Over the course of the last year, we were preparing to live on one income and so we were taking a break from the house hunt while we recouped our cash reserves.
Well, starting about a week ago, we’ve resumed our search with the goal of finding one by the end of April. It’s not going to be easy but I think that we’re up for it. But so far, it’s not going well.
The Garden Hose
Before Mrs. Dollar got her real estate license, we relied on another realtor to help us find deals. We gave him our parameters and he set up a custom search which would email us the updated listings every day. When he first set it up, there was a ton of houses that matched our criteria and 90% of them weren’t really deals. But after wading through the muck and eliminating all the clutter, you end up with a few that you can make offers on.
Since the real estate market operates as kind of silent auction, you aren’t always going to be the one with the best offer. Sometimes, a cash-buyer will swoop in and get the property for cheap. And even if that doesn’t happen, there’s still a ton of competition since we aren’t the only investors in the DFW area (far from it!). That being said, you typically have to write a lot of offers before you get one accepted.
So, with this system you go for a hundred or so possibilities down to maybe 10 from which you might get 1 accepted offer. Probably less than 1.
The Fire House
Well, as a realtor, you have access to all the data. And as my wife’s “unlicensed assistant”, I also have access to it and she doesn’t even ask me to make copies or run errands.
The little searches we set up before were filtering out a lot of non-deals but also a lot of deals too. It’s literally like turning on a fire house and it’s very easy to be overwhelmed. Every day, you can run a report called a “hot sheet” which will show you all of the activity in the system during the last 24 hours. Typically, this will return 50-100 listings which you have to scan through to find the 5-10 you might want to consider.
After that, you have to figure out the true market value by running searches to find the comparable sales (comps). For these 5-10 prospects usually between 5-10 of them turn out to be unworkable. That’s right: you could spend all morning running comps and not get a single. good. deal.
Why? Because the market is so beat up right now. In order to use hard money and minimize our out of pocket, we need to buy it and fix it up for around 75% of the true market value. A few years ago, that was a lot easier but many of the working class neighborhoods in our area have had nothing but distressed/foreclosure sales in the last 6 months. That means it’s getting harder and harder to get to that 75% number.
We could just go ahead and buy it, knowing our out of pocket is going to be higher. These areas may “comp out” to around 70-80k now but 2 years ago these houses were going for 100k and it’s only a matter of time before we get back to those levels. Hell, it only takes a few good sales to start pushing the numbers back up.
But for now, we’re sticking to our strategy and trying to stretch our investment dollars as far as they will go. We have one property we are keeping an eye on but we can’t make an offer for a few more days since it’s a HUD property. (With HUD, investors can start making offers after 15 days).
We’ll keep you posted!