How to Find Properties Going to Foreclosure Auction: Part 2 (Verifying Information and Tracking)

At this point you have found a property that is going to foreclosure auction, you’ve done some preliminary valuation on it and you want to bid on it, see How to Find Properties Going to Foreclosure Auction: Part 1 (Sources). Now it is time to do your homework. You need to verify the information that you have, get additional information about the property’s title and since the auction will likely be postponed you need to set a tracking system. If you do not do these items you are setting yourself up to lose a LOT of money and or miss out on opportunities.

First things first, verify information. This is a lot easier to do if you have a real estate license, if not, you need to develop a good relationship with an agent that is willing to work with you or even better develop a relationship with a good title rep. A good title company will have great online resources that give you access to county records and a customer service call center too. Start with the online research; this is usually a system that the title company has and will have to give you access to it. Once you have access, start with a property search by APN. There are too many errors with address searches, so always search by APN. Run your search and when the property comes up, make sure the address matches the prospective property. If it does, open up both the property profile and property history.

Property Profile: This is where you will verify the owner name and property specifics. The information on the profile is what the county shows on record. So if your original source shows that the house is 2,000 sqft and the profile shows that it’s 900 sqft; there may have been additions without permits. You will need to verify this. Keep in mind that if your preliminary valuation and property info comes from another online service, that service probably got the property information from an old MLS listing, which isn’t always accurate.

If the property specs check out take a look at the owner’s mailing address, if it doesn’t match the property address, the property may be tenant occupied or vacant. Especially if it’s an out of state mailing address.

Property History: This is where you will start to check to make sure you are buying a first lien. Go through the property history and check transfers, loans and foreclosure filings. This can be kind of confusing sometimes, but essentially you want to look for the loan that is holding the auction you’re interested in and make sure there are no liens with a recording date prior to the loan in question and no liens for a higher amount. Finding either a prior lien or a higher loan doesn’t necessarily mean the loan in question is a 2nd lien, but in some circumstances checking these items will show an obvious issue and help save you some time.

Checking the Property Profile and Property History should take you no more than 7 minutes.

If your initial check at your online title resource checks out, it’s time to call customer service. The title company’s customer service representative will have access to the most up to date database, usually with a couple of days of anything recorded with the county. When you get a representative on the phone, have them lookup the property by APN and ask them for the following information: 1) Open liens. 2) Unpaid property taxes. And 3) Any IRS liens. Not all title companies will lookup IRS liens for you. If the title company you’re working with doesn’t look this information up for you, find one that will.

Open Liens: With the list of open liens, you can verify the position of the lien that

The statistics and figures noted in this article were obtained through the MLS and AccuFlip.com, and are for Los Angeles single family residences.

Sale Price

The median sales price of single family homes in Los Angeles County in July 2015 came in at $565,000, which is up only .3% from June. Year over year, prices are up 7.2%, marking three straight months of relatively sustainable gains. Yes, 7.2% is more than double income and inflation rates, but it is far better than 10, 15 or 20 percent. Gains in the double digits are great for the short term, but end up hurting a lot of people. For now, I’ll take the 7% appreciation. I expect to see this continued leveling off of home prices and then the normal dip when we hit the winter lul. I am excited to see how the next couple months turn out and see how some of my predictions stack up to reality.

Sales Volume and Active Listings

Volume is basically flat from June to July. June had 4,662 sales and we had 4,675 in July, not much change. However, 4,675 is up 12.4% from July 2014. One of the big issues with the health of the overall real estate market is volume. For years volume was frighteningly low, but now we are making great progress. The volume we’ve seen this year is likely to be the new norm. Had you looked at the monthly volume numbers before 2006, and I don’t just mean 2004, 5 and 6, but 1990+ (adjusted for population), 4,600 sales a month would be pathetic, but this is now the market we live in. How long does a certain statistic have to be a constant topical issue before it’s just normal? We’ve been talking about it for too long to still keep talking about it. So, for now, 4,662 sales is great and normal for this time of year.

Active listings, according to CRMLS, is at 13,023, down from 13,883 one month ago. The problem with the MLS active property stat, is that it is not just properties with an Active status, it’s properties that are accepting offers; meaning status Active or Backup. Properties that have status Backup have accepted an offer, so they are under contract. I consider it a flawed statistic. My numbers show that there are 10,986 properties Active, which is up from 10,395 one month ago. The 11k Active listings is on par from last year; volume is up, but properties under contract are the interesting topic…

Key Ratios and Additional Comments

We know that Los Angeles is unaffordable. I don’t want to focus too much on the sustainability index (median price/median household income). It is high at 9.26, but the good information on the rise of incomes is not out yet and prices are leveling off, which should allow us to be sustainable for quite some time.

Let’s focus on pending home sales and active inventory. Not just Pending status, but properties under contract. There are 7,947 under contract, down from 8,348 one month ago. Inventory is up and properties pending sale are down. This hasn’t happened in a long time. The market has been out of control with competition for years now and for once we are seeing some pull back from buyers. This DOES NOT mean that prices are going to drop dramatically in the near future. It just means that competition is easing up, which just gives further evidence that prices will continue to flatten out.

Overall I like what I am seeing, as long as the spread between active properties and pending sales or sales volume doesn’t continue to widen. If you are flipping property, you will probably be able to get some good deals in the coming months, especially Nov-Jan.

Questions or comments? Leave a message below or email me at [email protected]

Buying properties at the foreclosure auctions is a great way to get a deep discount on properties, but as I’ve stated many times, you need to know what you’re doing or you could take some serious losses. This post will be the first of two or three posts on how to scout out the properties coming up for auction. Here I will review the different sources for finding these properties and what the sources will provide.

                PropertyRadar.com is a service provider that for a small monthly fee will provide you with detailed information about properties coming up for auction. In California, foreclosure proceedings need to be recorded with the county that the property is in, starting with the Notice of Default. Each county will provide this information to anybody, for a small fee. PropertyRadar.com pays for this information for ALL properties, organizes it, tracks the progress for you and provides some additional information about the property; whether or not it’s listed for sale, lien and sales history, valuation estimated, etc.

If you’re buying at the auctions, you will be searching for properties with upcoming auctions within the next few days. Besides the property specs, you will be looking for the auction date and location, estimated debt, opening bid and lien position (1st, 2nd, etc.).  ALL OF THIS INFORMATION MUST BE VERIFIED. PropertyRadar is a great source and they do a good job, but they are still a third party, so the information provided by them, must be verified.

There will also be the contact information to the trustee and/or the trustee sale hotline number for the particular trustee. Take note of this information, because you will find that there are a couple of big trustee companies that hold the bulk of the auctions. The sales information (date, opening bid, etc.) coming directly from the trustee will be the most up to date, because they are the ones holding the auction. Many of these trustees will have websites with up to date property and sale info, I will go over the big ones later in this post.

PropertyRadar.com is extremely convenient and makes it a lot easier to find and track the properties that meet your criteria. However, there are properties that they miss and there is a delay on the information they provide, which brings me to the next sources… Direct from the trustee…

There are a few large trustee companies that hold the bulk of the auctions and these companies post their trustee sale information on one of three websites; www.PriorityPosting.com, www.nationwideposting.com and www.servicelinkasap.com. The information on these sites are the most up to date and best of all FREE. There are more websites out there, but these are the big three. As you use PropertyRadar.com you will notice many of the same trustees for different properties; you should call these trustees and see if they have a website where they post the data. This saves a lot of time and puts you with the most up to date and accurate information which is a great advantage. These sites don’t provide as much information, but they do give you the basics; property address, APN, sale date/time/location, estimated debt, opening bid and trustee info. You will need to find the property specs yourself.

Buying at the trustee’s sale is very fast pace and last minute. You do not have a lot of time to do due diligence, sometimes less than an hour. Most of the time you will be looking up these properties the morning of the sales, usually within an hour or two of the auction. Most of the trustee sites have an export to excel option, USE THIS. Excel will allow you to quickly sort the properties and weed out the ones you want. After you export, first sort the properties by “Status” and d

Selling your property on the open market quite simply comes down to four main factors; Location, specs, condition and price. There’s nothing you can do about the location of your property, so in order to get top dollar, you only have control over the specs (sqft, beds, baths, etc) and condition of your property. Since controlling the specs is a whole other article on construction, I’m going to focus on condition. There are two main components to condition; cosmetic and major systems.

Cosmetic

These are the items that are going to grab the buyer’s attention and make them say, ”I want this home!” Cosmetic work can range from a complete remodel (new kitchen, new bathroom, new floors, etc) to simply mowing the lawn. So, you need to consider how much work you are willing to do.

Presenting your home to prospective buyers is very important. Be sure that you keep your property clean and tidy, and also keep your lawns groomed. Ideally you have at least re-painted the interior a neutral color and have carpets replaced or at least cleaned professionally. Personal pictures and items should be removed from the walls and put away. I always recommend renting a storage space for all non-essential items. This will help remove clutter, free up space and make your home look larger. This is especially a good idea if you’re selling a smaller house or condo.

Major Systems

Your major systems (roof, plumbing, electrical, etc) are going to be your key selling points in justifying the value of your property. After a buyer has imagined themselves living in your home, they will start looking into the major systems. These upgrades aren’t usually what initially grabs the buyer’s attention, but will be key factors in determining the offer amount from any prospective buyer. Major system upgrades are expensive, but add piece of mind to buyers.

In conclusion, when selling your home, if you’re getting activity and showings, but not getting offers, you have two option; lower the price or improve the condition. One last item I want to touch on is showing your home. The more showings the better and the more convenient it is to show your home the more showings you will have. Having your home on a secured lock box with controlled access is the most convenient way to show your home. Making buyers jump through hoops by having to give notice days in advance or restricting the show times to certain hours on certain days will only limit the number of showing you have and ultimately you could miss out on that one buyer who is willing to pay top dollar. So, make it easy for your agent to show your home.

In this episode Bret tackles issues with time and the lack of it. He includes plans he has on solving his own time constraint issues.

Tack Real Estate Podcast Notes:

The statistics and figures noted in this article were obtained through the MLS and AccuFlip.com, and are for Los Angeles single family residences.

Sale Price

The median sales price for Los Angeles County SFR for June 2015 came in at $557,000. This is a 2.675% increase from May, which came in at $542,488. Year over year, we are up 7.1%. I am happy to see the yearly rate of appreciation remain under 10%. The last few years have been nerve racking, seeing 10% to +20% annual growth. That kind of change is unsustainable and begging for a correction. Prices are high and affordability is a problem, but if we slow the pace of appreciation, there’s a chance we can catch up and stay out of bubble territory; more on this later.

Sales Volume and Active Listings

Sales volume is up 10.8% from May. 4,619 homes sold in June, beating May by 500 sales. Even better news is that home sales are up 19.45% from June 2014. We’ve had four straight months of positive year over year change, but this is by far the highest change. Prior to these last four months, we had 19 consecutive months of negative year over year sales growth, which is a big warning. Fortunately (in a way), we also had declining inventory to compensate for the volume drought. Active listings are still an issue in Los Angeles.

There are 14,026 available properties in Los Angeles, which is still low, but getting better (note: available properties are in Active or Backup Offer status). We should see around 20,000 or even 25,000 available properties, but we would also need volume to jump up to around 6,000 sales/mo in order to maintain balance. There’s a theory that as prices rise so should inventory, but when is this going to happen? The theory is that so many homeowners were under water or lost most of their equity and have weathered the storm (the Great Recession), but do not have enough equity to justify selling. So, as prices rise more and more homeowners have enough equity to motivate them to sell. Makes sense, so where are all these sellers? I guess there still are a lot of underwater homeowners and we’ll just have to keep waiting.

Average days on market was 56 days.

Key Ratios and Additional Comments

How the hard statistics relate to each other is a way to gage the market and help forecast. Outside economic factors play major role in the future of the market, but stats and ratios are the proof of change. With that, let’s first look at median price divided by median household income, what I call the sustainability index. Right now we are at 9.13 time household income, based on an estimate of $61,000 per year for median household income. I consider less than or equal to 8.75 time income to be sustainable. Venturing beyond nine times income does not mean that a correction is coming, but it is a warning. The warning is that if we continue at the same rates of change, then the market will correct itself. The good news is that we are seeing adjustments in the rates of change. Most importantly prices are tapering off and incomes are rising. If incomes continue to rise, we can have and sustain further appreciation, but it has to be at a reasonable level.

The ratio, as a percentage, of Active properties to properties under contract is 80%. This is high, but coming down from previous months. This shows that buyers are in high competition with each other. Which is proven by the fact that properties are selling 101% of their list price. It’s a sellers’ market.

All in all, the Los Angeles real estate market appears to be okay, for now. There is nothing indicating a drop in prices. There is the pending rate hike, which will cause some turbulence, but not enough to shake us off our foun

I remember my mentor once telling me, “Pfeifer, the majority of our time will be wasted, but when it is not, it will be VERY lucrative.” This turned out to be very true. At the time we were full time focused on buying properties at foreclosure auctions. This meant that we spent about five to six hours a day scouting properties and working the auctions and the rest of the day on properties we had already bought. The five plus hours we spent scouting was usually wasted because those 120 hours a month usually only resulted in one to two purchases, but at $60,000 to $120,000 profit on each one, made for a pretty good year and definitely worth it. Then things started to change; the investors attending the auctions grew, creating more competition; as the economy recovered the number of properties auctioned dropped; lastly, hedge funds started attending the auctions with unlimited cash and a buy and hold strategy. Our one to two purchases a month turned into one every three months, then every 5 months. It was no longer worth it to focus all of our time and energy on this one source. It was time to re-group, re-strategize and start finding properties from other sources.

Using systems to streamline your performance is a major part of how I run my life and business. Optimizing your time spent on anything allows for greater productivity and greater success. I use three main sources to find properties to flip and have set systems in place to optimize my time and energy spent on each source. I want to give you an overview of my systems…

The MLS

I meet a lot of investors that say, “once a property has hit the MLS it’s too late.” This couldn’t be further from the truth. Every day I see properties flipped using the MLS. Properties on the MLS take out a lot of risk. For one, you get to inspect the property. You also have contingency periods, you get time to shop financing, bid construction before purchasing and strategize your exit. The big problem is that there are thousands of properties on the MLS trying to weed through all the properties would literally have you working 24/7. I have three systems that cut this 24 hour a day job into less than one hour. And, you don’t need to be a real estate agent to use them. If you’re not licensed have an agent do some of these for you.

When flipping real estate, most people focus on what they can do to a home to get the highest price possible, while keeping within their rehab budget. Getting top dollar for your rehab budget is very important, but you can also add to your profits with a few changes outside of the rehab. There are certain things you can do to save you money, which in turn adds to your profits. Here are 5 ways to earn an extra buck on your next flip project:

Title Insurance Binder

Did you know that you can add a binder to your title insurance and save yourself around $1,000 when it comes time to sell? A binder can be used only if the property is going to be held for a short period, for example: a flip. Customarily, it is the seller who pays for title insurance and the fee is based on the sales price. So, when purchasing the property you intend to flip, if you add a binder to the title insurance, you as the buyer will have to pay a small fee (usually 10% of the title fee), but when you re-sell the property, your fee for the title insurance will only be for the difference of the selling and purchase price and NOT for the just your selling price.

Example:

You purchase a property for $500,000 and sell it for $650,000, and you DON’T get a binder. Your title insurance fee will be based on $650,000 and be roughly $1,900.

In the same scenario, if you added a binder at the time of purchase, you would pay a $190 fee, but when you sell the property for $650,000, your title fee will be based on only $ 150,000 ($650,000 – $500,000 = $150,000) and will be around $725. So in total your title fees would be $915 as appose to $1,900 had you not got the binder.

Buy the Materials Yourself

The contractor you hire doesn’t need to provide the materials he bids work on. More than likely he will mark up the cost when it comes to billing and also get them at a discount (legit, usually). Avoid this by buying the materials yourself. A bonus is that at most supply stores you can sign up as a distributer and get the discount that the contractors get. Sometimes as high as 30% off. It’s tuff to get this at the major supply chains, but usually available at the smaller stores. Also, your contractor will more than likely have no problem picking up the supplies when they’re ready. This can save a lot and have a nice impact on your profits.

Shop Your Termite Work

                You will usually have to do some termite repairs. The inspections are cheap and sometimes free, so shop around. One big difference you will find between termite companies is their pricing differences in both tenting and wood work. I have two termite companies I work with and one has a relatively low fee for tenting, while charging an arm and a leg for wood work; the other is a bit more for tenting, but they have their own construction company, so wood work is cheap. The 2nd company does what they can not to tent too. So, I always check with both, if tenting is absolutely necessary, I’ll usually go with the 1st company, but if the 2nd can provide clearance with local treatment and wood work, I’ll use them.

Go Green

                Going green may seem more expensive at first glance, but it can actually save you money. There are many government rebate programs for going green and using energy efficient products. In Southern California there is a very nice incentive for changing grass yards to turf or hardscape. Check into what rebates are available in your area.

Don’t Get a Home Warranty

Adding a home warranty into an offer has become standard practice for real estate agents. They are looked at as a standard fee for sellers and a lot of agents offer t

The real estate market statistics and figures noted in this article were obtained through the MLS and AccuFlip.com, and are for Los Angeles single family residences that sold for under $7,000,000.

May 2015 Revisions

                There are no major revisions to report for May. Median price is revised up slightly to $542,750, which is not very significant.

Glimpse at June 2015

                Before getting into these numbers, please note that there is still over a week’s worth of sales data to come through, which could drastically change these numbers.

So far there have been 2,642 sales in June and hopefully with 8 closing days of data to come, we have another 1,500 sale. This would put us on par for May’s sales volume and give us another month of positive year over year sale volume change.

Continuing with the predicted high volatility in monthly change in median price, we’re looking to have a 3.2% price jump from May. Median sales price so far is at $560,000, which if this number holds, will be a gain of 7.7% from June 2014. The good news about the price gain is that it is below 10%, which helps push out our sustainability timeline.

Active listings are up slightly at 13,601. It’s good that we have a growing inventory, but this is still very low. We’ve been at low levels for several years, but even compared to recent years 13,601 is low. This time last year we had about 15,000 active listings.

With the 3% price jump from last month, the sustainability index (median sales price divided by median household income) finally breaches 9 times median household income (8.75 times is what I consider the threshold of sustainability). I’ve even adjusted the median household income up for June, based on estimates of wage growth. Last year we peaked out at 8.93 times income, when prices peaked in August. We are more than likely going to have prices continue to rise until august this year, which will put affordability at a multiyear low. Demand for properties is backing up this likelihood of continued price growth. There are currently 10,366 homes with an Active status and 8,490 under contract (status Backup Offer or Pending) which is a pretty high ratio, 82% (ratio as a percentage). The last few months have been similar, ranging between 82% and 92%, but prior to March, this ratio was consistently closer to 66%. So, this indicates that the demand for property is high and, as noted, supply is low, which points towards continued price increases.

While a price correction is inevitable, we are talking about Los Angeles, I don’t think it is a threat right now or for several months to come. There may be a slight dip if interest rates ever do increase, but it will be temporary, minor and mostly due to a temporary drop in demand. As long as we remain at a moderate growth rates while incomes continue to rise, we should be okay for possibly years to come. However, you need to pay attention to the market and the outside contributing factors, that can give you warnings of any significant changes.

For questions or comments, contact Bret Pfeifer, [email protected]

Flipping real estate can be very lucrative, but cashing out big is not always the outcome of a flip. Losing money on a flip is the worst case scenario and it happens far too often. There are dozens of things that can go wrong, anything from an act of nature to just plain and simple inexperience. In an effort to keep this post at a reasonable length, I am just going to focus on the top 5 ways that people lose money.

Over Estimating ARV (after repaired value)

                Being overly optimistic about the ARV of your project will be a problem. It will screw up your timeline and obviously your profits. Many flip training courses tell newbies to check comps and take the highest comp as your ARV. There’s a lot of problems with this method. Yes, your flip with all new finishing’s will fetch a high price, but usually not the top. Why? Because often times the highest priced/sold home is very custom and the amount of money it would take for you to get to that level, would obliterate your profit margins. You also have to think of the mindset of the buyer. If you are doing a standard flip, it will be recognized as a standard flip. Meaning that it’s very new and nice, but kind of cookie cutter, which is noticeable to buyers and needs to be accounted for in calculating your ARV.

TIPS:

Under Estimating Construction Costs

                There are three main ways that rehab costs are flubbed. You have your classic DIY weekend warrior that thinks they’re going to rehab an entire home after work and on the weekends. I don’t think I need to explain much more.

Using the contractor that gives you the lowest bid can ruin you. Shady contractors or contractors in desperate need of work will sometimes give a ridiculously low bid, knowing that they will be tacking on costs after they start or leaving out details, like the cost of materials. This is a very common issue with flipping. The most common construction cost miss, is not accounting for unknown factors. I have yet to see a project that didn’t have something pop up. It happens every time and needs to be considered in all potential projects.

TIPS:

Not Factoring ALL Costs

Closing costs are a large portion of your expenses, so know what they are. Common costs that are over looked are; property taxes (believe it or not), utilities, transfer taxes, city/neighborhood/community fees that are unique to a property, loan fees (again, believe it or not, frequently overlooked), are just a few commonly overlooked costs of flipping.

TIPS:

Underestimating Timeline

                Holding costs are another large portion of your expenses, especially when using hard money financing. So, underestimating your timeline is a big mistake. Remember that