Calculating your break-even price is crucial in the flipping world. If you don’t know the lowest amount you can go, then you have no basis for pricing reductions. Lately we have had no action on three of our houses, so we have to keep lowering them small amounts every week. A large lower will attract some attention, and you might get a low ball offer out of that. Having a good Realtor help negotiate can convert you from a losing house to a small profit.

Here is an example of a property.

Purchase price: $77,500 on 2-24-10 (past 90 days here)
Rehab costs: $17,103
Total outlaid: $94,603

Break-even with 10% closing: $105,115
This is calculated by dividing 94,603 by .9 or 90%. So (94,603/.9 = 105,115).
The .9 comes from 1 minus 10% or .1 (1 -.1 = .9).

The 10% number comes from my past experiences. Title costs are typically 1%, Realtor fees 5%, taxes and then any concessions to the buyer are around 4%. Make sure to setup your escrow/title company before you get a contract, typically you can get 50% off the rates by doing this. Any little bit will help!

Don’t forget to add to the total outlaid any expenses you might have to pay, such as future insurance payments, water, electricity, and if you have a loan on it, interest payments. Also check the taxes that are owed on the property, if its over a year past due, that can really add up.

Is anyone doing flips that are moving quickly? We have four properties now that should have sold, priced right, they look good compared to the comps, etc.

It seems that the tax credit expiring has lost all of the motivation for our buyers to get contracts. There are lots of looks but no contracts..

This is definitely going to have an effect on the economy and rental market. Wouldn’t it be a better solution to find a way to keep them part of the economy?

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Arizona’s tough new immigration enforcement law is fueling an exodus of Hispanics from the state seven weeks before it goes into effect, according to officials and residents in the state.

Though no one has precise estimates, reports from school officials, businesses and individuals indicate worried Hispanics — both legal and illegal — are leaving the state in anticipation of the law, which will go into effect July 29.
Schools in Hispanic areas report unusual drops in enrollment. The Balsz Elementary School District is 75% Hispanic, and within a month of the law’s passage, the parents of 70 students pulled them out of school, said District Superintendent Jeffrey Smith. The district lost seven students over the same one-month period last year, and parents tell Smith the Arizona law is the reason for leaving.
“They’re leaving to another state where they feel more welcome,” he said.

The measure, signed into law April 23 by Republican Gov. Jan Brewer, requires a police officer to determine a person’s immigration status if they are stopped, detained or arrested and there is “reasonable suspicion” they are in the country illegally.
About 100,000 illegal immigrants left Arizona after the state passed a law in 2007 that enhanced penalties on businesses that hired them, according to the Department of Homeland Security. Some early signs suggest another exodus.

Businesses serving the Hispanic community say business is down, signaling that illegal immigrants are holding on to cash in anticipation of a move from the state, said David Castillo, co-founder of the Latin Association of Arizona, a chamber of commerce for nearly 400 first-generation Hispanic business owners.

“(Brewer) signed the law, and everything fell apart,” Castillo said. “It’s devastating.”

Jorge Vargas plans to move to New York City because his air-conditioning business relies mostly on Hispanics. “My business is completely dead,” he said.

Juan Carlos Cruz, an illegal immigrant who has worked in plant nurseries for 20 years, huddled with dozens of relatives over the Memorial Day Weekend in the backyard of his brother’s Phoenix-area home to plot out the family’s next move to avoid what they say will be harassment by police. Virginia and California are the front-runners.

“If I were alone, I’d try to stay. But I have a family, and I have to find a place where we can live with more freedom,” said Cruz, who hopes to move July 4 to blend in with holiday weekend traffic. “This is getting too hard.”

Paul Senseman, a spokesman for Brewer, said it’s difficult to gauge how many people are leaving because of the law, but he said he hears similar reports of people leaving the state.

“If that means that fewer people are breaking the law, that is absolutely an accomplishment,” he said.

Hispanics flee Arizona ahead of immigration law – USATODAY.com.

We met last night and discussed some of the issues that are affecting our industry. HUD is constantly at war with us it appears, and it is a little give, then get. Apparently last Friday they removed the ability to get two appraisals to skip over the 20% profit rule. For those not familiar with this, you are able to make over 20% profit on a home (this is the purchase price to the sales price) if you

1. Can provide all the receipts for the repairs (actual invoices not fake stuff) or
2. You can have two separate FHA appraisals if they both come in OK for value

The lastest we have heard from our mortgage officer is the receipts no longer count towards this. Even if you provide receipts, you cannot make more than 20% on the home. This does not include the re-habs costs any longer and the two appraisals do not skip over that rule.

Basically this now means we have to go back to the 90 day rule, they have lifted the ban but in effect have removed the ability for the fix/flip community to do any fixing in any short amount of time. There are few cases where you can purchase a home and sell it for less than 20% without re-hab.Those of us who use hard money loans (private financing) to finance the deals must now count on either a four to six month sales cycle, or find some other type of loan product such as conventional financing or VA.

Please tell me if this isn’t the case or lets figure out a way around it..

-Vince

What are we to do America? Come on, think! We have some of the brightest people in the world, undoubtedly the most successful businessmen.

The commercial real estate market is falling right now, so I could forsee in the next year rents dropping dramatically for retail space, are you thinking about starting up a small business? Now is the best time ever to do so. Consumers are spending, there are alot of qualified people looking for work, and rents, well you can negotiate that to a 6 month freebee with tenant improvements!

So maybe thats the ticket, start your small businesses. What about financing you say, well yeah that is a huge concern. There are ways to get capital, the SBA is creating a waiting list for loans, micro-lenders are popping up, I know two off the top of my head that are lending to new business entrepreneurs.

Lets get a move on, there are great resources out there like Club Entrepreneur, which meets all the time. SCORE.org can help you get started, sba.gov.

I am going to start writing about my journey into a residential re-hab business. It can be a great business to be in, there is alot of work but the rewards are there.

Stay tuned, and for now, start a business! Entrepreneurs are the answer.

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While foreclosures in the U.S. were down 2 percent in February from January, Arizona posted a drop of nearly 21 percent.

Still, Irvine, Calif.-based RealtyTrac puts the state in the No. 2 spot national behind only Nevada for homes in the foreclosure process. That includes default notices, scheduled auctions and bank repossessions.

Arizona had 16,718 homes in foreclosure last month, or one out of every 163 residences, according to RealtyTrac. Nevada had a total of 11,035, representing one in 102 properties.

In addition to showing a decline from January, the Arizona number represents a 7.7 drop from February of 2009. Nationally the year-over-year rate was up 6.2 percent.

“The 6 percent year-over-year increase we saw in February was the smallest annual increase we’ve seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity,” said James J. Saccacio, chief executive officer of RealtyTrac. “This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity — albeit at a historically high level that will likely continue for an extended period,” he said. “In addition, severe winter weather appears to have temporarily slowed the processing of foreclosure records in some Northeastern and Mid-Atlantic states.”

AZ forecloses drop 21% Jan. to Feb. – Phoenix Business Journal:.

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A Wisconsin company that manufactures and distributes food-processing ingredients has been selected to purchase the opulent Chateaux on Central brownstone project. The winning bid: $7 million.

The unfinished residential development at the northwest corner of Central Avenue and Palm Lane has been financially troubled since construction started in 2005. All forward movement stopped when the lender, Mortgages Ltd., took it back in 2008 shortly before that company was forced into Chapter 11 bankruptcy protection.

Mark Winkleman, chief operating officer of ML Manager LLC, said MSI West Investments LLC submitted the winning bid for the Chateaux. Closing on the property is scheduled for March 12.

ML Manager is the court-approved entity administering the Mortgages Ltd. loan portfolio in the wake of the lender’s bankruptcy. The Chateaux is one of the first Mortgages Ltd. properties to be sold off.

Dave Clark, CEO of Mainstreet Ingredients of La Crosse, Wis., confirmed that his company is behind the winning bid. Mainstreet recently created MSI West, a limited-liability company registered with the Arizona Corporation Commission.

“We are looking to diversify,” Clark said. “We’re very excited about this.”

The company has purchased real estate in other states and started looking around the Phoenix area last year.

“We like what we see in downtown Phoenix,” Clark said. “We feel this will be a good investment, but we’re not here to turn a dollar.”

Clark said he didn’t want to talk about plans or other participants in the deal until the transaction closes, but said he expects the community and city officials to be pleased when that information is revealed.

He did not disclose whether the property would remain a luxury brownstone community of multimillion-dollar homes — the original vision of Phil and Mollie Anderson, owners of Pro Star Realty Inc. and founders of Central PHX Partners LLC, the Chateaux’s development entity.

The project was designed as 21 five-story residences with private elevators and rooftop terraces. The announced prices ranged from $2.8 million to $4.5 million per unit, but none were sold.

Desert Hills Bank provided the first construction loan, but the relationship soured when the bank filed a lien on the property. The late Scott Coles, then CEO of Mortgages Ltd., stepped in to salvage the project, saying he believed in what the Andersons were trying to accomplish.

According to Winkleman, Mortgages Ltd. loaned Central PHX Partners $37 million. When that was not enough to complete the development, Coles took back the property in spring 2008.

In an April 2008 story by the Phoenix Business Journal, Coles said the loan was in default. “I always try to work with these guys, but I have to protect my investors,” he said in that story.

Coles committed suicide on June 2, 2008, thrusting the entire Mortgages Ltd. loan and property portfolio into limbo.

Within a month of Coles’ death, several borrowers forced Mortgages Ltd. into Chapter 11 bankruptcy. After more than a year, a reorganization plan was put into place with Winkleman, former commissioner of the Arizona State Land Department, named to administer the loans.

Winkleman said his sole responsibility is collecting on those loans, either from the borrowers or through foreclosure actions, and paying investors whatever can be collected from the proceeds. Winkleman said several bids were submitted prior to the Chateaux on Central auction.

“We received several offers, but this buyer took the time to carefully inspect the project and proved to us that they had the funds to close the transaction,” Winkleman said.

According to Mainstreet Ingredients’ Web site, Clark founded the company in 1989 “with an in-depth understanding of the dairy and food markets and a commitment to the highest possible standards for the food industry.”

The company employs food scientists who have created trademarked food stabilizers, protein products, and dairy-based and bakery ingredients. The company shipped 125 million pounds of product last year, according to the site.

Wisconsin company to buy Chateaux for $7M – Phoenix Business Journal:.

Today HUD lifted its rule prohibiting FHA borrowers from purchasing properties which were acquired within 90 days by the seller. The waiver of this rule takes effect February 1, 2010. Here are the main limitations:

1. The transaction must be arms-length. In order to ensure no inappropriate collusion between parties, the following rules must be met:
a. Seller holds title to the property;
b. LLCs, corporations and trusts that are serving as sellers must be organized and operating in accordance with State and Federal law;
c. There must be no pattern of flipping for the preceding 12 months; and
d. The property must be marketed openly and fairly (an MLS listing would satisfy this requirement). Sales that have an “assignment of contract” would be a red flag.

2. If the sales price is 20% or more than the seller’s acquisition costs, the waiver only applies if:
a. There is some evidence to justify the increase in value or a second appraisal. This requires evidence that the seller performed legitimate renovation, repair or rehab work to substantiate the value or, where no such work has been performed, the appraiser provides an explanation of the increase in property value; and
b. A property inspection must be ordered and the report provided to the buyer before closing. The inspector must have no interest in the property or relationship with the seller.

So the main questions that we will be finding out over the next few weeks is, what does a pattern of flipping entail (wholesaler to me is that too many?) and how to justify the increase in costs of property over 20%. If you purchase a property you have to raise the price by 30% to even think about making a profit, especially after any bit of rehabs..

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A global survey of more than 2,000 high-net-worth investors commissioned by Barclays Wealth reveals that approximately one in four respondents (26%) believe that residential and commercial real estate provide better long-term prospects than other asset classes.

Slightly more than half of respondents expect an increase in the value of their real estate investments over the next two years, and 35% plan to increase their real estate exposure in the near term. The survey findings were contained in a Nov. 30 report titled �Prospects for Property: On Solid Foundations?�

What�s the basis of such optimism in the face of global economic headwinds and a lingering credit crunch? One explanation is that 40% of respondents with at least $50 million in assets have more than half of their investment portfolio tied up in real estate.

�The survey has revealed that investors are holding a much higher proportion of their wealth in real estate than we would normally recommend,� says Michael Dicks, chief economist at Barclays Wealth in New York. �This suggests a real need for people to consider diversifying their portfolios into other asset classes in order to reduce risk.�

Barclays Wealth provides high-net-worth clients worldwide with banking and investment management services. The global wealth manager�s client assets total $221 billion.

The Economic Intelligence Unit, a division of London�s Economist Group, conducted the survey of high-net-worth individuals with investable assets ranging from $800,000 to more than $48 million. The survey was conducted in August and September.

U.S. gets thumbs up

Slightly more than 75% of respondents currently invest primarily in their domestic real estate markets. The United States ranks as the most attractive global market for commercial and residential real estate, with 16% of respondents selecting this market.

China and the United Kingdom are tied as second most appealing real estate markets, according to the survey results, while India is a tad behind in fourth place. France, Spain, Canada, Brazil, Germany and Australia round out the list of top 10 markets.

Among the 10 countries and regions most heavily represented in the survey, investors from Middle Eastern countries and Canada are most likely to increase their allocations, while Spain is the only country in which the average allocation to real estate is expected to fall.

“Within the context of their existing real estate portfolios, it is encouraging to see that some respondents are looking overseas,� says Dicks of Barclays Wealth. �However, there is evidence in the report of home bias, when investors prefer to focus on the market they know best. Diversification overseas is an important means of avoiding an excessively concentrated real estate portfolio, and investors also seem to underestimate how straightforward it can be to achieve this through vehicles like REITS (real estate investment trusts).�

What�s the advantage to investing in residential real estate? Nearly four out of 10 respondents (38.3%) say that the key advantage is the potential for rental income, followed by the capital gains potential (28.6%), and the long-term track record of the sector (27.1%).

�Investors find real estate to be an attractive investment for a variety of reasons, including the potential for both capital appreciation and rental income,� concludes Brian Nick, investment strategist at Barclays. �But we have to weigh those potential benefits against the fact that the real estate market is neither liquid nor transparent, which are also desirable characteristics for assets in a portfolio.�

High-Net-Worth Investors Turn Bullish on Real Estate, But Study Suggests They Are Too Exposed.