Hello Cash, Flow, Go,
Iâ€™ll start with the Auctions, very brief: be careful when talking about Auctions... this is a very, very difficult area of expertise; auctions are very complex. When you're at the auctions at the steps of the courthouse, remember, you are not buying the property free and clear, and you are buying the note on it! If you don't do your research before purchase, you can end up very upside down. I have a buddy who has a team of 8-10 people who focus on Auctions; they analyze each property the day before the auction, and some properties still come out upside down.
80-90% of fair market is NOT a deal for investment:
First, why sell it at 80% of BPO? The bank prices properties to sell, not to entice people to flip. If the agent is working for the bank, how is this a short sale and not an REO? The agent represents the Seller... so if the agent in this case represents the bank, its a bank owned property, otherwise known as an REO (Real Estate Owned). This sounds like an REO, not a short sale, and short sales generally sell for cheaper than REO's, at least in Las Vegas, but the rules of statistics would state that this applies anywhere based on the sample market:
What is a BPO? Itâ€™s the suggested fair market resale price; it's not the lowest, so when you say your getting it at 80% of the fair market, why don't you check to see what the lowest price sold was... why did they price to sell at 80% below fair market? Are comparable prices decreasing? Is there something significantly wrong with the condition of property/structure? Is the lot size smaller than others? Or perhaps there are too many comparables for sale, so they needed to reduce the price to stimulate demand/attention to this property.
Your target buyer would be a primary resident... if someone wants a specific home, they are going to buy it; when you by for your own living, thereâ€™s emotion attached to the purchase. If there are many comps for sale, theyâ€™re going to offer the lowest or fairest price on the one they like most. If there are few or no comparable properties, letâ€™s go with none, then there is a demand and you can list it for more than fair market. Primary Resident buyers may even be cautious of properties listed too low, as they will think: "what's wrong with this property?".
If you are dealing directly with the Seller's agent... STOP. Get your own agent, who represents you! The seller generally pays for the buyer's agent commission anyway, so make sure you have someone looking out for your best interest, not the Seller/Bank's best interest.
Another thing to consider when determining the value of this property to its comparables: what is the condition of the property, compared to the comps that sold at the lowest prices?? Also.... what is the average Days-on-Market? What's it going to cost you to maintain the property before it sells?
If it's truly a great property to flip, how come no one else has jumped on it? True investors are the first persons to watch the market.
Whatâ€™s your bottom line? Letâ€™s seeâ€¦ you said buy at 80% and sell at 85%? Wow.
Agent commissions alone will be 6%, plus costs for the Title Company (for purchase and resale), transfer taxes, HOA (if any) transfer fees and monthly dues, plus costs to maintain while on market, ++! Your bottom line is negative, sir.
I hope you didnâ€™t already discuss this with the agent, and he agreed with your actionsâ€¦ if so, heâ€™s not looking out for you.
Flipping is not so easy at it sounds.
Now, you must be asking... where's the money in real estate? I know itâ€™s there!!
It is. You can contact me direct, if youâ€™d like.
Mark Fleysher, MBA, Broker, Realtor