The Problem, The Solution
By Tony Youngs
Way back in the 1980’s I was taught that I must have a system and discipline if I want to be successful in Real Estate. I have certainly followed those rules and found it to be true. The system I follow is to plot a course of pre-foreclosure properties in an optimized route and have the discipline to go out and visit them each week. As I visit these properties, I drive the entire neighborhood and find several other distressed houses with no for sale signs in the yard, but I contact the owners and offer to buy them. I have more success with the other houses I find because the foreclosures are advertised and are very competitive.
A homeowner that is in pre-foreclosure gets bombarded with letters, phone calls, and visits, from many people that want to buy their homes and today, many of these homeowners sell to investors before the house goes up for auction. Many of these homes need work or repairs but because of the competition, a homeowner in foreclosure gets very close to market value. As a flipper myself, I wonder how the investor can do the renovation and make a profit. I also attend foreclosure auctions. Most of the properties scheduled get postponed or cancelled because the homeowner sold it before the auction, or they got a workout plan with their bank, or they filed bankruptcy which stops the foreclosure process.
So therefore, there are not many houses that actually make it to the auction. But there are masses of investors attending these auctions and they bid the price up to market value. If no-one bids on a house, it gets repossessed by the lender and becomes a bank owned property but I very seldom see anything go back to the lender. If I do see it, the lender puts it on the MLS or Auction.com as a fixer upper, and it gets multiple offers.
On the other hand, I am seeing many more houses on the MLS completely renovated, that are sitting unsold. The ones that do sell is because the owner reduces the price, sometimes more than once.
What is the solution and how do we navigate?
We investors are risk takers but we must be smarter on calculating the risk in today’s market. The costs of renovations are climbing higher and higher and have been for quite some time. With the combination of the higher renovation costs and the fierce competition from all the investors paying much higher prices, how then can we move forward and work smarter.
What I am doing is using my discipline by working harder in the Hidden Market. When I contact the owner of a distressed property with no for sale sign, I put a written offer in his or her hand. In the past, they would tell me my offer was low because they would see their neighbor sell their home with multiple offers on the MLS. But today, these hidden market owners are seeing their neighbors’ houses on the market sitting unsold unless they discount. Therefore, I am able to negotiate better prices according to the amount of repairs and problems with the property. Once I close on it, I then decide whether to put it on the MLS as a fixer upper as I am still witnessing multiple offers and bidding wars. If I decide to renovate with the high costs of materials and labor, I must remember that renovated houses are sitting unsold in my area. Which, by the way, is well known for the best schools.
If I do decide to renovate, Which I love to do, I learned from my brother Pete Youngs many years ago, how to rehab correctly. I have a crew of two laborers that can do just about anything, i.e. clean out, paint, tile floors or laminate, backsplashes, install vanities, toilets, sheetrock, landscaping, etc. Then I have a licensed plumber, electrician, and HVAC people that are sole proprietors. In my opinion this is my saving grace. There are many sole proprietors that do outstanding work and if you keep them busy, they give you excellent prices. They have been loyal for many years. I can rehab a house at a much lower cost than most.
I may be wrong in my thinking, but If I hire a big company for my HVAC, plumbing, and electrical, it will cost a lot more. Why? Because those companies use TV advertising, billboards, radio ads, and they have huge buildings with lots of vans and employees, so they must charge outrageous prices to cover all that overhead. Guess who is paying for that?
In Summary, I am not telling you that pursuing foreclosures, probates, and MLS is a waste of time, I’m just saying that it is highly competitive, but I believe you have just as good of a chance to get the deal as anyone, I still get foreclosures despite the competition. That is because I have learned how to put myself in their shoes when talking to them. But the best deals are in the hidden market, which is how you find foreclosures, probates, and distressed properties before they become public.
Tony Youngs is a national speaker, author, rehabber, trainer, and active real estate investor who takes you by the hand in your own back yard to teach you how to be good at finding good deals. He can be reached at his website at www.tonyyoungs.com.
