House #1 - Post Mortem (cont.)

This post will cover the good things that happened throughout the process of buying and listing the property. For those of you who are not familiar with the term "post mortem" used in this context, it's a process in the software development cycle. Basically, there are different phases a software product goes through in it's life cycle: planning, development, testing, delivery, maintenance, etc. After the product is released, the development and test teams conduct what is commonly referred to as a Post Mortem. This is where the teams meet and go over the positives and negatives regarding the product development and testing. It is actually required by ISO for software products that are destined overseas. It is meant as a guideline for future releases, so positive things can continue and be enhanced, and negative things can be analyzed and improved. So now that my "release" is in "production", I can extrapolate the pros and cons to gain better insight into how better to do future deals.

Pros

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1. RE Agent Inexperienced with HUD Foreclosure Process - As mentioned in the Cons the day before, this was both a negative and positive thing. Almost always, HUD will accept the investor bid that produces the least out-of-pocket expenses to them. IOW, the lowest NET cost to them. This means you can offer a high price, or offer a lower price but say you'll pay for HUD's closing costs, or a miriad of things. Being new, I had no idea. I just made an offer that worked for me like any other property. Thankfully for me, my agent was oblivious as well. Therefore, my $101,000 offer was submitted as the NET to HUD. IOW, my agent's commission was not included in the offer. Oops! Had I included my agent's commission on top my offer price, I still may have gotten the property, but who really knows? My agent said she'd write it off as a "learning experience" for her, but I negotiated a 1.5% fee ($1,680) for her at closing anyway.

2. Made the Numbers Work - I've long since deleted the original spreadsheet I had for this property. At the time, I believe I was making bids at n%ARV-Repairs, where "n%" was generally around 70-80%. The place was listed by HUD at $112,000, but I knew from the sketchy comps I got, it was worth more than that - probably $130,000, if not more. Of course, being new, I really wasn't 100% sure (or confident), so I dropped the ARV value down another $2k and took off another $2k for estimated repairs. This put me a hair over 80%. At the time, I was just making offers like crazy, and never for a minute thought I'd even have a chance at getting this property. In the end, the numbers I estimated were both conservative (i.e., repairs were ~$1,000 and the ARV was around $135k), so I did very well. Lesson learned: Stick to your numbers and move on. Don't over-analyze and NEVER go outside YOUR terms, unless it adds value in the end.

3. Understood Repair Work - Okay, disregarding my lack of viewing the property inside before making an offer (which I made as a Con already), I feel I did a good job in understanding the repair work involved. One of the first things I did after learning I got the property was to schedule an inspection. The inspector came highly recommended as someone who looks over everything with a fine-toothed comb. The only problems he found that needed repaired were the obvious: rear coach light and microwave/vent hood. He pointed out other minor issues and things that could potentially lead to problems down the road, but I was relieved to find that no major appliances needed repaired/replaced. After his inspection, I then made a lst of the repairs needed and proceeded to make them myself (with help from my inlaws). Of course, not making a concrete repair plan was probably a bad thing, but it worked out in the end.

4. Sticking to My Guns on Prices - I don't want to confuse anybody with this statement as I already made pricing the home a Con. However, based on how things ultimately turned out, I see my sticking to the general pricing as a positive thing. From the date we closed on the house to the date the renters moved in was exactly 3 months. From everything I've heard and read, this is really a reasonable amount of time - especially for a property in a buyer's market. I didn't get my asking prices, however, from what I understand, they were inline with what the market could support. I think, though, in the future, I'll formulate list pricing so that the property can move quicker - either by lowering the sell price and/or lease price by 5-10%.