Tuesday, October 20, 2009

How to make millions in real estate

First you need to start will millions so you can pick up homes at the trustee sale like this guy.

11892 Silverloop in Mira Loma was purchased new in 2004 for $479k. a year and a half later it was sold for $619k. That didn't work out for the buyer for whatever reason and they lost it to the bank. The bank took $270k for it at the trustee sale. I have no idea what the house looked like so it's hard to say what the investor/flipper spent. It says new carpet, paint and appliances. It obviously had a new lawn too. If that's all they did I doubt they have much more than $10k to $15k into the house. Now it's listed for $345k. That's a pretty healthy profit. Even after fees they are looking at a profit of $40k to $50k. Not too shabby for a couple of months.

Does this piss you off? I know Sara doesnt like it judging by her responses in a previous post. But is there anything wrong with it. The current asking price is in line with what the other homes in the tract are listed for. This one is turn key. Had the bank took it back they probably would have listed it for a similar price without fixing it. Sure I would prefer the banks eliminate this extra level of middle men that are making a killing. But that's the system we have. And like with most things those with money are the ones making money. Man it sucks to be po'


ButterMonkey said...

X, most people I know who are buying right now are going FHA. Might their little 3 month rule put a glitch in they system for these flippers in terms of 3 months holding costs? Or are there really lots of buyers out there who have the 20% down for homes in the above $300k range and I'm just not acquainted with them?

To answer your question, yes I think "real" buyers should be given priority.

golfer_X said...

I sure as hell don't have 20% down. I might be able to swing that on a $300k house if I sold a few of my toys. I'm planning on trying with 10% when I buy. I really need to get off my ass and get a new pre approval done so I can start looking again. There's been a few homes pop up lately that I actually like and the price was reasonable.

Anonymous said...

I agree with ButterMonkey... the few people in my area who have purchased a home have gone all FHA... That's the trend I'm seeing and my friends who are talking about buying will go the same route. Give it time - we're already starting to see the foreclosure numbers go through the roof again.

FairEconomist said...

Theoretically speaking, the market should take care of this. If the profit is excessive, investors will take up the flipping business until the profits are reasonable. There are substantial risks in this kind of thing so there should be some nice profits.

I have, however, seen a number of blog comments (some here, I think) that people have lost bids on bank homes to people who actually bid less. So there's a good chance there's some serious corruption going on here.

Sigma said...

FairEconomist: We are no longer in an environment which we can predict based on fundamentals and market capitalism's correction mechanism. The government is meddling far too much for us to do that. I've missed out on buying homes twice waiting for market fundamentals to kick in and just as soon as they're about to, then comes the casino socialism. I'm going to try and not make that same mistake again.

Al said...

I'm pretty left wing in some ways, and I don't think life is fair.

But I have no problem with this. Hell, speculation/flipping/investing/whatever is one of the key activities which generates efficient capital markets. (Does that last bit sound like free-market brainwashing? Sorry!)

What I do have a problem with is people telling me that the wealthy are harder working and morally superior. This sort of trading activity takes some risk and initiative, but most intelligent humans, rich or poor, are capabable of doing it.

VectorzSigma said...

Here's what I'm talking about, people. Casino socialism beginning its effect :


As much as I hate it, this time I'm not going to fight the fed govt. If you guys know something that can change my mind about this, please do so. I'm really looking for people with hard evidence to talk me out of this.

FairEconomist said...

Sigma: Propping up the prices of houses in general and forestalling foreclosures are separate issues from excessive profits for foreclosure flippers. If anything, actions to slow foreclosures should improve fairness in flipper profits (not necessarily in other areas) because too many foreclosures at once will overwhelm the supply of people competent to evaluate, repair, and market foreclosures and result in windfall profits for suitably skilled flippers.

VectorzSigma said...

FairEconomist: I don't agree. If govt stopped intervening and attempt to keep house prices propped up, the flippers wouldn't feel safe enough to jump in not knowing that the demand for higher prices will be there or not. Why would a flipper jump in to buy a home if house prices would only sell for what he bought it for? You would need some external stimulant (such as what the govt has done) in order to feel confident that house prices would go up. Without stimulant, house prices would remain stagnant or go down. Why would 'investor' try to catch falling knife?

BrianH said...

Victor you are a hair off base in your last comment. A professional investor looks at the market and forecasts a future market value based on their opinion/"read" of what the market is doing and will be doing. Therefore you can project what you think the value will be in six months and work your numbers from there.

In mid 08 when the IE was going down 4-6% a month we were still buying homes and selling at a profit. Many got burned by being to optimistic however there were those of us who extrapolated a future value, purchased and made a profit.

Also, when buying a home either at the TS or somewhere else most investors assume in the 400k and below market we will have to sell to a FHA buyer and factor in the holding costs associated with the 3 month hold. I personally assume I will own every house I purchase for six months. Three to become FHA eligible and another three months to get through two different buyers as many escrows fall out.

Sigma said...

BrianH, how can you say I'm off base? Perhaps you can address that by telling me:

1) in mid '08 the stock market crash hadn't even occurred yet and keep in mind this was an unprecedented stock market crash in history. How did you know the stock market was going to crash of that magnitude so that you knew house prices were going to go down by enough to make money?

2) How did you know prices were going to come back up had not been for government intervention? This is the real key of what I'm trying to get across. Had not been govt intervention, housing prices would NOT have come back up.

Yes , I heard what you said about "6 month forecast" but pulling all the crap aside, what you're saying is you have some sort of crystal ball that you knew for certain that house prices were going to come back up which we all know is specifically only due to govt intervention. Which is actually what I'm saying.. without govt intervention, house prices wouldn't have come up and you would've caught a falling knife mid '08 because prices didn't even bottom till Nov Dec '08.

Or basically did you mean you just made a call and got lucky? Be honest.

Nicholas said...

Making buyers put 20% down on these flips as of MGIC policy Oct 12 is looking like it will install some personal responsibility back in the market.

Not saying that this is the end all cure all, most definitely not but it looks like a good start.

BrianH said...

I don't invest in stocks and know nothing about it. As for your question about properties. I haven't relied on escalating prices one bit. The formula is simple if the houses in a neighborhood are currently selling for 100k and I amticipte my exit to be five to six months from now. And we know that currently prices are going down 4% a month. I assume the home will be worth around 80-85k when I find a qualified buyer. Then my assumption of the future price means I need to purchase at a price low enough so I can make a profit selling at 80-85k, my extrapolated future value.
You are funny my friend, thanks for the question. Sorry I don't have a more fancy answer. Also, for the record I got stung on a property that I carried over into 09. Fortunately I purchased it correctly upfront and only lost 6k. It could have been much worse.
I'm wrapping up a bunch of escrows on homes purchased in the last six months. I have two recent acquisitions that are being repaired that I will probably end up carrying over. Hopefully I will be ok and I think I will. However any new possibility I'm looking at now I'm factoring in a decline that I'm anticipating early next year which will be my exit on amythin purchased in the next 45 days.

BrianH said...

One more thing my friend. In August of 2007 the real estate world stood still and didn't really start moving again until early this year. I knew we had problems back then and acted accordingly. I didn't need the stock market to tell me we had problems in real estate. None the less I have profitably done deals late 07, all of 08 and aside from the one stinger this year profitably done many deals this year and never once relied on gains. The inventory shortage was painfully obvious in March this year however in my market homes are still worth about the same as the beginning of the year.

BrianH said...

Final thought Sigma I promise. I just reread your post and think you might be under the impression we are paying the same prices as owner/user financed buyers are. If that were the case we would have to rely on value gains for profit which is absolutely nuts and a fools game.

Sigma said...
This comment has been removed by the author.
Anonymous said...

This is an informative article. I loved the beginning of the article "you need to start with millions so as to make millions".
Best Savings Account Rates

Sara said...
This comment has been removed by the author.
Sara said...
This comment has been removed by the author.
BrianH said...

A quick look at what this house might net assuming 10k in repairs which is doubtful, a 270k acquisition, a 345k sales with all the normal costs associated:

Sales Price: $345,000.00
Purchase Price: $270,000.00
Repairs: $10,000.00
Cost: $2,000.00
Holding Costs:
Insurance: $800.00
Prpty Tax: $2,835.00
Utilities: $500.00
Upkeep: $500.00
Total Holding: $4,635.00
Selling Costs:
Comm: $17,250.00
Buyer Incentives $8,000.00
Escrow: $1,400.00
Title: $985.00
Trans Tax: $379.50
Warranty: $400.00
Total: $28,414.50

Contingency: $3,000.00

Total Acquisition, hold, sales, repairs: $318,049.50
Profit: $26,950.50

It costs way more to sell and hold then most would imagine. Also, I can say with 100% certainty, rehabbing a house for 10k is almost impossible especially one this size.

Terry said...

The head guy of the financial forum I follow has been telling us for the last two years to get our money together and be ready to buy assets for pennies on the dollar. That's how he got rich. Pretty much everything this guy has said for the 2 years I've followed him have become true. What's scary is what he's talking about now.

VectorzSigma said...

Terry: fill us in! What's he telling you now?