Thanks, this is helpful. I’m actually pretty excited when I find something at 80%, but I’m still finding deals off of MLS. I’m quickly realizing this is not the way to go to consistently find acceptable deals, however…
Quick question about how to calculate the seemingly magic threshold % for evaluating a flip:
If I want to calculate: Purchase_Price/(After_Renovation_Value – Renovation_Costs)
Do I use the net or the gross purchase and selling prices? I.e. do I net out the broker’s commission, inspections, staging, etc. in these numbers, or do I use the gross purchase and sales price? I’m guessing I use the gross numbers, but I’m not sure…
Second question, what is a reasonable threshold for your market? I’ve seen 65-70% on other sites, but that does not seem reasonably attainable on the million dollar homes in the Bay Area. Maybe I’m just not looking hard enough…
I think we must have been at the same auction on 8/1. Thanks for the info, and wow ForeclosureRadar.com is a fantastic site! I’ve dropped some cash for some other subscription services when I was actually looking for exactly what you are offering. I’d love to sit down with you and discuss what you’re doing and your experience in foreclosure investing (maybe I can buy you lunch?). Since I can’t locate an email address for you from your profile, I’m going to email you via your website’s contact form, or you can send me an email to josh.hohman at gmail dot com.
Thanks, Craig. The bulk option you described seems like the way to go in terms of price. However, I’m getting a skewed sense of reality from some other forums that make it sound like you need to be buying $50 million a month to get the attention of lenders. I can’t imaging that there are more than a hundred or so buyers at this scale in the country. Any idea what % of FMV to expect when buying at an auction? I’m guessing this percentage varies considerably from area to area depending on local market conditions, but a ballpark would be helpful. If I’m able to get data to analyze from the county, I will post the results here for reference…
I’m looking into better ways of buying flip properties rather than going through MLS. I’ve found good deals on MLS, but they are few and far between, and now I need to get a higher volume of deal flow. Does anyone have any experience buying foreclosures at the weekly auction at the Martinez Courthouse for Contra Costa County? Specifically, do you pay the entire amount in cash at the time of the auction, or do you put 10% down and close within a certain amount of days? How much due dilligence do you typically do before bidding? Is there an easy way to see the results of past auctions (i.e which ones went back to the bank vs. sold to private bidders, price sold, etc.)? My understanding is that most go back to the bank and become REO’s. If this is the case, do you try to buy from the bank before the auction and have them cancel the auction? Any comments are appreciated…
How to Obtain a Real Estate Broker’s License in California and Save on Realtor Fees
As you may know from my profile, I am a licensed real estate broker and Realtor. I had purchased a few primary residences prior to business school and somehow imagined that becoming a broker took years of training and experience. In spite of this, I decided to look into getting my license just to see what was needed (I hate ‘giving’ money away, and felt that being my own broker would help ease my pain). As it turns out, all you need is some patience, a 4-year college degree, and some high-school level test taking skills and you can have your own bona fide brokers’ license to purchase and sell properties at your leisure without paying 6% per transaction. As an added bonus, you can have access to the brokers’ most cherished and closely guarded possession – MLS data. Here is a breakdown of the steps needed:
1.) Take 8 college level courses laid out by the DRE – or exempt out based on your coursework in college (accounting and economics are commonly exempted out of). These classes can be taken at online schools, such as Anthony Schools – a Kaplan company. This is where the patience comes into play, since you are required to wait a few weeks in between courses. Otherwise, you could basically register for, and take, all of the on-line (open book, I might add) exams in the same day. Plan on taking a few months to work through the 8 college-level courses.
2.) Then, assuming you have your 4-year college degree, all you need to do is apply to take the brokers’ exam. Don’t even bother taking the salesperson exam unless you planning on working directly for a broker. The exam is not much more difficult, and being a broker means you can be your own company.
3.) Pass the exam and the DRE turns you loose to buy and sell until your wallet is content. You can then sign-up with your local Realtor association and get your Super Key to get into MLS listed homes, and have access to MLS data.
A complete description of the broker licensing requirements can be found at the CA DRE Website.
For more details on this pad, and to see other rehabbing post, please visit BayAreaREI.com
I like the blog (I just added it to my Blog Roll at www.BayAreaREI.com)! Best of luck to both of us. I hope I can contribute to your site in the coming months.
I earned an MBA from the Stanford Graduate School of Business, and hold a degree in Economics from the University of North Carolina at Chapel Hill and a degree in Computer Science from the University of Missouri. I am a licensed Real Estate Broker and Realtor, and am an active member of the Urban Land Institute and California Association of Realtors. I am a seasoned professional with over 7 years of project management experience in the fields of real estate, management consulting, and software development. Most recently, I worked as a Project Manager for Regis Homes of Northern California – one of the largest home builders in the Bay Area with over 200 multi-family and single-family homes developed each year. Currently, I am pursuing my dream of self-employment by buying, renovating, and selling homes in the Bay Area, as well as working as a project management consultant on projects for local developers.
Please email me if you are interested in having me as your broker for the purchase or sale of your home.
I have a recent post on my blog: www.BayAreaREI.com* that deals with this question in more detail. Sorry for the blatant self-promotion, but I thonk you will find the post relevant to your question. There is certainly money to be made in flipping houses, but much like what you described with new construction – finding the deal is the hardest part, and is where the money is made. Here is an excerpt from the post on my blog:
I often get asked what I look for in an ideal flip house. Rather than take the obvious approach and simply say “buy the ugliest, most neglected house in the best neighborhoodâ€, I want to explain how I quickly look at the numbers to see if the house is worth the time and effort. I have a nasty Excel (proprietary model, I might add) model that cranks out every excruciating detail of the flip financials, but the chart below will suffice to explain what I look for in general terms.
First, I pull comps from MLS (this is where having a broker license comes in handy). I pay particular attention to the comps to make sure I am selecting similar quality to my proposed finished renovation with the same school district, similar bedroom and bathroom count, lot size, etc. I then plot the comps against my tentative purchase and exit prices to see if everything looks reasonable before doing any further analysis. As you can see above, I am purchasing significantly under the market, and plan to sell right at the average of my comps based on the Log-fit from the model. I never want to project a sales price over the average – even though I know from experience that I will sell above the average. I want to be pleasantly surprised from the sales price rather than have sleepless nights about the sales price if the renovation costs run high or the project otherwise goes sideways.
I generally look for a house that is a starter home in an exceptional neighborhood with excellent schools. In my experience, schools drive my local market for starter homes, so I give the school district a lot of weight in determining value. Closing costs (on both the purchase and the sale) eat up a lot of money, so I don’t subscribe to the theory of finding a home that can just be painted and carpeted and sold in 4 weeks. That does not work in my market where the average sales price is something like $700,000. So, I am looking for a house that I can purchase for at least $225,000 less than the average price of the home’s comps in the area. As you can guess, this means that I am purchasing a house that is a disaster area (I almost got sick from walking in the Lafayette house – that’s when I knew I had a winner). A house in this condition generally needs $60-90k in work, and will take somewhere between 2-4 months to renovate.
I plan to discuss my approach in more detail later, as I feel this is an area neglected by all of the ‘flipping’ books I’ve read, and to me seems the most important part of analyzing a potential project. Large real estate developers certainly don’t initiate projects based on a back-of-the-envelope calculation, so why should individual investors expect to put their life savings on the line with even less forethought?
8 posts found
BayAreaREI.com writes, Sep 10, 2007: (7 posts)
(Topic: Other Stuff! / Calculating Purchase-to-ARV)
Thanks, this is helpful. I’m actually pretty excited when I find something at 80%, but I’m still finding deals off of MLS. I’m quickly realizing this is not the way to go to consistently find acceptable deals, however…
BayAreaREI.com writes, Sep 9, 2007: (7 posts)
(Topic: Other Stuff! / Calculating Purchase-to-ARV)
Quick question about how to calculate the seemingly magic threshold % for evaluating a flip:
If I want to calculate: Purchase_Price/(After_Renovation_Value – Renovation_Costs)
Do I use the net or the gross purchase and selling prices? I.e. do I net out the broker’s commission, inspections, staging, etc. in these numbers, or do I use the gross purchase and sales price? I’m guessing I use the gross numbers, but I’m not sure…
Second question, what is a reasonable threshold for your market? I’ve seen 65-70% on other sites, but that does not seem reasonably attainable on the million dollar homes in the Bay Area. Maybe I’m just not looking hard enough…
Thanks, Josh
BayAreaREI.com writes, Aug 7, 2007: (7 posts)
(Topic: Foreclosures and Pre-Foreclosures / Anyone have details of Contra Costa Auctions?)
Sean,
I think we must have been at the same auction on 8/1. Thanks for the info, and wow ForeclosureRadar.com is a fantastic site! I’ve dropped some cash for some other subscription services when I was actually looking for exactly what you are offering. I’d love to sit down with you and discuss what you’re doing and your experience in foreclosure investing (maybe I can buy you lunch?). Since I can’t locate an email address for you from your profile, I’m going to email you via your website’s contact form, or you can send me an email to josh.hohman at gmail dot com.
BayAreaREI.com writes, Aug 3, 2007: (7 posts)
(Topic: Foreclosures and Pre-Foreclosures / Anyone have details of Contra Costa Auctions?)
Thanks, Craig. The bulk option you described seems like the way to go in terms of price. However, I’m getting a skewed sense of reality from some other forums that make it sound like you need to be buying $50 million a month to get the attention of lenders. I can’t imaging that there are more than a hundred or so buyers at this scale in the country. Any idea what % of FMV to expect when buying at an auction? I’m guessing this percentage varies considerably from area to area depending on local market conditions, but a ballpark would be helpful. If I’m able to get data to analyze from the county, I will post the results here for reference…
BayAreaREI.com writes, Aug 2, 2007: (7 posts)
(Topic: Foreclosures and Pre-Foreclosures / Anyone have details of Contra Costa Auctions?)
I’m looking into better ways of buying flip properties rather than going through MLS. I’ve found good deals on MLS, but they are few and far between, and now I need to get a higher volume of deal flow. Does anyone have any experience buying foreclosures at the weekly auction at the Martinez Courthouse for Contra Costa County? Specifically, do you pay the entire amount in cash at the time of the auction, or do you put 10% down and close within a certain amount of days? How much due dilligence do you typically do before bidding? Is there an easy way to see the results of past auctions (i.e which ones went back to the bank vs. sold to private bidders, price sold, etc.)? My understanding is that most go back to the bank and become REO’s. If this is the case, do you try to buy from the bank before the auction and have them cancel the auction? Any comments are appreciated…
-Josh www.BayAreaREI.com
BayAreaREI.com writes, Jul 5, 2007: (7 posts)
(Topic: Beginners or Bird Dog / Get Thee to the Nearest DRE Licensing Office)
How to Obtain a Real Estate Broker’s License in California and Save on Realtor Fees
As you may know from my profile, I am a licensed real estate broker and Realtor. I had purchased a few primary residences prior to business school and somehow imagined that becoming a broker took years of training and experience. In spite of this, I decided to look into getting my license just to see what was needed (I hate ‘giving’ money away, and felt that being my own broker would help ease my pain). As it turns out, all you need is some patience, a 4-year college degree, and some high-school level test taking skills and you can have your own bona fide brokers’ license to purchase and sell properties at your leisure without paying 6% per transaction. As an added bonus, you can have access to the brokers’ most cherished and closely guarded possession – MLS data. Here is a breakdown of the steps needed:
1.) Take 8 college level courses laid out by the DRE – or exempt out based on your coursework in college (accounting and economics are commonly exempted out of). These classes can be taken at online schools, such as Anthony Schools – a Kaplan company. This is where the patience comes into play, since you are required to wait a few weeks in between courses. Otherwise, you could basically register for, and take, all of the on-line (open book, I might add) exams in the same day. Plan on taking a few months to work through the 8 college-level courses.
2.) Then, assuming you have your 4-year college degree, all you need to do is apply to take the brokers’ exam. Don’t even bother taking the salesperson exam unless you planning on working directly for a broker. The exam is not much more difficult, and being a broker means you can be your own company.
3.) Pass the exam and the DRE turns you loose to buy and sell until your wallet is content. You can then sign-up with your local Realtor association and get your Super Key to get into MLS listed homes, and have access to MLS data.
A complete description of the broker licensing requirements can be found at the CA DRE Website.
For more details on this pad, and to see other rehabbing post, please visit BayAreaREI.com
BayAreaREI.com writes, Jul 5, 2007: (7 posts)
(Topic: Introductions & General Chat / Stanford MBA flipping in East Bay)
I like the blog (I just added it to my Blog Roll at www.BayAreaREI.com)! Best of luck to both of us. I hope I can contribute to your site in the coming months.
I earned an MBA from the Stanford Graduate School of Business, and hold a degree in Economics from the University of North Carolina at Chapel Hill and a degree in Computer Science from the University of Missouri. I am a licensed Real Estate Broker and Realtor, and am an active member of the Urban Land Institute and California Association of Realtors. I am a seasoned professional with over 7 years of project management experience in the fields of real estate, management consulting, and software development. Most recently, I worked as a Project Manager for Regis Homes of Northern California – one of the largest home builders in the Bay Area with over 200 multi-family and single-family homes developed each year. Currently, I am pursuing my dream of self-employment by buying, renovating, and selling homes in the Bay Area, as well as working as a project management consultant on projects for local developers.
Please email me if you are interested in having me as your broker for the purchase or sale of your home.
My website: www.BayAreaREI.com
BayAreaREI.com writes, Jul 5, 2007: (7 posts)
(Topic: Rehabbing through Construction / Builder Wonders: Is There Better Money In Rehabing Or Building New?)
I have a recent post on my blog: www.BayAreaREI.com* that deals with this question in more detail. Sorry for the blatant self-promotion, but I thonk you will find the post relevant to your question. There is certainly money to be made in flipping houses, but much like what you described with new construction – finding the deal is the hardest part, and is where the money is made. Here is an excerpt from the post on my blog:
I often get asked what I look for in an ideal flip house. Rather than take the obvious approach and simply say “buy the ugliest, most neglected house in the best neighborhoodâ€, I want to explain how I quickly look at the numbers to see if the house is worth the time and effort. I have a nasty Excel (proprietary model, I might add) model that cranks out every excruciating detail of the flip financials, but the chart below will suffice to explain what I look for in general terms.
First, I pull comps from MLS (this is where having a broker license comes in handy). I pay particular attention to the comps to make sure I am selecting similar quality to my proposed finished renovation with the same school district, similar bedroom and bathroom count, lot size, etc. I then plot the comps against my tentative purchase and exit prices to see if everything looks reasonable before doing any further analysis. As you can see above, I am purchasing significantly under the market, and plan to sell right at the average of my comps based on the Log-fit from the model. I never want to project a sales price over the average – even though I know from experience that I will sell above the average. I want to be pleasantly surprised from the sales price rather than have sleepless nights about the sales price if the renovation costs run high or the project otherwise goes sideways.
I generally look for a house that is a starter home in an exceptional neighborhood with excellent schools. In my experience, schools drive my local market for starter homes, so I give the school district a lot of weight in determining value. Closing costs (on both the purchase and the sale) eat up a lot of money, so I don’t subscribe to the theory of finding a home that can just be painted and carpeted and sold in 4 weeks. That does not work in my market where the average sales price is something like $700,000. So, I am looking for a house that I can purchase for at least $225,000 less than the average price of the home’s comps in the area. As you can guess, this means that I am purchasing a house that is a disaster area (I almost got sick from walking in the Lafayette house – that’s when I knew I had a winner). A house in this condition generally needs $60-90k in work, and will take somewhere between 2-4 months to renovate.
I plan to discuss my approach in more detail later, as I feel this is an area neglected by all of the ‘flipping’ books I’ve read, and to me seems the most important part of analyzing a potential project. Large real estate developers certainly don’t initiate projects based on a back-of-the-envelope calculation, so why should individual investors expect to put their life savings on the line with even less forethought?