Being from a high volume REO listing office, and focussing on buyer and seller representation of REO properties, my phone is constantly ringing with calls from out of state investors who know a good thing, when they see it. I maen where else in this country, today, can you spend under 100k, and pick up a 4 unit building that has a $2,400 dollar a month rent roll. It's almost unheard of.
My phone also rings with calls from out of state investors who have the right idea, but not neccessarily the right product. The Investors who think they may have a jump on the game, and have a fair amount of cash in hand, and got the inside track on wholesale deals have started chiming in now too, and if you ask me, the new is not so good.
About 2 months ago, I received a call from a couple of guys out of New York. They had recently purchased one of my REO properties I had listed in Verona, PA., and had done so in a wholesale purchase which included multiple properties. My asset management company, themselves, were still not aware that the property had been sold off. The guys informed me of the details of the sale, and I came to find out that they had purchased a few properties here in PA. My listing had initially come out on the market in the 40s, which I knew was way too high for what it was. (So much for completing actual value BPO's.) Eventually, the property settled in at the price it would have sold for 6 mos earlier, at 20k, but by this time the property had such shelf life, it was stale, so over the next couple of months, we recieved offers, which were countered, and rejected until the price got down to where, had the initial offers had been accepted, the bank would have made more money, or at least as much as I had contiplated during my initial BPO.
Long story, boring, the Wholesale investors picked the property up for just under 10k, and had high hopes that the property was worth 40k. NOT! And how do I know this, because what I did not tell you was that while we were marketing the propety at 20k, we did go under contract for a hot minute with a young spry twentysomething guy, who wanted to live the rehab dream... or nightmare, as it sometimes is. There were some issues with the property that were beyond his area of expertise, and after 3 days, he dropped out of the contract, and the deal crashed.
So for this particular property, and the functionality of this lesson, let's call our baseline 15k; That's what the property is worth in "as is" condition. If these investors spent 9k on it, after averaging out what they paid for the lot, and picking it up as a "deal," and then they try to sell it at 20k, "as is," and they get the offer of, let's be genorous and say 17k, after they pay a sometimes typical total minimum commisssion, of say $2,500, as a corporate entity, or $4000 as an individual, or an LLC, they will be looking at having netted between $13,500, to $11,000. There are some other incodental fees, and costs involved there too, deflating the gain that much more.
I suppose, if you are buying 50, or 100 houses at a whack, the numbers might add up decently enough to make sense, but what I fear is that these toxic assets end up being purchased by the guy, or gal who is playing with their retirement, and jumps in head first, buying these properties off of BPO values which through their previous exposure in the marketplace, have proven to be over valued.
This brings me to the conversation I had with a woman out of California, who had the sense enough to call me first, and pick my brain, asking, "what would you say (property X, Y Z, A, and B) are worth?" I told her, and she was able to avoid what could have proved to be a very expensive mistake. Sure, there may be somebody else out there, who will say, "Yeah, I can get you that BPO value for that house, and maybe they can... after 12 mos. but by that time, just how much have you really made or lost???
Just as I'm blogging, the phone rings with another company who wholesale REO properties. Interesting conversation, lots of inventory, and really nice rep. on the phone. Possibly some real good deals too, but I need to do a little more research, and come to a better understanding of how they work, before I pass any judgement, good or bad, on them.
In the meantime, Buyer Beware! Nobody wants to say where, or how they're getting their deals. Addresses are held close to the heart, like Grandma's diamond broach, and lips are as tight as sardines packed in a can, and that's fine, but before you jump into this business, you best talk with somebody who can at least give you a rough idea of what you may, or may not be buying, because when things are too good to be true, sniff around a bit. They may smell a little fishy too.
My old Broker, Jan Bronstine, in Denver, CO. once told me, If it walks like a duck, and quacks like a duck, be damned sure, it's a duck!
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