Actually, I am right, and you are missing the point.
What is a BPO? A Broker's Price Opinion. Not a guarantee of market value, but an (educated) opinion of value.
Are BPOs reliable? You tell us, Mark. How many BPOs have you done, and how many of those properties sold at exactly the price you came in at?
Now we have an investor who asks, will I make money by buying at a discount of the BPO? And you're telling the world, "Yes, because the BPO is so reliable that we can (almost) guarantee it?"
I think a better answer, Mark, is that an investor rely on somebody else's Opinion of value, preferably their own, or a reliable agent of their choosing.
Although some lenders have seasoning rules, others don't--besides, one can negotiate with a lender to drop that.
Additionally, you haven't accounted for any potential rehab related expenses, and you haven't factored anything pertaining to the market conditions into your formula. Plus, I suspect--by the lack of info on the exit strategies that you had in mind--you also haven't accounted for these numbers to work with a specific set of strategies.
So you still have some more work to do.
The short answer to your question is that, yes you can still flip properties, but no I would not would not recommend it.
The areas in Santa Ana and Anaheim where 'flipping' is going on are areas hit hardest by foreclosures, which have artificially made the prices lower than the market.
Blogging at: http://TheBremnerGroup.com/blog
Investors neglect total cost of carrying the property including upkeep realtor(s) fees, closing cost(s)
Probably best work with real estate consultant review your entire business plan, with CPA . I have worked with investors all over the world restructure promising delivery of net profit short/ long term goals.
Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
Working directly with the listing agent is fine too, what the other agents are stating about the listing agent representing the sellers best interests,,& with a buyer like you coming in wanting to go way below a BPO value (which can be possible if presented correctly to the bank, so long as the bank is netting more than if they were to take it to auction, you could get a price well below BPO)
If the seller will not qualify under the Mortgage Debt Forgiveness Act, then the listing agent needs to work to keep the purchase price nearest to the BPO, so the sellers' "income tax liability' on the negative balance is as little as possible. These types of sellers are those with refinanced loans, equity loans etc.
If the seller has a purchase money 1st or purchase money 1st / 2nd & they DO qualify Mortg. Debt Forgiveness Act (or otherwise won't get a 1099 at the end of the year)&&& the bank will waive rights to pursue deficiency judgment in the future against the seller &&&the bank agrees to accept a purchase price that's 20% below that BPO,,,,,, Then everything works out for everyone just dandy! Even if the listing agent is representing both sides.
In the case just above, everyone wins. Seller short sells, no DJ or income tax liability, Buyer wins/gets great price, bank wins (hey, they accepted),,agent wins (double ending). No harm no foul.
oh, & seller gets to buy again within 12mos with min. 580Fico w/ an FHA loan 3.5% down(gift funds ok) & builds equity back up from the bottom of the market (double win for seller)!!
Here's an example to think about even though this is not your target price range it's just today's example because it's real.
Large property, Southern CA. Original Sale was 5 years ago, new construction at $2.5 Million. 3 BPO's completed in last 45 days and are $1.7 Million, $1.6 Million and $1.5 Million per BofA. Multiple offers received in the $800's & $900's. Using your scenario, you would pay $1.2 Million (80% of lowest BPO) with an expectation to resell at $1.275 Million (85% of lowest BPO) .......... You would "lose your shirt" on this tranasction - with closing costs you wouldn'e even break even - plus, if it's a short sale, you will likely have to sign a 60 day NO FLIP Agreement with the bank (the latest twist in short sales)
Best of luck,
Broker / Owner & Certified HAFA Specialist
Thom Colby Properties
Newport Beach, CA
Moving Lives Forward (TM)
We NEVER DOUBLE-END a Transaction in our Brokerage as it is not beneficial to the Seller or the Buyer, but only to the Agent.
888-391-5245 Direct Cell
Still, let's work the numbers. Say the BPO is $300,000. You'd put it under contract at 80% of that, or $240,000. So far, so good. And then you'd wholesale it for $255,000. That's OK, too. And from a strictly wholesale perspective, you'd be making $15,000.
One risk, as you note, is declining property values. If you can accomplish both ends of the transaction in 30 days, you'd be reducing, though not eliminating, your risks there. Remember, though, that the BPO would have been done some time before the property came on the market, so the time lapse might be 60-90 days, not 30.
Another concern is the accuracy of the BPO. We're working on the assumption that the BPO is an accurate reflection of value. Sometimes it is. Sometimes it isn't.
Another concern is the condition of the property. You don't indicate whether you'd be wholesaling to an end buyer or to someone else. In either case, though, there has to be enough room in the pricing to do any needed repairs or maintenance. If you're working with an end buyer, you'd be doing that. If you're wholesaling to another investor who'd be working with end buyers, that other investor would have to pay for repairs. Working the numbers, we've seen that there's a spread of $15,000. That's fine if the house is in decent condition. But if you need to come up with paint, carpet, and maybe a few other things (some appliances, let's say), you've really cut into your spread.
And Scott made a good point about the responsibilities of the selling agent.
So, look at your numbers closely. It could work, but you may want a somewhat larger cushion.
Hope that helps.
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
No agent can guarantee what a bank will take, Most banks will not accept a loss of more than 20% of what the seller owes. They will use an independant agent to complete the bpo or even order a full appraisal to judge teh value in todays market.
If you can get it at 20% of todays market value you are getting an incredible deal. The problme i see is that the listing agent is supposed to work for teh seller, not the bank holding the mortgage and not you as teh buyer, if they are deliberately submitting low offers to make you a profit, they are not looking out for that sellers best interest because the seller is liable for that short amount, whether the bank goes after them or writes it off, that seller than is responsible for the taxes on that write off.
good luck with yoru investments,
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