buy now or wait

[joseph44]

Goodmorning Everyone,I have a question I live in Florida's SunCoast around Bradenton,Sarasota area homes in this area have dropped 11/16% is now a good time to be looking for ReHabs to fix/flip?I gave an offer to a realtor on a foreclosure and he almost (chooked ) it needed approx $35,000 in work.It seems in this area eveyone wants top dollar.Is now a good time to pursue this or should I wait? Also I'm looking for a realestate investment club in this area so if anyone knows of any please let me know.Thank you and have a great wk/nd!!!

[berk]

It is sort of like the stock market in that regard. When the price of a stock begins to drop, when do you get in. Of course it is a stock you know will rebound. My company used to have a policy of only buying properties at 75% BTV (Basis to Value). That value is determined by the average of the 3 lowest priced homes currently listed in that neighborhood, not some appraisal. Because of the current market conditions, we now have lowered our criteria to 65% BTV.

Remember, for the most part, you are in a buyers market, and you are a buyer. If you find some crazy seller that still thinks they can get what their neighbor got 2 years ago, find a different property. There are plenty of them out their. Stick to the fundamentals and keep making the offers.

I personally try to avoid listing agents. I either try to find the house before a realtor gets it, or talk to the homeowner directly.

[ZNICK]

Berk, that's an interesting formula, and one I've never heard. How does it compare to typical "comps"? Is it typically higher or lower than the median?

Z

[berk]

Comps are kind of a tricky thing sometimes. If you are a realtor, you know what you are looking for. If you need comps and ask a realtor, they will usually get you high comps. As everyone knows, just because a house will appraise for $300k right now, doesn't mean someone will ever spend that much. Thus, just about every loan going through underwriting hits appraisal review.

When we valuate a property, we typically look for the 3 lowest priced homes in that market that are currently listed or have sold. We take an average of those 3 and that gets us a decent starting point. Getting a solid value is tougher right now because of the market conditions. Here is an example.

We want to buy a house that has current loans for $250k, here are the costs.

Reinstatement $6000
Rehab $5000
Cash to owner $5000
Carrying costs $5000
Transfer Tax $1800 (county specific)

There might be some other fees that I missed, but adding the mortgages puts my basis to $272,800.

So, if I want to hit my BTV (basis to value) That house needs to be able to sell for at least $364,000. Notice I said "the house needs to be able to sell for", and not "the home will appraise for". I will then look at properties in the neighborhood and get the 3 lowest sales and listed properties to get a better idea of what I can sell it for.

Of course if I am wholesaling the property or refinancing or something else creative, I care more about an appraisal. This example only applies to me buying sub2 and trying to flip for quick profits. If I'm able to flip quick and don't need to reinstate or carry, then that is just more profit.

Some investors get over anxious and look at the $250k loan and think they have a great property. They do all their calculations at the beginning and then when the deal closes, they find themselves cashing a check much less than they anticipated. That is why we switched from LTV to BTV.

Did that answer your question?? I hope.

Any thoughts on valuating properties differently? I'm sure you all have the same numbers, you just might call it something different.