen - and I was a realtor during the 17% interest rates of the early 80's and the S&L collapse.

Owning a lot of underwater houses that no one wants to buy seems like a particularly bad spot to be in.  To say the least.

[Ragnar Hogbrok]

What does that mean?

You shop for the right real estate and negotiate price with leverage.  That leverage could be that no one else has looked at that real estate in weeks, it's foreclosed, or someone is selling real estate because they need money quickly.

The price you pay for the real estate versus the actual value of the real estate in the market is where you make or lose most of your money (barring catastrophic structural findings the inspections didn't identify).

[ricepig]

You shop for the right real estate and negotiate price with leverage.  That leverage could be that no one else has looked at that real estate in weeks, it's foreclosed, or someone is selling real estate because they need money quickly.

The price you pay for the real estate versus the actual value of the real estate in the market is where you make or lose most of your money (barring catastrophic structural findings the inspections didn't identify).

Hmm, most would think of the "closing table" as well, at the closing and thus a done deal. You are referring to the negotiations in an offer, but it still applies. Or that's where I was confused on your post.

[Ragnar Hogbrok]

Hmm, most would think of the "closing table" as well, at the closing and thus a done deal. You are referring to the negotiations in an offer, but it still applies. Or that's where I was confused on your post.

Sorry, I consider and lump signing at the closing table part of and the end to all of those negotiations.  Choosing whether or not to sign based on the deal you're getting is what I was getting at.  Signing the dotted line should give you automatic equity if you do it correctly/smartly.  I can't think of any situation where purchasing real estate at negative equity would be a good thing.  Just my opinion.

[ricepig]

Sorry, I consider and lump signing at the closing table part of and the end to all of those negotiations.  Choosing whether or not to sign based on the deal you're getting is what I was getting at.  Signing the dotted line should give you automatic equity if you do it correctly/smartly.  I can't think of any situation where purchasing real estate at negative equity would be a good thing.  Just my opinion.

Yeah, not sure why anyone would to buy anything at a negative equity, but lots of real estate turns that way when the economy tanks. My decisions are made on the offer/acceptance, including closing costs and how they are divided up.

[Ragnar Hogbrok]

Yeah, not sure why anyone would to buy anything at a negative equity, but lots of real estate turns that way when the economy tanks. My decisions are made on the offer/acceptance, including closing costs and how they are divided up.

People used to borrow up to 125% of their home value when buying a home in order to make improvements or have cash for whatever.  So they were already over-extended by 25% or so when the real estate market collapsed.  That's why the foreclosure market was so lucrative when I bought my home in 2011.

Normal, everyday people were being foreclosed due to being laid off and not being able to sell their homes because of the negative equity.  I hate it for the people who owned the house before me, but that's life.  Before the attention paid to the subprime crisis, people routinely borrowed more money than their home was worth.  Some came out ok, others not so much.

[Pulled(PP)pork]

People used to borrow up to 125% of their home value when buying a home in order to make improvements or have cash for whatever.  So they were already over-extended by 25% or so when the real estate market collapsed.  That's why the foreclosure market was so lucrative when I bought my home in 2011.

Normal, everyday people were being foreclosed due to being laid off and not being able to sell their homes because of the negative equity.  I hate it for the people who owned the house before me, but that's life.  Before the attention paid to the subprime crisis, people routinely borrowed more money than their home was worth.  Some came out ok, others not so much.

I got family that still does.....my aunt (god rest her soul) refi'd every other year, back before 2007.  Unfortunately, she never changed her spending habits after doing so.


PP

[ricepig]

People used to borrow up to 125% of their home value when buying a home in order to make improvements or have cash for whatever.  So they were already over-extended by 25% or so when the real estate market collapsed.  That's why the foreclosure market was so lucrative when I bought my home in 2011.

Normal, everyday people were being foreclosed due to being laid off and not being able to sell their homes because of the negative equity.  I hate it for the people who owned the house before me, but that's life.  Before the attention paid to the subprime crisis, people routinely borrowed more money than their home was worth.  Some came out ok, others not so much.

Well, I blame their lenders, they deserved to be left holding the bag. As far as the borrowers, 90% weren't eligible for a regular mortgage loan, and had to go the subprime way. As in most "crisis" some get hurt, and some make out like bandits.

[Ragnar Hogbrok]

Well, I blame their lenders, they deserved to be left holding the bag. As far as the borrowers, 90% weren't eligible for a regular mortgage loan, and had to go the subprime way. As in most "crisis" some get hurt, and some make out like bandits.

Predatory lending was definitely a problem. Government coerced a lot of banks to lend because of the mythical "right to own a home."  So, government is to blame as well. And don't forget, the borrower is also just as much to blame. Just because the borrower is ignorant doesn't excuse their responsibility to understand what they are doing.

[ricepig]

Predatory lending was definitely a problem. Government coerced a lot of banks to lend because of the mythical "right to own a home."  So, government is to blame as well. And don't forget, the borrower is also just as much to blame. Just because the borrower is ignorant doesn't excuse their responsibility to understand what they are doing.

The vast majority had nothing to lose, so why not?? Unfortunately, it caused many "normal" mortgage holders to quickly become upside down on their homes, and the oncoming foreclosures.

[Ragnar Hogbrok]

The vast majority had nothing to lose, so why not?? Unfortunately, it caused many "normal" mortgage holders to quickly become upside down on their homes, and the oncoming foreclosures.

I attribute a lot of it to the attempt to "keep up with the Jones."  People overextended on credit because they didn't have the cash or the patience to do it the right way and live within their means.

[Karma]

My strategy is to forego potential gain for corresponding safety. I'm sure there are houses I should buy but I was unwilling to pay up. 

[hoglady]

Sure some of the foreclosures were caused by borrowers overextending but many more were caused by loss of market value - divorce, job loss, job transfer when you are upside down will cause a foreclosure.  I sold a house as recently as last year where the seller brought $40,000 to the closing table on a house purchased in 2007. And these sellers put 20% down when they purchased, paid on it for 8 years and then paid an additional $40,000 to sell it. Not everyone can do that.
In some areas the loss of value after 2008 was as much as 50% - and there are many areas throughout Central Arkansas that still haven't regained their 2008 value.

[Pulled(PP)pork]

I had a friend in California that built a house outside of Fresno/Clovis area, the house appreciated triple in value before he could even finish it....this was 2004


PP

[hog.goblin]

Good read.  I've got someone in over 20 houses right now.  Scares me to death but he's building up equity quickly with his profits (i.e. paying down debt rather than spending it or investing in as many new opportunities).

[Karma]

Good read.  I've got someone in over 20 houses right now.  Scares me to death but he's building up equity quickly with his profits (i.e. paying down debt rather than spending it or investing in as many new opportunities).

What city?

[hog.goblin]

Fayetteville mainly, but some in Springdale

[ricepig]

Good read.  I've got someone in over 20 houses right now.  Scares me to death but he's building up equity quickly with his profits (i.e. paying down debt rather than spending it or investing in as many new opportunities).

I assume you mean as rental properties, he surely isn't flipping 20+ at once??

[Ragnar Hogbrok]

I assume you mean as rental properties, he surely isn't flipping 20+ at once??

Unless he has tons of cash, I'm assuming it's rentals. I'm just curious how one gets approved for that many mortgages unless a lot of cash is placed down up front. Good for him, though. One he pays off those houses, he'll be rolling in income.

[HawgWild]

The stripper in The Big Short owned 5 houses.

[ricepig]

The stripper in The Big Short owned 5 houses.

Yeah, but she had a good income......

[hog.goblin]

I assume you mean as rental properties, he surely isn't flipping 20+ at once??

At 12/31 He has 13 flips in process and 16 rentals on the books.

[hog.goblin]

Unless he has tons of cash, I'm assuming it's rentals. I'm just curious how one gets approved for that many mortgages unless a lot of cash is placed down up front. Good for him, though. One he pays off those houses, he'll be rolling in income.

That's the goal.  He has 6 traditional mortgages left, all on the rentals, but the rest of the rentals and all of the flips are on a commercial line (3-year fixed).  So there is some risk there for sure, but barring a disaster he's positioning himself well.

[ricepig]

At 12/31 He has 13 flips in process and 16 rentals on the books.

Ok, sure sounds like a lot of flips at once, but it's not my specialty at all. I understand the rental part, although I'm not crazy about renting to college students, having been one, and with two up there, haha. Of course, according to my oldest, they always keep your deposit, no matter what!

[AirWarren]

Rice, whats your advice on buying land?

[hoglady]

Ok, sure sounds like a lot of flips at once, but it's not my specialty at all. I understand the rental part, although I'm not crazy about renting to college students, having been one, and with two up there, haha. Of course, according to my oldest, they always keep your deposit, no matter what!

I'm going to butt in here and agree with you.
That's a lot of flips at one time.
Although in 2008 I had an investor I was working with that had 42 at the time of the crash.
I'd be working like crazy to get those houses ready to go.

[Karma]

I'm going to butt in here and agree with you.
That's a lot of flips at one time.
Although in 2008 I had an investor I was working with that had 42 at the time of the crash.
I'd be working like crazy to get those houses ready to go.

How badly did the crash treat him/her?

[hog.goblin]

Ok, sure sounds like a lot of flips at once, but it's not my specialty at all. I understand the rental part, although I'm not crazy about renting to college students, having been one, and with two up there, haha. Of course, according to my oldest, they always keep your deposit, no matter what!

I think he saw the market strengthening and jumped in all the "good deals" he could under the assumption that cheap property will be hard to find by the time spring 2016 is in full force.

[ricepig]

Rice, whats your advice on buying land?

Well, presently, I'm not buying, or not at these prices. Of course, they aren't making any more of it, so I'm always looking at a reasonable deal. Most deals pay about 3.8-4% return tops right now, I'm more interested in something 5% minimum. The current crop prices don't allow for that ROI. I've bought a couple of commercial properties, CAP rate is 7-10%, but then, they don't last forever.

[hoglady]

How badly did the crash treat him/her?

Done - lost those and everything else in the process.
Tried to hang on for a few years - the market just didn't recover and the banks just won't continue to renew notes when the value is no longer there.
(The trying to hang on killed them - sounds terrible but if they'd given those back initially they would have survived personally)

[AirWarren]

Well, presently, I'm not buying, or not at these prices. Of course, they aren't making any more of it, so I'm always looking at a reasonable deal. Most deals pay about 3.8-4% return tops right now, I'm more interested in something 5% minimum. The current crop prices don't allow for that ROI. I've bought a couple of commercial properties, CAP rate is 7-10%, but then, they don't last forever.

I had an opportunity to buy some land and invest with timber. Of course my folks are in the industry. Not an instant return, but money capability is there. Especially with wood for chips and pellet industry.