A Tale of Two Foreclosures (Different Investors, Different Results)

It was one of my first offers as I was getting into Energy Wise real estate investing.   I was learning to negotiate and I asked for too much in my due diligence phase.   The bank sold it to another investor…. but I was successful on the one next door for the same price.    I knew everything about both houses so I watched with interest as the other investor proceeded on his project.   He got done a lot faster.   He patched the roof, I replaced mine.   He jury rigged a used air conditioner, I put on a new one with new ductwork.   He did nothing to the windows, I replaced with new vinyl dual panes.   He cleaned up the worn out appliances, I replaced all of mine.  You get the idea…….   He did put in new carpet (FHA minimum) and painted inside and out.

The other investor’s contractor told me that the whole rehab had cost $10,000 and it became a rental.    Probably makes a minimum cash flow.    My Energy Wise Renovation cost more like $45,000.    It sold before it was finished.    Two good deals.   Maybe it’s just different strokes for different folks….

But let’s project each of these concepts down the road a ways to see why I think the common preference for buying, minimal fixing and renting and holding for the market to go back up is misguided.    The buy and hold strategy depends on the market going back up.   Who knows when that will happen.   In our area it is still going down.   But for the sake of this discussion lets just say that in 5 years it will go up 50%.    The other investor put in $80,000.   He’s renting but lets say he could have sold it for $100,000.   In 5 years he’ll sell for $150,000.  Not bad.   If the market regains 50% in 5 years.

Now consider my Energy Wise Flipping approach, which isn’t supposed to work in this economy.     I spent 50% more but sold for 145,ooo and netted only $10,000 because “things happened.”   But I was done in 90 days and have already bought the next one down the street.   So I will turn the money 4 times a year.   And as my team gets better, fewer things will  happen, & we’re buying smarter, so that $10 will go up.   But let’s say we dont get any smarter and it doesn’t.    And we only turn the money 4 times a year.   Just to be safe let’s say only 3 times a year.    That’s $30,000 per year,   $150,000 in 5 years.     $150 is better than $50.   I think my plan is 3 times better than his.

Which approach is a more risky gamble?   The buy-rent-hold investor is really banking on real estate regaining 50% in 5 years.   We can point to several times in our history when that did not happen.    My fast green flip strategy, on the other hand  puts $10 to $15K in the bank every 90 to 120 days.    Each step I take, my sales get more secure as I am concentrating in a neighborhood.   So I’m generating my own comps and appraisal validity.    I like my odds better.

If you are a realtor, which type of investor would you rather have?  (My realtor does both ends of my projects.)   I suggest realtors stop passing on the same stale advice that they heard from some expert and start cultivating investor clients like me.   Invite them to read this blog, that’s what it’s here for.

If you are an investor, what do you think of the math I presented above.    I tried to be conservative. We are really faster than that.  And I know my team will improve as time goes on so we’ll earn better than those numbers.   We’ll get even faster too.   I think all investors,  especially those of us buying foreclosures, should look at Energy Wise Renovation and Resale rather than Buy, Rent, and Hope.    It’s a good thing to do for our community, our nation and our planet!

If you are the neighbor, who  would you like to see in your neighborhood,  the quick fix, convert it to a rental guy, or an investor like me who does everything they can to raise the values and really does raise the values?   Just a question.   If the foreclosured home was next door to you, which of us would you prefer?   If you would prefer it on your street, why not promote it on other streets that your clients invest in?    I think they call that the Golden Rule.

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