Diary of an investor's agent Sean's Blog
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Sean's Blog
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I previewed three REO fixers today, and saw something I'm noticing more and more often in my part of San Diego County:
In all three, the banks had added paint and some minor cosmetic stuff, to put lipstick on these pigs (and boost the price).
House #1 had inside paint so fresh, I could smell it. Had brand-new 6-panel bedroom doors as well. The garage door looked suspiciously new as well. But the windows were old, the grass was dead, and nothing else had been otuched.
House #2 had new paint and mouldings. A young woman saw me go in, and it turned out she lived next door. She told me a crew went in and "remodeled" a few weeks ago. They must not have touched the most important room, the kitchen-- because that consisted of a stainless-steel sink, a cutting board, hideous floor tile, and NO cabinets at all.
House #3 had so much new paint glopped on, the fumes nearly had me running for the door. Even with beautiful beamed ceilings in two rooms, they painted every square inch inside and out the exact same color. No accent color on the beams, no trim, nothing any decent flipper would do to make it sell.
The problem is, all three REOs are being touted on the MLS as "newly-painted," etc. to justify a price that's about $15k-$20k over what a fix-and-flip investor would need to pay.
I can just see some asset manager somewhere thinking, "hey, if I slap on a $3,000 paint job, I can get $15k-$20k more. If those flippers can do it, so can I-- and my boss will promote me for being so brilliant."
A year ago, I hardly ever say this. REOs were almost always somewhere between dumpy and completely trashed. Now, it looks like some banks are trying to steal a page from the flipper playbooks. But watching banks attempt to do rehabs is a little like seeing elephants attempt ballet. Yeah, it might be possible, but it sure looks weird. If you want ballet, hire a ballerina!
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As an agent who works with a lot of fix-and-flip investors in San Diego, I want to share a pet peeve that's also annoying many other Realtors out there (i.e. the people who can find you profitable deals).
It's also great advice to all the newer investors reading this, who are trying to get their first deal amid very stiff competition. And it's something even experienced investors seem to forget occasionally.
The advice: Don't back out of accepted deals.
Yes, I know it's tempting to bid high, just to get an acceptance. But once you've got a fully-executed contract, you have a deal-- period. Beyond the legal ramifications (i.e. possibly losing your deposit), when you back out of a deal, you've not only broken your word, you've damaged valuable relationships.
Is the agent or wholesaler who told you about this property now going to bring you other profitable deals? Maybe not. Is the seller's agent going to want to work with this agent and/or investor ever again? Probably not. Is this the reputation you, as a new investor, want to get among agents/bird dogs/wholesalers? DEFINITELY not.
Word gets around about particular investors who either back out of accepted deals, or constantly make lowball offers. Agents do talk a lot to other agents. And they do not want to waste time with anyone who doesn't close.
Fortunately, it's easy to avoid getting a bad rep. Before you make your offer:
#1) Go inside the property. MLS stats, pictures and Google street views (which are often outdated) only show you so much. And don't just drive by; you've got to go inside. I can't tell you how many times I've found MLS stats on bedrooms, square footage, etc. were inaccurate. Occasionally, you'll be happy to find a 3bed/1ba actually has 2 baths-- but most of the time, the surprises are unpleasant.
#2) Thoroughly check out the comps. Your Realtor can pull these. Make sure you're only looking at solds within the last 90 days, within a half-mile-- and they must be in the same zip code and neighborhood. It's especially important to find sold flips within those parameters; those set your all-important ARV (After Repair Value). Get those comps to your hard money lender NOW, not later.
#3) Check out any possible permit issues, or code violation notices. Please don't ask your agent to do this; they are not required to-- and it's really the buyer's responsibility. Talk to the city or county building department. One very attractively-priced fixer I saw had a county violation that required one entire side of the house to be torn out. Why? Previous owner had built it five feet too close to the neighbor's property line.
#4) Bring a trusted contractor when you first visit the property. Once you have a few completed flips under your belt, and understand what various repairs really cost, you can skip this step on lighter rehabs. But on the heavy fixers, more and more listing agents are requiring "no repair contingencies." In other words, you'd better have your repair estimate up front.
Completing all these steps (and letting the seller's agent know that!) also makes it more likely that the seller will take your offer over competing offers.
If anyone has questions about any of this, let me know.
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