I truly have been blessed as a real estate agent living and working in my local market - the Hemet - San Jacinto Valley in South West Riverside County region of the Inland Empire in Southern California. For over 2 solid years know I have earned my entire income as a direct result of listing and selling bank owned homes (REO as referred to in real estate circles), here in the Hemet San Jacinto Valley.
Because of my good fortune, I have had the opportunity to meet and work with some really great investors that I have been able to learn from as well as teach to. Together, we have all expanded our horizons and increased our net worth.
In this article I'd like to discuss what I have learned about flipping real estate. Until recently it was difficult for the last couple of years, as we were in a rapidly declining market. Now that the market has shown signs of stabilization we are in a window of opportunity that allows for quick and decisive action that can disappear at any time.
OPPORTUNIY FOR REWARD
The beauty of real estate investments in the Hemet - San Jacinto Valley is that there are opportunities for big rewards, as we are on of the most affordable real estate markets anywhere in the state of California. However with the opportunity for big rewards, every savvy investor knows that there is also the potential for big losses...and that's why they call it investing and not banking. (I just love the free enterprise system!)
LTV
The first element every real estate investor must take into consideration when considering a project in the Hemet - San Jacinto Valley is the LTV or "Loan to Value". Although quite frankly, the successful investor will be using a combination of cash and hard money to finance their ‘fix and flip' deals in the Hemet - San Jacinto Valley. The reason is that financing diminishes the value of an offer and puts the investor in direct competition with the buyers looking to owner occupy a property for sale. It is no secret that the current market is dominated with listings that receive multiple full price plus offers as soon as they go public on the MLS. The strongest offer today is the investor with all cash.
The key for a good fix and flip real estate deal is to have a LTV of less than 70%. This basically means that if a Hemet - San Jacinto Valley home is worth $100,000 in today's market than the flipping investor must not spend more than $70,000 on the investment. There has to be room for error as well as profit. There are deals available today in the Hemet - San Jacinto Real Estate market for investors that are at 50% LTV - or less. The first key to success is to find GREAT DEALS - good just isn't good enough.
ARV
The next number that the experienced real estate investor will master is the ARV, or "After Repaired Value". In order to determine the ARV the investor will have to know every comp in the area.. This is very tricky, as the market really does change on a near daily basis and is becoming more and more difficult to gauge.
When considering real estate comps in the Hemet - San Jacinto Valley it is important to give less emphasis on the Active and Pending Listings and focus on the Sold Listings. In any other market, Sold Comps that are 6 months old are completely acceptable and have been used regularly. Today is a completely different market. Sold comps should only be considered up to 90 days old - 30 of course is much better. Other rules for considering a comp is that the comp properties should be no more than a half mile from the subject - the same tract is ideal, if possible. Never consider a comp that is more than 10 years older or newer than the investment and never consider a comp that is more or less than 20% of the square footage of the investment property. If you follow these simple guidelines, you will have a good idea of what is taking place in that very micro market portion of the greater Hemet - San Jacinto Valley real estate market. Of course, a professional REALTOR® should have easy access to this information.
One final note on considering comps for your rehab fix and flip property in the Hemet - San Jacinto Valley is to make sure you make the necessary adjustments for bank owned comps, short sale comps and any standard sales that may have closed escrow in your market in the last 3 months.
THE REHAB PROCESS
When real estate investors get into trouble in the Hemet - San Jacinto real estate market it typically is not because they did not ‘buy right' but rather because they did not completely understand the rehab process and having a strong relationship with a good honest and ethical contractor.
Yes, many investors can and do either all or some of the work themselves - and that's great if they have the time and skill set to do professional rehab work. Not all are so fortunate - so lets concentrate on those of us with more left thumbs than skilled fingers at the end of our hands. Those of us without the skill set (or time) to do the work themselves will be relying on professional contractors and tradesmen.
Experienced real estate investors will typically have developed a long-term relationship with a contractor that meets or exceeds his or her expectations.
THE CONTRACTOR
Let's assume that you don't have a crew that can service your rehab flip real estate deal in the Hemet - San Jacinto Valley and you are looking for one. You'll need to get multiple bids from at least 3 contractors. Local is usually best, but not always possible. Never hire a contractor that has to commute over an hour to the job site - it just is not going to be effective. I have known real estate investors who have had 6, 7 and even 8 bids for a single project. Then the savvy real estate investor will have the contractors bid against each other to get the most work done for the least amount of money...in the quickest time.
Each of these elements is critical to a successful real estate fix and flip in the Hemet - San Jacinto Valley: Price, Scope of Work and Timeline.
Real Estate Investors who want a successful real estate fix and flip must have very focused goals that the contractor must align themselves with - otherwise a poor choice in contractors can tie up a fix and flip project indefinitely. Like many professions, contractors are notorious for wanting to do the least amount of work and collect the most amount of money. Trust me there are more than enough contractor stories to go around - ask me and I'll share a few with you as to who you should never use in this market - but that info is face to face only, as well as a few credible referrals that I can make as a local REALTOR® in the Hemet San Jacinto Valley who has exclusively sold bank owned homes over the past 2+ years.
THE CARROT AND THE STICK
My recommendation is to pay your contractors, and all your vendors well. I personally like the carrot and stick approach. Offer them bonuses for coming in under budget and ahead of schedule while at the same time punish them for cost overruns or unnecessary delays. Another theory I have seen real estate investors successful with is including a percentage of the profit with the contractor. This type of negotiation will help you get the best rehab bids and you will benefit from some value added repairs.
I don't want to come across as self-serving here - but the same holds true with your real estate agents. Solicit the professional advice of your local real estate agent. As a local expert in the Hemet - San Jacinto Valley real estate market I know what value added repairs and additions will bring the most return on the money spent and what will help a home sell quicker - which is always the goal. Offer your agent a nice bonus to sell your home by a certain date - offer higher commissions to agents on both sides of the flip transaction and you will see your real estate fly off the shelf.
THE EXIT STRATEGY
Every great real estate investor I have ever met always enters every transaction with both a primary and at least one secondary exit strategy. Obviously here we are talking about a ‘fix and flip' strategy. What happens though if the market takes a sudden downturn? Will you feel like you are ‘stuck' and fall prey to doom and gloom? Not if you are a pro.
Don't allow yourself to run out of money. Savvy real estate investors enter each transaction with a 6 month reserve to cover the unforeseen. If you aren't able to do your fix and flip, then focus on an alternative strategy. Consider a lease option, sell it at a discount to another investor or hold and rent - generating a positive cash flow every month.
If you don't know whom your congressperson is or how to reach them, check out this link
Blessings to all who read,
John Occhi, REALTOR®
www.JohnOcchi.Com
Hemet - San Jacinto Valley
951-6564-5550
Servicing THE REO Needs of Asset Managers, Servicers, Banks and Lending Institutions in the Hemet - San Jacinto Valley, Temecula, Murrieta, Winchester, Wildomar, Menifee, Sun Valley, Perris, Moreno Valley, Romoland, Homeland, Nuevo, Banning, Beaumont, Cherry Valley, Yucaipa, Redlands, Mentone, Loma Linda and throughout South West Riverside County and The Pass Areas of The Inland Empire in Southern California. If you are a buyer, investor, first time home buyer or are just interested in REO real estate, please contact us at the above phone number.
Serving California and Riverside County zip codes of 92501, 92503 , 92551, 92555 , 92562, 92563, 92504, 92505, 92557, 92553, 92506, 92507, 92590 92591, 92508, 92509, 92570, 92571, 92592, 92399 , 92584 , 92596, 92820 , 92571 , 92543, 92544, 92545, 92583, 92582, 92879, 92580 , 92530, 92532, 92881, 92882, 92567, 92518, 92883 , 92549, 92561, 92220, 92223, 92028, 92088
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