Here’s some breaking news for you guys- as of yesterday, the Gov has released the ‘No Flipping Rule’ on FHAs! Yup- that’s right!  In order to spur more buying activity and property values, they are allowing investors to purchase foreclosed homes and flip them immediately! This will be in effect for 1 year. The previous ruling from 2003 said if you purchased a foreclosed home, you had to wait 90 days before securing it with FHA financing. Not anymore- they’re trying to get the glut of inventory sucked up and off the market now.  Here’s the article from CNN.

I got a call from a competitor friend of mine about a deal he just landed. It’s always tough to work a deal from a competitor, but at the end of the day, it doesn’t matter where it comes from. All that matters are if the numbers work, and they certainly did in this deal. So I jumped on it. It looked like it would be a challenge, one I haven’t had in quite some time.

It was a 3/2, 1329 sf brick home, built in the 1960s. I typically never touch these older homes, but- it was less than 1/2 mile from Arizona State University, and the Fall Semester would be starting within a few months. I knew I had to capture the market for college kids, staff, or parents who would be purchasing this home. I figured most likely it would be parents buying it for their kids while in school, an investor looking to rent it out to college students, or young professionals who work in the area. It was about 1 mile from the freeway, and central to activities/restaurants, banks, etc. This thing had some potential to sell quickly, for a fair price. I had comparables in the area in the $250-270k range, depending on the upgrades in the home. I was shooting for $270k, yes, even in THIS market.

The house definitely had some problems. The roof was trashed, yard dead, single pane windows, broken doors, etc. The worse part was the family who had lived there for 13 years raised Chihuahuas. Yes, 13 of them, living in the home. It was THE MOST disgusting house I had seen out of the 200+ deals I’ve done. We found dog feces up underneath the kitchen cabinets (yes, under the base of the cabients- how the dogs got in there, WHO KNOWS!). The plumbing was backed up in certain areas, and this place was a dump. The biggest problem was that they had laid 4" Spanish tile throughout the entire house. Kitchen, bedrooms, closets- they even used it for baseboards! Oh, and the pop-corn ceilings. YUCK! The neighborhood wasn’t the best either- with vagrants floating through every couple of hours. This house backed right up to the back of a commercial strip mall too- with some fast food joints in there. The smell was horrendous from that alley! But, in this game, you have to see potential. Read the rest of this entry »

I have been engaging in a conversation over at the Arizona Real Estate Notebook about a kitchen remodel project. The original question came from a someone who needs to sell his home, and thinks the kitchen is outdated (he’s right!). It’s a 2300sf home in NE Phoenix (Tatum and Greenway), built in 1985. He wants to sell quickly, within a few months. The price range on the house is about $430,000. There’s no specifics on a budget, but I’m thinking somewhere in the $5-7k range is about right.

How would I flip this kitchen? Easy. The first thing Rob needs to do is go visit all the new home builders in the area. Looking at houses in the $500-550k price range should do it- with all the incentives builders are offering, it brings the purchase price down to the mid $400’s. This is his main competition. Most people want new homes, but buy resale due to price and/or location (some don’t like brand new subdivisions, and resale offers mature landscaping and proven HOAs). Next, Rob needs to have his Realtor® show him pictures of all the houses that have SOLD within the last 3 months in his area. This will not only give him a good idea on pricing, but have an idea of what the kitchens look like that people are buying into. Lastly, looking at Active listings could help somewhat. This is a good point of reference, but- keep in mind that these are all the ones that no one else has wanted yet. So take their kitchen designs with a grain of salt- Sold kitchens weigh more heavily on Active Listing Kitchens (however, Active Listings are your competitors as well, so keep them in mind). This should give him a strong idea of what needs to go into his kitchen.

Now, the question was asked as to what I would do to flip this kitchen. Personally, as someone who has flipped a couple hundred homes in the last few years, I would offer the most kitchen for the money. This means upgrades! You have to keep in mind the price range of home, and location. The buyers in this area are Scottsdale buyers, and expect quality. Especially if they are going to buy a 23 year old home for $430k. Quality sells- not cheap knock offs. People in this price range know the difference between quality and skimming. Give them the most quality for their buck.

The first thing that jumps out at me are the small, white tile counter tops. We all think the same things when we see them- public restroom. They have to go. He was thinking of doing granite tile counter tops for the price of about $3k. I think that’s a little high. Without seeing the kitchen or having actual measurements, I am just going by the picture you see here. My granite guys are quite a bit cheaper than anyone else out there. I believe he could have granite slab done for his $3k, and granite tile for even less. To me, slab is the way to go. There are other alternatives out there, for quite a bit cheaper- Lowe’s and Home Depot have a good selection of these. Avoid going with anything too ‘plastic’ looking. People want quality, and plastic isn’t quality. Granite tile is a cheaper alternative- but in that price range of home, and the current state of our market, I would only put in slab, plain and simple. Oh, and leave the bar top- families love the bar top. Read the rest of this entry »

Here’s another article that expresses my same thoughts. What a wonderful market to be flipping houses!  Now, if you’re a newbie to the market, you have to make sure to stay on top of your numbers. Plan on fixing up the property to be the nicest in the area, for the cheapest price. Which means, plan on listing it BELOW MARKET VALUE to have a chance at selling. It can be done, I’m doing it, as well as many of my clients.

Here’s an excerpt-

So how do we make money? The short answer is that we need to return to value investing. Gone are the days of buy high and sell higher, the music has definitely stopped in that game. A value investor will make his money when he buys, he doesn’t acquire property in the expectation that the price is going to appreciate. Making your money when you buy simply means that you buy a property that has a lot of potential equity. To do this you need to locate a motivated seller, someone trying to dispose of a distressed property will usually be highly motivated in this market. 

Stay tuned as I will be posting details of deals I am doing, or, am passing over to some of my clients for big profits…

I am constantly asked about using Hard Money in my deals, and am surprised by the amount of people who don’t know or understand the benefits. So, I’m going to write a 2 Part post as to what a Hard Money loan is, and the benefits to using one.

A Hard Money loan is typically made from a single Investor, or, group of Investors under one corporate umbrella or entity. The differences between a Hard Money loan and traditional loans are:

• Higher Interest rates
• Very few points, closing costs and fees, if any
• Equity based loan- doesn’t use your credit score or debt to income ratios
• Can close in a matter of a few days or as soon as a Title Report can be issued
• Payments may be deferred until payoff
• Meant for short term loans

The going interest rate for Hard Money in Arizona is 18% APR. Now, pick your jaw up and keep reading further- you’ll see the benefits soon, I promise. Yes, it’s insanely high compared to a traditional loan. However, most Hard Money Lenders charge a nominal processing fee. All the lenders I’ve used here in AZ charge $500-600 flat fee, that’s it. There’s no points, processing or other junk fees added in. We’ll look at this a little more in depth in Part 2.

A Hard Money loan is issued SOLELY on the amount of equity in the property, and intent of the loan. They don’t pull credit reports or report to credit bureaus. They don’t care about your Debt to Income ratios- shoot, I’ve never even had a HML ask me for income statements or my social security number! So I could have filed Bankruptcy last week, and still be able to obtain a Hard Money Loan on a deal. Most HMLs want to see 25-30% of equity in a property before agreeing to do the loan. They pull their own comps, might do their own drive-by appraisal, and then decide the maximum amount they will lend against the property. Most won’t do a loan in a foreclosure bailout situation- typically they only lend to Investors looking to flip, or, refinance their position out and hold as a rental. Also keep in mind a Hard Money Loan will always be a first lien holder. No HML will loan money for a 2nd position lien. Read the rest of this entry »

I know it’s your guilty pleasure. It’s ok, we all watch them too. It seems like you can’t turn on 2nd Tier Cable Channels anymore without seeing someone flipping a house. Whenever I tell someone I’m an investor, their first response is ‘oh, kinda like that one tv show’. Yeah, kinda like that. HA! To this date, I’ve only seen 2 episodes that were filmed here in AZ- and those were during our boom. If you pay close enough attention to those shows, you’ll notice that the majority of them are filmed in either California during a rising market, or in the mid-west. Let’s talk about these 2 sceanarios…

Yes, in California when their market is rising, it was somewhat easy to find a deal for $500k, throw money at it, let’s say oh, $120,000, and sell the thing for $900k. Not a problem. Kinda like buying a home here in AZ during our boom and flipping it for $50k higher a week later. What cracks me up is that the beginner investors act soo surprised when their REALTOR® tells them how much their flip is now worth. - DIDN’T THEY KNOW THAT BEFORE THEY PUT MONEY INTO THE THING? Oh, how nice it must be to live in the promise land. I would guess that if you talk to any California investor during their down cycle, they would paint you a different picture. Funny how the networks don’t air episodes in those times, huh?

Let’s look at the mid-west. Ahhh- the beauty of picking up a home for $40k, throwing $20-30k into it, and selling it for $250,000+. Well, believe me, it’s never as easy as they make it look on tv. You’re cramming months worth of hard work into 42 minutes of air time- they’re bound to skip a few details. I’m not saying it can’t be done, there’s just a ton of details left out of the process.

One thing’s for sure- you can’t pick up a house for $40k, throw $20-30k into it and sell it for $250-300k+. At least, not in this market. The mid-west doesn’t have subdivisions like we do here, and subdivisions dictate your comps and values. I always wonder who is buying a $300k house right smack in the middle of $40k dumps? That just doesn’t happen here in AZ. If you pay attention to the shows now, they quickly end the show with their ‘Potential Profit’ if they sell the house for the projected amount. There’s no discussion of holding costs, closing costs, employee costs, etc. 2 years ago we knew how many days it took to sell, the final sales price, closing costs, Agent’s commissions and net profits. Now we’re swept away with ‘potential profits’ and ‘what-if’ scenarios as the closing credits are rolling across the screen. Funny how things change right under our noses. It’s still pretty glamorous when you don’t notice the little details, huh? Read the rest of this entry »