In many parts of the country rehabbers are having problems selling their inventories because of new problems they haven't faced in years. Concern is growing among rehabbers with 2- 5+ properties in inventory that they may get stuck in these properties and lose money when their homes are ultimately sold. A miniature planning on four of the largest issues can make the inequity between success and failure.
The largest issues rehabbers are facing include:
1. Appraisers are more often using distressed asset sales, including short sales and Reos, as comparable sales.
a. Find your own comps that are not distressed sales and show the appraiser. Keep this problem in mind when you buy your next asset so you aren't turning out a beautiful asset but it has to be sold above store value for you to break-even.
b. If the buyer is financing Fha, make sure an assessment is high enough before you get an lawful one from Fha. This Fha assessment "sticks" to the asset and won't go away for an additional one Fha buyer.
2. Lenders still seem to be unwilling to make loans to buyers.
a. The major mortgage insurers, Fnma and Freddie Mac, have dropped their seasoning requirements but the front-line lenders continue to have 90 or more days as a seasoning requirement. The major conjecture is because of liquidity and cash requirements needed by the lenders.
b. A simple clarification is to spin the buyer's credit, cash for conclusion and make sure he doesn't buy or charge any major items such as appliances or an auto before the closing. Approximately all lenders are now pulling the buyer's reputation twice, once in the starting of the loan application phase and again the day before or the day of the closing.
3. Many rehabbers are buying Reos on their first offerings and paying too much money.
a. A general belief by investors is that newly priced Reos are the best deals nearby and these investors are getting into a bidding frenzy with themselves. The rehabber wants the asset and keeps bidding way beyond sensibilities.
b. The clarification is to bid effectively on more properties and not get caught in the feeding frenzy to get a deal. Currently there are ten times as many properties that are or will come to be an Reo in the arrival year.
4. This is the one you don't want to hear - the store is still declining in many areas of the country and may do so for 2 - 3 years.
a. Despite the glowing reports from discrete sources, there are too many properties that must come to store and too few buyers. Seeing at what are defined as "distressed", those properties that are already Reos or where Lis Pendens have been served, combined with homeowners who are Upside-down, Not in Foreclosure, but their homes are Not Yet For Sale, this shadow store represents one in four homes in our area.
b. Having said that, I believe that an investor is currently faced with potentially the most profitable store in the last 50+ years if he approaches it properly.
Besides the above solutions here are a few more -
A. Selling a rehabbed or wholesale asset is similar. Both require the asset be sold as fast as inherent for maximum behalf and to not lose a sale. Ironically, while the condition of the asset matters, the marketing of the asset is 100 times more important. This may seem illogical at first, but it is the reality. The more you store the property, the closer you are to a buyer who will buy it because of price, or because he falls in love with some aspect of it and pays over store value for it.
B. Here is the heart-stopper, the Mls is a glass ceiling and the nearly worst place to advertise it, plus it costs the most. Realtors won't like that but it is the reality of the way the Mls and its listing buildings work. Learn to use marketing methods that reach motivated buyers for the definite type of asset you are marketing.
C. Use a modified round-robin auction system that stresses the property, anyone its condition, must be sold and quickly. This formula if properly marketed can bring in as many as 25 to 75 times the amount of prospects that original Open Houses do for realtors. The prospects are bidding against one an additional one and the final effect is the real store value of the property.
D. Build a buyers list so that you have buyers for your next wholesale or retail sale. This can be done by reselling the same properties after they are under compact for backup and hereafter buyers of other properties. Your power as an investor is the depth of your buyers list, the bigger the better.
In summary, don't be discouraged about what the store is doing or where it is going. You can make money in any store as long as you limit your losses and sell as fast as possible. In hereafter months or years, it may be easier to hold out for higher prices but until the country's burdensome inventory is financed by lenders, you need to sell fast and be very selective about the next asset you buy for rehabbing.
4 Serious Problems Rehabbers Are Encountering in Real Estate Investing