Market Condition for Rehabbers

Market Condition for Rehabbers

I know the market got slow down for flipping properties, but still I would like to ask these questions so I can understand how and what everyone is doing.

Questions for active rehabbers.

Hope you would understand that I trying to get in rehabbing but don see this big green light, and also hard to meet an active rehabber to ask these questions.

All real estate markets are local. I am sure there are some strong neighborhoods to flip around you, and some to stay away from.

In my local market, the first time home buyers are the target buyers. That means buying flips for 40 50k and selling for 85 90k comping out at 100 110. This is where the buyers are in my market.

You have to buy right, so you can sell a rehabbed home under comps and still make money.

If a realtor shows me comps at 100k and they say they could sell it fast for 95k. I plan on selling it for 85k. I know this before I make an offer to purchase.

You have to do enough local market research to feel confident enough to give yourself the green light!

Great question Jason and excellent response Steve. I was just speaking with an experienced investor in my area and he said the exact same thing. I had the same question.

I hope you don mind me asking a question in your thread Jason. As I understand it most first time home buyers receive FHA loans. I read here that the 90 day seasoning period has been relaxed but I heard in my local area, banks or mortgage companies still require waiting 90 days. So are most rehab flippers waiting 90 days to sell their properties?

Jason, I see that you are in Chicago so perhaps I can offer you more specific info particularly about our market. What we have in Chicago and a lot of places around the country is a case of huge ranges of home prices even within the same area. This presents an excellent opportunity for arbitrage that does not exist in other times. The type of appreciation that occurred during the boom times was exactly that appreciation. Today, to raise value in a property you must deliver an excellent product at a low price.

To answer your questions:

1. Yes, in 2009, I did 6 total. So far in 2010, I have fully closed on 4 projects and have 4 more under construction.

2. The most important thing you must ensure in this market is to make your initial purchase cheap enough. This way, you are able to make improvements and still make profit after your final sale. A good way to think about it is that it may cost 100,000 or more to do a really excellent rehab plus holding costs, financing, etc on a really dilapidated house, but it could raise the value of the house by 150,000. The difference is your profit. The cheaper you buy it, then the more flexibility you have in delivering a profitable and sellable product. Also, if you buy cheap enough, then you can sell for cheaper than the competition and still earn your profit goal.

3. I would say your house is over priced. Moving forward, I would try to sell the house just to break even, or rent it out until the outlook has changed.

Jason as you can see from my answers my business model requires me to buy as cheap as possible. In Chicago, you can look on the South and West sides for cheap properties, starting as low as 5,000 in some places. A huge aspect of the price is the neighborhood. REO homes in bad neighborhoods are heavily discounted. The money comes in the difference between the REO home that is purchased and the retail price of a final product what some on this forum called ARV. Right now single family homes on the South and West side sell for as low as 5,000, and pretty poor shape REOs average about 20 30,000. ARV in a lot of these areas are between 80 120,000. The truth is, if houses are selling for about 110,000 on your block, you probably going to want to be happy selling it for 90,000, as long as you make profit that is amenable to you that is worth your time and effort.

As you know people are getting shot every weekend in the South and West sides, though that why properties are so cheap. In essence, the cheapness of some of these properties is in risk premium. However, although those places can have high crime, the people that live there still need housing, and most are law abiding citizens that just want to have a piece of property they can call their own and take care of, and live a decent life. There are many buyers out there even in the hood. Other factors include the sheer amount of REOs.

This year, I have been doing more South side around places like Roseland, Chatham, South Shore. an example of a deal I did recently was an 18,000 purchase price, with a 15,000 renovation, and the final sale price of 80,000 over 4 months. The next cheapest non REO house on the block was listed at 95,000. The buyer was an investor that has subsequently been a return buyer.

On the West Side I prefer Austin to Humboldt Park, though I recently did a more expensive but highly profitable flip in Irving Park. My brother completed a job in March in Albany Park and it was under contract in 2 weeks.

There are a lot of areas that are nicer than the West and South sides that flipping activity still occurs in, but are at a higher price point. In this case, you are looking at places like Albany Park or Portage Park, or in the suburbs like Evanston and Oak Park say purchase price of 100 200,000 with ARV of 300,000 400,000. I haven ventured far past those suburbs yet. To a lesser extent, these flips are occuring in Chicago neighborhoods like Irving Park. You can use the MLS to find historical data on sales and keep track of flipping activity.

I am not afraid to tell you this because actually the market here in Chicago is very competitive. Even in the really terrible REOs in the really horrid neighborhoods, the people coming in and out of these buildings are frequent. Especially on the MLS. There are thousands of deals out there on the MLS. What I like to do is just search for SFHs in a neighborhood and sort by cheapest. The gems are picked up quickly they are usually under contract after a few days. However, I like to look at the ones that have been on the market for over 90 days it usually denotes greater leverage for your negotiation of the sale price. And like I said, its all about getting it as cheap as possible.

Also don be afraid of getting shot. Just don drive there in a BMW. Say hi to the neighbors if they out ask them about the neighborhood. I always like to ask if there have been a lot of people coming to see the place invariably the answer is always yes. Smile be friendly. Don wear your Longines watch. Don bring an iPad.

Elisha, your question regarding 90 days. well often times it depends from market to market. Here where I am, it might take 90 days just to get a building permit.

Thanks everyone for taking your time to reply my questions! Elisha I guess you got your answer pretty quick!

Steve, when researching the target area, should I use a realtorwhom I never worked within that town who knows that particular area better? or should I use a realtor who I normally work with and doesn know much about that area but digs in MSL to research informations needed to know to decide on purchasing?

Which realtor should I triy to work with to find the best informations about that area to decide on purchasing the house?