We Read This Crap So You Don’t Have To: Greg Clement “This Is New To Me….”

May 13, 2009

This blog begins a new series of “We Read This Crap So You Don’t Have To.” The purpose: To read the e-mails with the “amazing” subject lines from real estate gurus . . . and then to look at what these folks are peddling. Every once in a while, the subject line and e-mail text are actually worthwhile, and we’ll cover those, too. I promise. But 90% of the time, it’s pure hokum. And 8% is just plain dishonest.

Ready for the first one?

Greg Clement E-Mail "This Is New To Me . . . "

Greg Clement E-Mail "This Is New To Me . . . "

So what precisely is so new to this savvy real estate investor? What is one of the “coolest investing strategies” he’s ever seen? What is “a TOTAL new concept to me”?

Here’s the top and the bottom of the sales page:

Beginning of REO Rockstar Promotion

Beginning of REO Rockstar Promotion

Bottom (with price) of Greg Clement's REO Rockstar Sales Page

Bottom (with price) of Greg Clement's REO Rockstar Sales Page

I read the copy and watched most of the tedious videos (watch this blog for a rant against time-wasting videos!). From the sales page itself:

Effectively we have solved the real estate investing community’s biggest problem … how to flip bank-owned properties without taking a dime out of your pocket.

And now we’re ready to reveal the exact same system that the REO Rockstar uses to flip 10+ houses a month in this f’d up market … to YOU. Like I always say … “I go? You go.”

That’s it? For $997 plus $97 a month? (And maybe more–it’s difficult to tell whether there’s any continuation pricing on some of the items. There likely is for the REO leads and access to the REO Rockstar himself. Woo hoo!) And most of the course is online.

Look: The course may or may not be worth $997 plus $97 a month (or $1,164 a year forever plus other add-ons). As is said elsewhere: We report. You decide.

But c’mon. A savvy real estate investor talking about wholesaling REOs: “I had no clue you could even do this. I’m not kidding. This is a TOTAL new concept to me. You’ve not seen this before. It’s simple and soooo smart. . . P.S. It’s one of the coolest investing strategies I’ve EVER seen.”

And frankly I don’t know what technique’s being promoted here. (That’s part of the reason I call this “crap.” Greg’s not revealing the concept; he’s not showing us what it is, as his e-mail suggests. Instead, it’s just a link to a sales page.)

But there are plenty of ways to do what’s described here: Flip REOs with none of your money. You borrow money–from a variety of lenders–to buy REOs. The only catch, in many cases, is that the property be priced far enough below the market. (And even that doesn’t always apply if you’re borrowing privately.) And as far as flipping, a lot of investors will put the property into a newly-created LLC, then sell the LLC itself. Or, heck, just buy and sell. There are a bunch of other ways to flip REOs.

On our Crap-O-Meter, let’s give this a 9 out of 10.

Foreclosures and Short Sales: Are They Good Buys?

June 6, 2008

There’s a general belief that foreclosures and short sales represent good values. Especially in today’s market, a growing number of buyers are asking their Realtors to find foreclosures or short sales for them. Even–perhaps even particularly–first-time buyers assume that a short sale or foreclosure must be a bargain.

But are they the bargains many assume them to be?

Sometimes yes. Often no.

Let me get very specific. There’s a house that’s active right now in Woodbridge, Virginia. I ran across it when checking comps on a property recommended by an investor. (More about that in another post. That lesson, in brief: Always, always, verify claims as to value.)

The house that I ran across is a 3 bedroom, 1.5 bath townhouse. It was bought on January 18, 2006 for $285,000. In early 2007, it was on the market as a short sale at $198,900. Was that a good deal? Well, gee, that’s a 30% discount, right?

The bank foreclosed and took it back on July 3, 2007. It’s now an REO (“real estate owned,” or bank-owned), listed at $186,900. Now, THAT must be a bargain, right? That’s a 34% discount from the $285,000 purchase price. Ready to write a check? I hope not.

I ran the comps on that neighborhood today. There were 34 comps–3 bedroom, 1.5 bath townhouses in that subdivision–properties that had been listed for sale within the past 180 days. Of those 34, 4 had sold. Here’s the information on those 4…the only 4 to have sold. (Note the downward price trend):

4610 Whitaker Place
Close Price: $130,000
Seller Subsidy: $3,900
Close Date: April 14, 2008
Days on Market: 278

4747 Hedrick Lane
Close Price: $140,000
Seller Subsidy: $5,600
Close Date: March 26, 2008
Days on Market: 230

4682 Hercules Lane
Close Price: $172,000
Seller Subsidy: $13,760
Close Date: March 15, 2008
Days on Market: 71

4666 Prather Place
Close Price: $180,000
Seller Subsidy: $5,400
Close Date: December 10, 2007
Days on Market: 113

There are two houses in the subdivision under contract. Because they’re under contract, we don’t know the sale price or whether any seller subsidy was involved. However, we can assume that the effective sales price is below what the properties were listed for:

4646 Charlton Ct.
List Price: $134,900
Days on Market: 6

4728 Still Place
List Price: $94,000
Days on Market: 344

Among the active listings:

4667 Charlton Court
List Price: $120,000
Days on Market: 143

4645 Charlton Court
List Price: $125,000
Days on Market: 167

4675 Whitaker Pl.
List Price: $125,910
Days on Market: 65

So what’s that tell us? The fair market value of that REO at $186,900…that had been a short sale at $198,900…is probably in the neighborhood of $110,000.

And notice the “days on market.” Even the houses that are selling are taking months to sell.

Now, most of the other REOs in the neighborhood aren’t as badly overpriced. But others are priced at $139,000, $135,900, $129,900, and another at $129,900.

Are those good deals? Well, maybe when compared to what they sold for a few years ago. Maybe when compared to what they’ll sell for 5 years from now. But not when they’re compared to what’s selling…and not when you taken the downward price slide into consideration.

So: Don’t assume that just because a property is a foreclosure or a short sale, that it’s a good value. It may not be. Always check the comps.