The Investors Club

Do you think you can buy a house that sold new in March 2006 for $627,166 for $236,000?  It happened today on 8648 18th Hole Trail in our favorite golf and lifestyle community. 

Very few people have the fortitude, luck, or deep pockets to brave the Trustee’s Sales on the courthouse steps.  But there a few investors that are active here.  Mian Arif, Peter and Lois McAllester, Peter Kendrick, Tina Pettie, Jack Flower, Whipken Properties, Sundial Properties.  Sometimes as individuals, sometimes in combinations, they are staring down the banks and picking up properties at unbelievable bargain prices.  After a coat of paint, the properties are listed at about 10% under market and moved quickly.  The club members bought 2 foreclosures today, and these properties will be interesting to watch:

–  8648 18th Hole Trail  was purchased with a $417,000 (conforming) first loan, and a $147,400 second.  The amount owing on the first including fees and penalties was $442,000, and the bank let it go for $236,000, cash.

–  2305 Parkway was purchased in November 2005 for $477,500 with a $308,000 first loan, and refied 2 months later with a $347,900 Option ARM.  The amount owing at the Trustee’s Sale was $414,000 including fees, penalties and negative amortization.  $236,000 must have been the magic number today, it was all the cash that was need to purchase the property.

These folks really know how to make the banks limbo down.  I am sure they have many, many deals that don’t work out, but the killer pricing they are getting on the completed deals are stunning.  So what’s the upside that makes the risk worthwhile?  Here are a couple of their recent completed sales:

–  2721 Sunline was originally purchased in July 2003 for $289,979.  It was purchased on the courthouse steps in January for $258,000, and resold in July for $358,000.

–  6380 Stone Valley went for $235,001 at the Trustee’s Sale last December, and sold in July for $295,000.

–  10698 Autumn Leaf was purchased new in April 2006 for $444,569, bought at the Trustee’s Sale for $259,501 in April, and resold in July for $355,350.

–  10115 Burghley (stay away from this street, it is cursed) was purchased new in January 2006 for $776,925, bought at the Sale for $321,751, and resold in August for $470,000.  That’s a 40% price drop, and a $150,000 gross profit for a 7 month hold.

Do you know these people?  I’ve been quizzing Diane and Guy about them for 6 months, and they are completely under the radar.  I admire them – they are market educated, financed and prepared.  If they were putting an investment fund together, maybe even BanteringBear would be interested.  I know I’d be all in.

 

 

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About Mike McGonagle

An architect, business owner, and compulsive public records hacker, Mike reads the tea leaves of the local real estate market from a unique perspective.. A former Chicagoan, Mike earned his MArch from Harvard University. Mike can be reached at mike@macassociates.com or 775-345-7435. His continued musings can be found on the REreno.com blog.
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29 Responses to The Investors Club

  1. Avatar Mickey says:

    From a future buyer, who simply wants to buy a house to actually live in, and who has no interest in purchasing foreclosures, I say a hearty thanks to these people for driving the comps into the ground all around town. I love hearing about a house that sold for $800K in 2005 that sells for $450K last month. Let’s give this another 12-18 months, and I wish all the best to this talented group of people dropping the floor on prices all over town!

  2. Avatar smarten says:

    Thanks Mike. But I’m confused.

    You state the bank [which one (see below)] allowed 8648 18th Hole Trail to be sold at a trustee’s sale on the courthouse steps for $236K when $442K was owed on a first, and $147.4K was owed on a second.

    Similarly, you state the bank allowed 2305 Parkway to be sold at a trustee’s sale for $236K when $414K was owed.

    With all due respect, this makes no sense. I’ve been to quite a few trustee’s sales and never have I seen the beneficiary submit an opening bid of anything less than the full amount owed. There’s no incentive for a beneficiary to bid anything less than the full amount owed because the cost is nothing more, and it can’t recover any deficiency against the trustor [unless it’s a judicial foreclosure sale which a trustee’s sale is not]. Why would a beneficiary shoot itself in the foot like this?

    Furthermore, the beneficiary ALWAYS submits an opening bid. Your assertion that a group of investors purchased these two properties for $236K/each, implies institutional lenders submitted opening bids totaling some 75%-87% LESS than they were owed. And then once a live fish surfaced to outbid these lenders [your investors], they folded up their tents and bid nothing more [even though they could have at no additional cost] in the hope your investors might actually make them whole.

    Ain’t going to happen Mike.

    So either I’ve misread your post, or the facts are a bit different than you suggest.

    Now I can see title reverting to your lenders at the amounts owed [$442K or $414K] and then selling each PRIVATELY for $236K, but that’s not the scenario you post.

    Can you clarify?

  3. Avatar Inclinejj says:

    Yes it is true..Lenders in time, drop the opening bid hoping someone takes the property at the sale..Most of the time it is down around the number they have that is the lowest price number..

    Figure if the bank sold that bad loan off now they would only get about 60% of the note rate on the loan..So if they lower the bid they probably get the same money in cash right away

    I have been doing this for over 25 years..

    Its not the buyers at the trustee sales who are lowering prices it is the lenders..

    What do you people think is going to happen when all these bad toxic loans go to the RTC type of gov’t agency to buy all the bad loans out there????

  4. Avatar Inclinejj says:

    I would have to see a copy of the Trustee’s Deed when it is recorded..Being I wasn’t standing at this trustee sale at the time I can’t say who bought the property at the sale

    Sometimes the lender opens with a smaller bid and tries to get the bidders to go hire..This is mostly BS and they want the note amount plus all the missed payments costs fees etc

  5. Avatar Sully says:

    Inclinejj can you clarify, are you saying that when the RTC or whatever its called takes over – all sales will start at a 60% discount?

  6. Avatar MikeZ says:

    What do you people think is going to happen when all these bad toxic loans go to the RTC type of gov’t agency to buy all the bad loans out there????

    I expect a repeat of the 1990s, where buying from RTC was a *superb* deal. They wanted to unload *fast* and every offer, no matter how low, was given consideration.

  7. Avatar GreenNV says:

    The TD on 18th Hole is Recorder’s Document 3359955, and the lender was First Horizon. You can just run the names I mentioned for the other and additional transactions (the Recorder had a typo of the 18th Hole buyer).

    With all due respect, smarten, how many Trustee’s Sales have you been to LATELY? The rules have changed. Many, if not most, TDs are bought back by the bank today for less than what is owed on the loan. It saves on Transfer Tax if there are no other bidders, and if the opening bid is low enough, the banks may find a bidder to take the property of their hands. If you are starving to death and someone who owes you $100 offers you $50 in cash right now, what are your alternatives?

    I suspect that these deals have had a lot of communication between the lenders and the buyers prior to the showdown on the courthouse steps. As Guy and I found out on our negotiations on Interlaken, this is probably illegal. Doesn’t mean it isn’t happening.

  8. Avatar smarten says:

    GreenNV, I haven’t been to any trustee’s sales LATELY. But the fundamentals of trustee’s sales don’t change. If indeed “you are starving to death and someone who owes you $100 offers you $50 in cash right now,” you’d think most short sales would be eagerly consummated. But the fact they’re not speaks to the very alternatives you ask about.

    I also question that there was a lot of communication” between the lenders and the buyers of these properties prior to sale. The buyers could have just as easily purchased the notes [at a discount] prior to the sale but my experience is institutional lenders don’t play this game. The buyers also could have entered into contracts of sale with the foreclosing banks prior to sale but again, my experience is that they don’t do this either.

    So I’m sorry. Because it just doesn’t add up, in my mind there must be more.

  9. Avatar El Diablo says:

    I think, and someone correct me if I am wrong, the lender can recoup the loss through the mortgage insurance after the foreclosure sale if the original defaulter had purchased mortgage insurance. I read somwhere that was part of AIG’s problem. AIG is one of the largest insurers of mortgage notes and the banks want those insurance policies paid.

  10. Avatar Inclinejj says:

    There are a couple differences so far with this Bailout vs the Savings & Loan bail out..

    During the S&L bailout the RTC took over the assets once the Savings & Loan failed..

    This new bailout will take the bad paper from the banks..

    I heard the 60% number the other day..I have been away from my pc and email for the last couple days and will have email back on Thursday..

    I will know more then

  11. Avatar MKchick says:

    El Diablo: The loan to AIG was largely based on AIG’s Credit Default Swap exposure.

    A CDS is an instrument of, in simple terms, insurance of bond defaults where a speculator doesn’t have to necessarily own the bond they are insuring.

    http://en.wikipedia.org/wiki/Credit_default_swap

    This is the underlying problem, and the largest portion, of the derivatives market. Which, IMHO, needs a boatload of regulation… you shouldn’t be able to buy a CDS unless you hold a stake in the bond.

    It is like taking insurance out on your neighbor’s car and hoping he totals the thing so you get paid.

  12. Avatar Sully says:

    For this we can, again thank Sen Gramm for the Commodity Futures Modernization Act of 2000.

    The act specifically banned regulation of credit default swaps. These unregulated instruments, insurance policies against default on risky investments like mortgage backed securities, necessitated the government bailout of insurer A.I.G.

    It wasn’t good enough to de-regulate banks, brokerages and insurance companies – they had to add nitro to the fuel.

  13. Avatar Sully says:

    Bernankes’ latest:

    “I believe that under the Treasury program, auctions and other mechanisms could be designed that will give the market good information on what the hold to maturity price is for a large class of mortgage-related assets. If the Treasury bids for and then buys assets at a price close to the hold to maturity price, there will be substantial benefits,” said Bernanke.

    In plain English-The treasury will bail out the toxic loans at taypayer expense, and hold them for
    thirty years if necessary.

  14. Avatar GreenNV says:

    A call-out to our investors. 8672 18th Hole just listed for $294,500. It was purchased 2 years ago for $783,638. The bank just repurchased the home for $367K on their original $635K first, and wrote off the 10% second. This may be a ruse to initiate a bidding war, but if not, it is more than a 60% decline in value in 2 years.

    If more of these keep showing up and selling for asking, the rules are going to have to be rewritten. It true market value is 40-50-60% under peak purchase price, who is going to hang around for the last dance?

  15. Avatar BanteringBear says:

    While these houses on 18th Hole Trail are taking massive haircuts, I still don’t see anything to get too excited about. 8672 is a 3/2/2 at 2083 square feet. Based on the rental market, I think $1400 per month is about the going rate for such a property. Assuming the bank parted with it for $275k, with 20% down, that’s roughly $1800 per month PITI, not counting HOA dues. These properties DO NOT CASH FLOW. Investment? HAH!

  16. Avatar Mickey says:

    Let me say it again. I love this! A house bought for $784K in 2006 now listed for $295K. Even if it does engender a bit of a bidding war, if it still sells for a 50% haircut from two years ago, GREAT!

    Y’all keep driving the comps into ground now, ya hear?

  17. Avatar Reno Ignoramus says:

    “it’s more than a 60% decline in value in 2 years.”

    Really? It may be a 60% decline in price, but not in value. To me, just because some Greater Fool with a Voodoo loan bought into the frenzy and overpaid $784K for it two years ago does mean much. 60% off of absurdity may be getting into the realm of the reasonable, but that’s all.

  18. Avatar smarten says:

    BB’s knowledge about real estate investing is really beginning to show [this isn’t a personality observation – it’s based upon fact].

    SFR purchases rarely cash flow with 20% cash down, especially in major metropolitan areas. That’s because of the vast disparity between rents and the cost to own.

    In the San Francisco Bay Area where I thought BB now resides, it’s IMPOSSIBLE to find anything that “cash flows” unless one puts considerably more than 20% down. But that fact of life doesn’t mean a purchase doesn’t make sense as an investment.

    Even if BB’s cash flow and rent figures are accurate, they do not take into consideration the income tax effects of depreciation and passive loss which end up offsetting other ordinary income [which in his example more than offset the monthly negative cash flow]. Also, they don’t take into consideration that part of a purchaser’s P&I payment that actually reduces outstanding principal indebtedness [i.e., pays for the investment just like a cash downpayment]. Then presumably over time, mortgage costs will go down [as interest rates fall]; rents will go up; the portion of the purchaser’s mortgage which goes to principal will increase; and, heaven forbid appreciation may actually return which ends up healing all wounds.

    While naysayers sit on the sidelines taking pot shots at everything, anything and everyone, I agree with Mike that at least on paper [because I haven’t seen the home], this looks like a decent investment play. Good job!

  19. Avatar BanteringBear says:

    Smarten-

    I posted that the properties don’t cash flow, which I stand by. I do not reside in the Bay Area, have no idea where you dreamed that up, and would like to keep this about Reno real estate- a subject you don’t seem well versed in. For your information (so that you can speak from a position of knowledge in the future), the average Reno 3/2/2 SFR easily cash flowed with 20% down prior to this bubble.

    It’d be hard for me to care any less about your formula. It seems rather desperate, IMO. If I’m going to buy an SFR with 20% down as an “investment”, it’s going to cash flow from day one or I’m not touching it. Your petty insinuation that I’m naive about “real estate investing” is completely baseless. But, by all means, keep grasping…

  20. Avatar smarten says:

    There you go BB, attack, attack, attack.

    You don’t know everything about everything and please don’t take this statement as an insinuation. And you don’t know much about investing in SFRs. If you’re going to buy a SFR ANYWHERE with 20% down; as an investor; and expect it to cash flow from day one; you’re not going to be making too many purchases because the animal you describe doesn’t exist. Nor did it exist in Reno/Sparks in 2002! SFRs that sell for $185K [assuming you can find them] simply don’t rent for $1,400/month. They probably don’t rent for $850/month [and they certainly didn’t rent for $850/month (let alone $1,400/month) back in 2002. Yet according to you, “the AVERAGE Reno 3/2/2 SFR EASILY cash flowed with 20% down prior to this bubble.”

    I don’t know what 2002 Reno/Sparks SFR examples to the contrary you can point to [if any], but this is 2008; not 1955.

    Separating wheat from chaffe, what you’re really saying is that anyone who purchases a SFR as an investor is a fool because his/her investment cannot cash flow [and thus to you, it makes no sense]; and, that once the average Reno/Sparks SFR drops another $75K or so in price [assuming this comes to pass and rents don’t drop in tandem], only then it will cash flow and according to you make sense to purchase as an investor.

    If this is your idea of “investing,” then IMO [which BTW requires no “grasping”] you’re dreaming. So be my guest and dream away!

  21. Avatar BanteringBear says:

    Smarten-

    After reading your latest utterance I do wonder if you are just documenting a conversation with the mirror. You do not speak for me. If you want to know what I am “really” saying, please comprehend my posts, and refrain from your own deluded interpretations of them.

    I don’t want to waste any more keystrokes on you, but I’ll have you know that a good friend purchased an 1800 square foot 3/2/2 in northwest Reno in 2000 for $135k. With 20% down the PITI was ~$900 or so. He rented it out for $1100. There were plenty more where this came from at the time. There will be plenty more in the future.

  22. Avatar MikeZ says:

    BB is right. A good rental investment should cash flow against PITI from Day 1.

    Remember, in addition to PITI, there’s an assumed vacancy rate (5-10%) and maintenance/repairs, which will run the owner 1%-1.5% of the home value per year.

    I’ve been a landlord. Trust me, it’s no picnic. Renters are amazingly brutal on walls, appliances, floors, plumbing, doors, etc. And those are the good tenants!

  23. Avatar Sully says:

    Actually, you’re both right!

    In the Bay Area, which has had several peaks and valleys in real estate over the past 35-40 years, you had to buy in the valleys (and still most likely were negative) using depreciation and increasing asset value to come out ahead. Pre-bubble this worked fine. Of course Congress had to go and change the 10 year depreciation rule to 28+ something, so I’m not sure how it worked out, as I gave up being a land baron. Rent control, also proved to be far too limiting for me.

    In Reno area, the peaks and valleys looked more like bumps and bird baths.

    We used to joke about buying in Bay Area, when you could go to Reno and make money from the start.

    So the devil is in the details, or in this case the location.

  24. Avatar GreenNV says:

    8648 18th Hole Trail just listed for $399,900. It will be interesting to see how the Investor makes out on this one.

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  26. Avatar JJ says:

    I think the banks are operating backwards and these so called investors taint the market.

    My house was in foreclosure and my wife and I did what the bank and everyone said on all those TV ads. We contacted the bank from the day we noticed we were going to be in trouble. So we started talking to the bank before we were late on any house payments. Our payment went from 1200 a month to 3200 a month.

    Month 1 (Bank is IndyMac): Called the bank and representative on the phone. We were told there was nothing they could do for us. I asked for any programs they have to help they said they have nothing. Requested a supervisor and they took my phone number to call them back.

    Month 2: I had heard nothing so I called them back. I again was told the same thing. They again could not put a supervisor on the phone and took my phone number for a supervisor to call back.

    Month 3: Received notice of default and still no call back. Called and demanded a supervisor and talked to a Floor Supervisor. He was worse than the first three people and when I asked about a program I had seen advertized call “Loan Modification” he told me they don’t do that. I argued for several minutes before being hung up on.

    Month 4: Desperate for help I called Krch Realty to see how short sales work. A rep from Krch Realty arrived at my house and we signed a contract. The agent shook our hand told us not to worry and left our house. We NEVER HEARD FROM HIM AGAIN! He never called us back or even posted our house up for sale. Not even a sign.

    Month 5: Heard of an organization called Hope Now on a TV ad. Called Hope Now and they conference called IndyMac Bank. They brought up all these programs that other banks were doing but our wonderful bank shot us down every time telling us the famous response, “Sorry there is nothing we can do for you.” They did have one program for us. They wanted $8,000 within two days and then $5,600 a month until we are caught up. Now I’m not a math wizard but I do have some good common sense and if we can’t afford $3,200 a month then what in god’s name would make them think I could afford 8K down and $5600 a month. So we got nowhere with this phone call.

    Month 6: Our house is in foreclosure and we have a sale date the following month with less than thirty days to save our house. I then call again and talk to another supervisor. She then tells me she would send a Modification package but I did not have enough time to get it done before the sale date. I argued and told her that I asked to do this at the beginning months ago and it was their fault and due to this mistake they should give me the time needed to get this done. The rep said no she couldn’t do this so I demanded to talk to someone that could with no luck. I sent an email to all the Chairman on IndyMacs board telling our story. The day before the sale date of our house I got a call from the Vice President of IndyMac telling us they were going to give us an extension and send out a modification package to us to complete and send back.

    We were full of hope for the first time in months. We received the package in the mail with contact phone numbers to call. One week later IndyMac was taken by the US Government and all transactions and foreclosures were put on a hold.

    I immediately called the number on our contact sheet with no luck and we were unable to contact them at all. I then called the number the website had on it to call and we talked to a representative and he advised us a new Modification package was going to be sent in thirty to sixty days with instructions.

    Twenty Five days later my wife arrived home to find a note taped to our door that said, “Your house has been sold in a private auction and if you want to reside in your house call ASAP.” I called the bank immediately but it was after hours. I then checked public record and ownership had not changed.

    The next day we called IndyMac (Government Managed) and found out they did sell our house and we no longer had a home and were homeless.

    IndyMac said nothing but maybe we were lost in the shuffle of things. Of course they said sorry and they thought all should be ok.

    This was wrong and what I don’t understand is that the bank does not want to negotiate with the owner in trouble and in our case they were going to do a 400,000 dollar loan fixed for five years at 5.9% with a payment of $2100 a month. It was tight but we would be able to pull it off. They would not budge on that offer and refused to go any lower. But sold our house in an auction for 230,000 dollars and that was ok. They would have been able to make a hell of allot more money with our modification loan they offered us. It sickens me that we lost our home and memories to one of these so called investors that care about nothing but the next home they are going to take or the next dollar they are going to make. They don’t care about anything or anyone.

    Greed is an evil and very controlling thing. The investors that took our house called the cops because we took our stove with us and tried to get us for grand larceny. WOW they are standing to make over 100K in profits off of other people’s memories and they complained about a simple stove. Something my wife and I got as a wedding present. The investor even walked in our house with us still living there and before the sale was even closed and started going through our house. When he was confronted he began to curse at me and my wife in front of our three small children who were crying asking me why I was a dead beat and couldn’t pay my mortgage. Then yelling outside my house (Was still my house at the time because it was not closed yet) and cursing at my wife and I “You can’t even pay your garbage bill”. This so happened to be a day after my wife’s first Kemo treatment and she was already sick but emotional from the treatment and from what the bank had done to us, Krch Realty and the stress of getting a place to live before this house closes.

    We had no money to move and got nothing from the investor or bank to help. We had no money because we had just sent a certified check with the modification package to the bank to seal the deal and used every dime we had. This investor still was ready to put us on the street and did not care one bit. He even went as far as to look my name up on public record and found what he thought was my address but due to the fact I’m a Jr. I had the same name as my dad and he stalked my parents house looking for the stove. Stood outside the house until my dad confronted him then he turned his tail and ran. The investor called and threatened us over the phone several times. Come to find out all of his comments about my lack of paying bills were nothing to his lack of not being able to move out of his mom’s house and stop getting an allowance from his mother who is in her 90’s. You would think a man in his mid 40’s to early 50’s would be able to get a job on his own and earn his own money instead of living off of mommy.

    All banks need to be held accountable for these bad ethical and business decisions. Investors need stricter laws placed on them and the auctions need to be watched carefully due to the fact that there currently is some major influence at these auctions that are getting these banks to lose homeowners modifications packages in the shuffle.

    PS…..Cut the cord Peter……

    Signed……….A Concerned Homeowner……..

  27. Avatar Joan says:

    HAHAHAHAHA….. WHO DO YOU THINK THAT ARTICLE IS ABOUT….HAHA.. YES I HAD TO DEAL WITH THAT MAN AND HIS HORRIBLE MOTHER AS WELL. PETER MCCALLISTER FOR ALL THOSE WHO DO NOT KNOW. YOU SHOULD HAVE HAD THAT MAN ARRESTED OR SHOULD HAVE DEFENDED YOUR PROPERTY THE DAY HE WALKED IN. SORRY TO HEAR WHAT HAPPENED TO YOU JJ. YES I AGREE THE BANKS ARE BACKWARDS AND HAVE DAMAGED THIS MARKET IN A BIGGER WAY THAN THEY THINK. THEY HAVE EMPOWERED LITTLE WEASLES LIKE PETER MCCALLISTER AND THE WICKED WITCH OF THE WEST LOIS MCCALLISTER.

    DO NOT WORRY THOUGH THEY WILL GET WHAT IS COMING TO THEM BECAUSE GOD DOES NOT LET THINGS GO UNPUNISHED.

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