I received a call from a friend today who is interested in investing in rehab properties. He knows that I have done it successfully and asked about my secret.
It is really not a big secret at all. Not going to charge $5. Don't worry!
When I was growing up (ages 4-22), I played hockey and later coached some very successful little guy hockey teams. While playing I was on 4 Illinois State Champion teams. One when I was about 10 and another 3 in high school. Back in the days of playing, all of my coaches had the same theory; one I share. Winning was about working the numbers. Offense was all about shooting and scoring. The higher the shot on goal stats were, the higher the chance of scoring and, by extension, the higher percentage of WINS.
There were high percentage shots and low percentage shots. A shot, no matter the difficulty and angle, was still a shot. No shot, no chance of a score. It is all numbers.
Investing in real estate is the same thing. No offer, no chance to buy.
If you get in front of the net, shoot. If you look at a property, offer. Some offers have a high percentage and some have a low percentage. Every so often the goalie will have his legs apart or will have fallen down. When this happens even a low percentage shot can create a goal. Quite often, you are not going to see the opening before you take the shot but circumstances that you do not control will create additional opportunity.
I tell investors to view it and offer on it. As an investor, you do not care about the neighborhood. You do not care about the color. You do not care about he neighbors.
Almost every variable can be factored into a spreadsheet. DOM, crime rate, carry cost. It really does not matter. It is all numbers. Some things make a property and neighborhood more valuable and some make it less. The same type of property in different areas has a different worth.
If an investor buyer has spent the time to research a property out and take a look, they should make an offer. They should offer on every property they view, provided they have the experience with the potential situation. Caveat being that inexperienced rehabbers should not get in over their heads.
You are going to run into a lot of properties where the seller would never take the offer. You are going to take a lot of low percentage shots. Sometimes, the goalie will fall down. Sometimes he will just throw in the towel. Sometimes he is just holding a place and not playing the game.
You do not know until you fire a shot. Sometimes, when you least expect it, you put the biscuit in the basket.
Do you have questions about distressed assets, receivership or bankruptcy sales, auctions? Email me at rfk@gryphonusa.com and I'll try to answer it in an upcoming post.
Richard F. Kruse is the President of Columbus, Ohio based Gryphon USA, Ltd. (www.gryphonusa.com). The Gryphon Organization includes Gryphon Asset Management providing receivership and consulting services in the distressed marketplace, United Country Gryphon Realty & Auction Group (www.ucohiorealty.com & www.ucohioauctions.com) providing real estate brokerage and auction services throughout Ohio and OnlineAuctionUSA.com (www.onlineauctionusa.com) providing commercial asset liquidations from the Midwest to East Coast.
United Country Gryphon Realty & Auction Career Opportunities Available. Call 614-885-0020 x 17
Rich,
I'm curious. You say as an investor you do not care about the neighborhood, but isn't that something you would look at?
I have been showing a rehab and the investors all asked about the neighborhood. I figured they were thinking resale value...What are your thoughts?
Everything has a number value. A neighborhood that is less desirable may have a longer DOM and that would factor into holding costs. It has a quantifiable (spelling????) value. If it could cost $2000 extra to hold, offer $2000 less on the buy.
About 5 years ago, I offered to buy a property if (a) I paid $0.00 (b) the seller transferred title free and clear (c) the seller paid me $10,000. That offer was a mathematical calculation of what the property was worth to me. The listing agent called and we actually negotiated a little before the deal fell apart. Point is that I made an offer based on my criteria. The seller and I got close, but didn't connect. At the time I had another 10 offer +/- out. It was only a matter of time before I recevied an accpetance based on my criteria.
For the property outlined above, I figured that the demo cost on the structure was $8,000 and the taxes were about $400/yr as land. I did not think that building a new home was a good idea and thought that selling the land as a lot might take 4 years. As land the deal was worth $2500. So to make $2500 +/-, I needed to get the land at $0.00 less $10,000. It was math.
The seller was willing to pay me $7500. It didn't conform to my criteria, so I moved on. I am sure there were more angles, but it was only $2500.
Rich,
1at.You spelled that correct:)
2nd ....If you paid 0.00??? Whats in it for the seller. I will be back in am for your answer. It's bedtime here!
I really want to sell my little rehab property! I have had more people look at it, but its an overwhelming amount of work, and probably would be better off demolished, but it's on a small lot and cannot be rebuilt without leaving a wall standing...It's bank owned so auctioning is out. I've had some first time buyers but they don't know what they are getting into. (It is the cheapest house on the market right now) Investors say its more work than they want to get into. What would your perspective be? And what would make it appealing to you? As an investor?
Answer to #1 - The seller was paying taxes and insurance on a property with little or no value. It was tented and you needed to sign a health waiver to even get the combo. I figured that anyone interested would want it without the structure liablilty. Therefore, my offer was "pay me and I will take it off your hands and deal with the liablity on my dime".
#2 - Call all the rehabbers. Call your clients. Do a rehab spreadsheet that takes the improved value and backs out costs, leaving potential purchase price.
I suggest that you email blast all of the local investors and agents with "the theory", modified to your style of course. Use it as a "make an offer" pitch. Follow it with the listing opportunity on the same email. One will tie to the other. It is the power of suggestion. You will probably also pick up new investor buyers.
R
Rich,
Good post!
I never would have related real estate to hockey, but I never played the game. I write about persistence and tenacity, but it's the same story.
Bill
William J Archambault Jr
The Real Estate Investment Institute
http://www.reii.org
Thanks for the input, Bill. As always it is appreciated. Looking forward to the next piece of advice on your blog.
R
Interesting - since all I do is invest in real estate, lend money to people who invest in real estate and operate a real estate brokerage which only deals with real estate investments. The reason we evaluate properties and their potential is not to make an offer on every property but rather to identify the correct property which fits our investment horizon. But if your business model is to offer on every property - I'm sure there must be some success in that for you or you would not continue to do so and encourage others to do so! But yes, by all means when you find the property that fits your business model MAKE AN OFFER! It won't jump into your portfolio.
P.S. What's a "hockey"?
Ken - My point is that every opportunity has the potential to fit the "investment horizon". For example, if your client will only invest in gas stations, then he must have some criteria that is acceptable. Providing he only looks at gas stations, he will determine what a "good buy" is for him. Once you determine what the good buy is, you can determine if you are going to make an offer. By the time you get this far, there is no harm in making the offer. If the asking price is $2m and the client is only willing to pay $750,000, then offer it. You might get lucky. If not, move on to the next gas station. Eventually, you will find an opportunity where your offer will meet the sellers criteria. It is the valuation that takes the time, not drafting the offer.
In short, if you don't ask, you will never get.
Just the way I look at it.
There was just a post comparing being a realtor to surfing...if i recall....and now investing to hockey? I wonder what's next, basketball to property managment???
(all kidding aside, I do think you lay out some excellent strategies Rich. Keep em' coming!)
I like the surfing analogy better. People in Hawaii do not know anything about hockey. We tried to start a league but the ice kept melting.
You made some good points. It is about the bottom line. A great deal may be in a bad neighborhood or a good one, if you get it at the right price.
Great advice as usual Rich.
Now if I could just get this picture of the Hanson Brothers out of my head!
A friend of mine does the same thing - low percentage shots, but he just keeps going and going....
Carole - This is one theory and mostly used by flippers.
Kaushik - I forgot about the surfing blog. Not sure I could compare property management to basketball. I could do one called "tenants are like a box of chocolates"
Harpers - Thanks. If I learned this in school, it was during auto shop, art or gym. I don't think I took anything else.
Randy - Yep. Bottom line.
Mark - Like I said above, many people spend a lot of time on the valuation and then stop. Taking the next step is the key.
Blasi - Who Own De Chiefs? Ownsa Ownsa. --- Puttin on the foil coach. Yeah, before every game. Want some? ---Those guys don't leave the bench. --- I could go on for days.
Rich,
Thanks for the post. I too never would have thought of the parallels in hockey. Good analogy.
Rich.. looks like good advice to me. Take the shot. Do I get to scream 'goooooooool' when someone accepts?! just kidding. I like this statement.. "No offer, no chance to buy." Some people dilly-dally and dont make the offer becuae of what how they think the seller will react. But we really never know, like you stated.
BTW, if hockey is your thing, then that's your analogy. I'm a surf nut, so its mine. Maybe now I can write one about soccer.. gooooooooool! :))
say Hi to Melissa.
Rich,
Not being a real estate investor, I probably would have never read this blog posting except for the headline. Being an avid hockey fan and very, very amateur former adult rec league player, the headline intrigued me, especially since I just returned from the Rangers-Flyers game at MSG last night, 3-2 Rangers win.
As someone who does sales, marketing and peak performance coaching and training for real estate and mortgage professionals, I always talk about this subject in terms of making sales and asking for the sale. As Wayne Gretzky is often quoted as saying, "you don't score on 100% of the shots you don't take."
Loved the hockey metaphor, I may have to borrow it.
P.S. -Want to coach the NY Rangers,? Most nights as MSG there are 18,000 people yelling "shoot the puck" as the players hang on to the puck and try to make the perfect pass to set up the perfect scoring opportunity that rarely manifests.
As a high school hockey player (back in the dark ages) and an REO agent, I can relate.
I recently had a similar situation to the one Rich mentioned in his first comment (give me the property, give me 10K and the property, etc)
I had one listed at $13,000 with an accepted offer at $8500. Then a city lien popped up for $11500 or so. The lender said, we'll quit claim it to the buyer, and he can satisfy the city. The buyer said satisfy the city and I'll pay you $8500 as agreed.
It's still in limbo after 2 months. And the buyer's agent calls me twice a week claiming I should be working harder to get this cleaned up. The seller says, let it rot and go back to the city; the city says, we won't negotiate, pay the fees.
The best part, this is a semi detached (half a double) and the other half is in the foreclosure process with a different lender right now.