4 serious problems that rehabilitators find in real estate investment

In many parts of the country, rehabbers are having trouble selling their inventories due to new problems they haven’t faced in years. Concern is growing among rehabbers with more than 2-5 properties in inventory that they may get locked into these properties and lose money when their homes finally sell. A little planning on four of the most important issues can make the difference between success and failure.

The biggest issues facing rehabbers include:
1. Distressed property sales, including short sales and REOs, are most often used by appraisers as comparable sales.
has. Find your own trade-offs other than distressed sales and show them to the appraiser. Keep this issue in mind when you buy your next property so it doesn’t turn out to be a beautiful property, but it has to sell above market value for you to break even.
b. If the buyer is financing FHA, make sure the appraisal is high enough before getting an official FHA one. This FHA appraisal “sticks” to the property and will not go away for another FHA buyer.

2. Lenders still seem unwilling to lend to buyers.
has. The major mortgage insurers, FNMA and Freddie Mac, have lowered their preparation requirements, but top lenders still have a 90-day or more preparation requirement. The main reason is due to the liquidity and cash requirements needed by the lenders.
b. A simple solution is to check the buyer’s credit, cash at closing, and make sure they don’t buy or put down any major items, like appliances or a car, before closing. Almost all lenders now request a buyer’s credit twice, once at the beginning of the loan application phase and again the day before or the day of closing.

3. Many rehabbers are buying REO’s in their initial offers and paying too much money.
has. A general belief among investors is that repriced REOs are the best deals and these investors are going into a bidding frenzy with themselves. The rehabber wants the property and keeps bidding beyond sensitivities.
b. The solution is to bid effectively for more property and not get caught up in the feeding frenzy to get a deal. There are currently ten times as many properties that are or will become REOs in the next year.

4. This is the one you don’t want to hear: The market continues to fall in many areas of the country and may do so for 2-3 years.
has. Despite glowing reports from various sources, there are too many properties due to come on the market and too few buyers. Looking at what is defined as “distressed,” those properties that are already REO or where lis pendens have been filed, combined with owners who are upside down, not in foreclosure, but their homes are not yet for sale, this Shadow market accounts for one in four homes in our area.
b. That being said, I think an investor is currently facing the potentially most profitable market in the last 50 years if he approaches it correctly.

In addition to the solutions above, here are a few more:
A. Selling a rehabbed or wholesale property is similar. Both require the property to be sold as quickly as possible in order to make the maximum profit and not miss a sale. Ironically, while the condition of the property is important, the marketing of the property is 100 times more important. This may seem illogical at first, but it is reality. The more you market the property, the closer you are to a buyer who will buy it on price, or because you fall in love with some aspect and pay above market value.

B. Here is the heart, MLS is a glass ceiling and the worst place to advertise it, plus it costs the most. Realtors won’t like that, but it’s the reality of the way MLS works and its listing structure. Learn how to use marketing methods that reach motivated buyers for the specific type of property you are marketing.

C. Use a modified round-robin auction system that emphasizes that property, whatever its condition, must sell quickly. This method, if marketed properly, can generate between 25 and 75 times more leads than traditional open houses for real estate agents. The prospects compete against each other and the end result is the actual market value of the property.

D. Create a buyers list so you have buyers for your next wholesale or retail sale. This can be done by reselling the same properties after they are under endorsement contract and future buyers of other properties. Your power as an investor is the depth of your buyer list, the bigger the better.

In short, don’t be discouraged by what the market is doing or where it is going. You can make money in any market as long as you limit your losses and sell as quickly as possible. In the coming months or years, it may be easier to wait for higher prices, but until lenders finance the country’s burdensome inventory, you should sell fast and be very selective about the next property you buy to rehab.

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