Are the GREAT Deals Gone?

[Don Konipol]

Are the great deals gone?

Through the years I've been seeing less and less "great" purchases, and more and more deals to be had at "market" pricing. Currently, we are at 12.75% interest with 3 - 5 points on the loan origination end; we haven't been able to locate any existing mortgage notes we can buy of similar quality with ROI even equal to that. We have in the past purchased notes in default, but this represents a different risk profile.
On the equity end we haven’t purchased a property in the last 2 years.  Previously, we were able to obtain a 10 cap without undue risk (about 5 years ago); the. 3 or 4 years ago we were able to purchase at 7-8 cap and “juice” returns by borrowing 50% at 4% fixed 20 year financing.  Now, with borrowing at 6% +, the equity investments just don’t seem to make sense.

More telling, perhaps, is that my usual sources of deal flow have not been able to come up with those one off GREAT deals we used to get once or thrice a year.  Oh, some of our sources THINK they’ve located those deals, but closer examination either uncovers higher risk, undisclosed negative information, or outright fraud.  I’ve expanded my sources of leads, but that’s a longer term project as when we establish new sources we become swamped with submissions of deals bearing no relation to our published criteria; at risk levels a river boat gambler wouldn’t touch, or flat out the source just shotgunning whatever crap comes across his desk, without even reading the documentation.  

I’m a believer in “adding value” to the investment.  On the equity side by increasing net income and or decreasing risk, on the debt side by “working” the note.  Profitability can also be enhanced on a sale (sometimes) if we choose to provide owner financing or wrap financing.  Right now I don’t see any equity deals approaching a 12 cap without undo risk.  What I see is plenty offered in the 6-8 cap arena, and a lot of high vacancy properties with negative cash flow.

Wondering what other investors are seeing? 

[Jay Hinrichs]

Quote from @Jack Seiden:

Quote from @Joe S.:

Quote from @Jack Seiden:

Quote from @Joe S.:

Quote from @Joseph Bui:

Quote from @Nicholas L.:

@Joseph Bui

I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

 Rehabs are from 15-30k normally. I work with a team that helps with me end to end as I'm normally located in Seattle. They source deals, project manage the rehab and do property management as well. Yes, the average rent is about 1200-1300/month with a rehabbed 3 bed 1 bath 1000 sqft property.

How are you financing these properties since their lower price properties?

 These must be extremely light rehabs, I’m doing what I would consider a very light rehab, with honestly maybe a minor step up from builder grade, 1200 sf, 1 bath house, materials alone are 25k

Are you putting a long-term rental loan on these properties after you get them stabilized and if so, how are you getting the financing for such a small amount?

 It’s a flip, self financed through a loc, 220pp 60k rehab, will sell out between 400-450k.

those are spectacular spreads at those price points.

[Jack Seiden]

Quote from @Jay Hinrichs:

Quote from @Jack Seiden:

Quote from @Joe S.:

Quote from @Jack Seiden:

Quote from @Joe S.:

Quote from @Joseph Bui:

Quote from @Nicholas L.:

@Joseph Bui

I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

 Rehabs are from 15-30k normally. I work with a team that helps with me end to end as I'm normally located in Seattle. They source deals, project manage the rehab and do property management as well. Yes, the average rent is about 1200-1300/month with a rehabbed 3 bed 1 bath 1000 sqft property.

How are you financing these properties since their lower price properties?

 These must be extremely light rehabs, I’m doing what I would consider a very light rehab, with honestly maybe a minor step up from builder grade, 1200 sf, 1 bath house, materials alone are 25k

Are you putting a long-term rental loan on these properties after you get them stabilized and if so, how are you getting the financing for such a small amount?

 It’s a flip, self financed through a loc, 220pp 60k rehab, will sell out between 400-450k.

those are spectacular spreads at those price points.

Thanks! And tbf this was kind of a deal for a number of reasons I kind of got lucky on, the agent had it coming soon, I was going away, should wouldn’t let me see it early since that was an mls violation so she just listed a week early on a Tuesday, 9 offers in 24 hours, than pulled I was the highest cash offer and got it, think listed properly they probably could have gotten 250-260k. All that said one of the things like about these smaller markets, is just less overall competition and the ability to kind of set your own comps, while it hasn’t sold yet so I could be wrong, it was hard to comp tbh, but this town (about 1.5 hours from dc) is growing rapidly, my parents bought a house for 350k in 2019 now worth 600k. So I just felt that even without comps I kind of knew under 400k downtown Easton, I can easily sell, as opposed to like dc or suburban Md where there are a million comps and tons of info these rural market’s with lack of comps and info you can kind of set your own market if you understand the area.

[Vasudev Kirs]

Quote from @Jack Seiden:

Quote from @Jay Hinrichs:

Quote from @Jack Seiden:

Quote from @Joe S.:

Quote from @Jack Seiden:

Quote from @Joe S.:

Quote from @Joseph Bui:

Quote from @Nicholas L.:

@Joseph Bui

I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

 Rehabs are from 15-30k normally. I work with a team that helps with me end to end as I'm normally located in Seattle. They source deals, project manage the rehab and do property management as well. Yes, the average rent is about 1200-1300/month with a rehabbed 3 bed 1 bath 1000 sqft property.

How are you financing these properties since their lower price properties?

 These must be extremely light rehabs, I’m doing what I would consider a very light rehab, with honestly maybe a minor step up from builder grade, 1200 sf, 1 bath house, materials alone are 25k

Are you putting a long-term rental loan on these properties after you get them stabilized and if so, how are you getting the financing for such a small amount?

 It’s a flip, self financed through a loc, 220pp 60k rehab, will sell out between 400-450k.

those are spectacular spreads at those price points.

Thanks! And tbf this was kind of a deal for a number of reasons I kind of got lucky on, the agent had it coming soon, I was going away, should wouldn’t let me see it early since that was an mls violation so she just listed a week early on a Tuesday, 9 offers in 24 hours, than pulled I was the highest cash offer and got it, think listed properly they probably could have gotten 250-260k. All that said one of the things like about these smaller markets, is just less overall competition and the ability to kind of set your own comps, while it hasn’t sold yet so I could be wrong, it was hard to comp tbh, but this town (about 1.5 hours from dc) is growing rapidly, my parents bought a house for 350k in 2019 now worth 600k. So I just felt that even without comps I kind of knew under 400k downtown Easton, I can easily sell, as opposed to like dc or suburban Md where there are a million comps and tons of info these rural market’s with lack of comps and info you can kind of set your own market if you understand the area.

 Are you going to pay by all cash? Is not that against the real estate investing rules :)