REO or ‘Bank Owned’ Flip

» Posted by on Jan 14, 2015 in Gallery Investments, News, Portfolio | 0 comments

REO or ‘Bank Owned’ Flip

REO or ‘Bank Owned’ Flip

Woonsocket, RI

Risk Vs. Insolvent Town Status

Participating in the “flip market” is not always as pleasurable as one might think and one shouldn’t enter into this kind of investment program with the assumption of great gain but rather with the more realistic expectation there may be great loss.  The unexpected can happen and did happen to us when a town claimed insolvency the day after the real estate purchase closing.  No more blinders on here!  Purchasing this project was a test for DP (not a client investor thankfully) in a demographic area that has been less favorable for sometime.  *Disclaimer – we do not propose investments/projects with unknown demographics to our clients.

We went in with the thinking that this property was only two streets over from a more desirable area within the town, purchasing the property at $50,000 and a remodel budget of $70,000.00 (total invested $120,000.00) with comparable sales for the last three months showing in the area of $200,000.00 (80{48370f4c7e8d05e54649e612d3c42fc7fd435ea0d0341dced4441d5061938337} of the highest) had a projected net profit of $100,000.00 with the projected listing price at $210,000.00.  Unfortunately there is no certainty or control when the town surprises us with the insolvency announcement.  There is no way of knowing when a town might claim to be insolvent so we were then in the situation of having to realign our initial strategy and ask ourselves “what is the projected sale going to be now”, then push the project to completion as quick as possible with the least amount of invested funds lost.  This project was a test anyway for DP in this demographic/location.  We were prepared to take a loss but never expected this to happen.  If it had proven to be a worthwhile investment, we would have purchased many more from the bank – which would have created an ROI into the $1M range.  However, after the public announcement, even though the project was scheduled for only four short weeks, we had to prepare for a loss and only hope for a profit.  This experience now allows us to define “FLIPS” in our own way – Figuring Loss Imparts Profit Surprise.