In my ramblings around the web I ran across this "Phoenix Foreclosure Flip Case Study". The agent who posted it said:
This is a case study of some of the real estate investment opportunities in the Phoenix Metro Area. This home was purchased in Gilbert Arizona in foreclosure and was fixed up and flipped for a profit.
I was curious and decided to see if I could figure out what kind of profit the agent’s investor made. I discovered this video- obviously the same property, which gives the address and list price- 2530 E. Jasper Drive in Gilbert listed at $204,950.
L graciously ran down the info on this property for us.
Apparently the investor purchased this property for $156,500. The agent indicated that the purchase price was $40,000 under market value, but based on L’s data, $20K is probably a better number than $40K.
Here’s a foreclosure map of the Jasper property’s neighborhood-
We know that foreclosure properties are a huge portion of the market now- people like the lower prices. There’s clearly competition here in the neighborhood.
The price was dropped to $199K on 8/20, and the listing does now indicate that the sale is "pending". The investor only purchased the property in July, so that does indicate a fast turn around, but it seems unlikely that they had a full price offer.
Even with a full price offer, I have to wonder how much profit was in this deal. From the first video we know that the entire interior and exterior were painted, carpets replaced, landscape improved and the appliances replaced. Add to that staging and listing fees, and it doesn’t seem like there would be a lot of cash left to pocket. Remember too- this hasn’t closed yet, so the sale isn’t guaranteed.
Here’s L’s take:
With all the actives and future foreclosures in that sub I don’t think it’s a good deal. Sooner or later someone’s going to drop the price and bail- be it a individual or lender. So many homes that are bought today for what the buyer thought was a bargain will be end up being the foreclosures of tomorrow.
I’m not saying that there are not opportunities to flip foreclosures in Phoenix- but I believe that for the most part, the margins are skinny and the risks remain high.
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My wife and I have been (very) casually searching through listings lately. We realize that anything we buy now needs to have tremendous value built into the price considering the downside risk, and we have the luxury of sitting on the sidelines waiting for that. Some of the houses we’ve toured in the past and we now shake our heads as they become the “foreclosures of tomorrow,” already losing tens of thousands as the next wave of bank properties is listed.
One of the agents who showed us a house in southeast Gilbert pointed out that it had sold in late 2006 for 580k, and if we bought now, we would walk into 200k+ in equity. At this point, I’m not sure if they’re flat out lying for the sale or just ignorant.
I have been a broker for 35 years. At one point, I was one of the top new home salespeople in the state. However, I started a computer company about 20 years ago because I became tired of my income being a victim of the economy.
I live in a nice neighborhood by Encanto Park, indisputably one of the cities most consistent neighborhoods. In the 80′s, homes in my neighborhood were selling in the $120′s. When the crash came, they dropped into the $30′s. What seems like a bargain today might seem way overpriced in a month. We are in an adjustment in our economy that will take years to play out. Home prices are going to drop much, much further. The Realtor in the video most likely will be either moved in with his parents or selling shoes at Penneys. We are a long ways fromt the so called bottom.
SteveC – that’s a brutal drop.
Using that model, a property sold for 1,200,000 in ’05-’06 could sell for $ 300,000 before we’re done with this mess.
I don’t doubt it at all.
The percentage is the same… but the raw dollars could be staggering!
(Good thing those dollars aren’t worth much, heh?)
Anyone hear how the big foreclosure auction in Phx went that has been advertised relentlessly on television for the last few weeks?
Here is an update on this deal. The seller sold the property on 10/31/08 for $190,000. He bought the property for $156,500 as mentioned above. Total gross profit was $33,500, now take out renovation cost, holding cost, realtor comm. and any other expenses the investor most likely maid $10K. That is probably not what he was expecting when he purchases the home back in July but a $10K profit is nothing to be ashamed of. Doing 3-5 of these a year is a good part time income. Lesson learned? Look at the pending sales, active listings, pre-foreclosures and bank owned properties in the subdivision to determine the future value of the property and make your decision off that number not today’s sold comps.
Thanks for the article,
Sean