Ep 3: Analyze Your Next Deal as Iowa Foreclosures Rise

Episode 3: Analyze Your Next Deal as Iowa Foreclosures Rise

 

[NEIL] A house listed at two hundred ten thousand dollars.

 

[MAGGIE] And the math said it was only worth about one hundred fifty five thousand, five hundred to you.

 

[NEIL] Fifty four thousand, five hundred dollar gap. Nobody sees that gap unless they run the numbers before they fall for the listing.

 

[MAGGIE] That's today's episode. Stick around.

 

[MAGGIE] And welcome back to Flipping Iowa. I'm Maggie Monroe, sitting across from Neil Timmins, who apparently had a spreadsheet open before his coffee finished brewing this morning.

 

[NEIL] Foreclosure filings. Been watching them climb since last fall. Numbers don't wait around for coffee.

 

[MAGGIE] And that's exactly where we're headed today. Iowa foreclosure filings are up roughly thirty percent since the fall of twenty twenty four, and I wrote about it on the blog this week at LittleGuyLoans.com. More distressed listings hitting the market than we've seen in a while.

 

[NEIL] More listings that look like a deal. Which is not the same thing as more deals.

 

[MAGGIE] And that's the whole episode right there. How do you actually tell the difference, house by house, before you write the offer.

 

[NEIL] Same four steps, every single time. Doesn't matter if it's a clean listing or a distressed one.

 

[MAGGIE] And by the end of this, you'll know exactly what those four steps are, plus a real Waukee listing that looked like a deal and wasn't.

 

[NEIL] Let's get into it.

 

[MAGGIE] And let's start with the number itself. Thirty percent more foreclosure filings since the fall of twenty twenty four. What does that actually change for someone looking at the Des Moines metro right now?

 

[NEIL] More volume on the market that looks distressed. More sellers who need to move fast. That's the opportunity side.

 

[MAGGIE] And the risk side?

 

[NEIL] The risk side is exactly what trips people up. A distressed listing isn't automatically underpriced. Sometimes it's underpriced because the seller's motivated. Sometimes it's underpriced because the house is genuinely rough, and the discount doesn't cover what's actually wrong with it.

 

[MAGGIE] And how do you tell which one you're looking at, from the outside, before you've made an offer?

 

[NEIL] You don't guess. You run the same math on every single property, foreclosure or not. That's the entire point of today's show.

 

[MAGGIE] And that math doesn't change just because there's more inventory to look at.

 

[NEIL] Correct. Rising inventory changes how many houses you have to run through the process. It does not change the process itself.

 

[MAGGIE] And people skip that discipline exactly when there's more to choose from, don't they. More options, more urgency, more chance of talking yourself into a number.

 

[NEIL] That's exactly when the wheels come off. Somebody sees five distressed listings in one weekend and starts moving on gut feel instead of running the numbers on each one.

 

[MAGGIE] And okay, let's build it. Step one.

 

[NEIL] Pull your comps. Three to five recently sold, fully renovated homes near the property. Not listings. Sold. And fully renovated, not another distressed house that's about to skew your number down.

 

[MAGGIE] And why does that distinction matter so much, sold versus listed?

 

[NEIL] A listing is what somebody hopes to get. A sold comp is what somebody actually got. Only one of those tells you the truth about after repair value.

 

[MAGGIE] And that's the term people hear constantly and maybe don't fully understand. After repair value.

 

[NEIL] What the house is worth once it's fully renovated and back on the market. Everything downstream depends on getting that number right.

 

[MAGGIE] And step two is walking the property itself.

 

[NEIL] Roof, electrical panel, mechanicals, anything structural. Before you ever fall for the finishes. Pretty countertops don't tell you what the furnace is doing.

 

[MAGGIE] And step three builds the actual rehab number off what you find on that walkthrough.

 

[NEIL] Room by room, trade by trade. Then add a real contingency for whatever the walkthrough didn't show you, because something never shows on a walkthrough.

 

[MAGGIE] And step four is the seventy percent rule, which I think is the piece most people have heard of without ever running the actual math themselves.

 

[NEIL] Purchase price plus rehab, at or under seventy percent of after repair value. If it doesn't land there, it's not a deal yet. It might become one later. It's not one today.

 

[MAGGIE] And you run that step last, on purpose.

 

[NEIL] Always last. Run it first and you'll talk yourself into a bad number because the neighborhood felt right or the kitchen photos looked good.

 

[MAGGIE] And I want to bring in something that ties right into step one, the comps piece, because it's not just about finding sold comps. It's about how specific you get with them. You've talked to me before about days on market as a signal.

 

[NEIL] Days on market is one of the most underused numbers in this business. How long does it take a property to go under contract. Not citywide. Narrow it down.

 

[MAGGIE] And narrow it down how, exactly?

 

[NEIL] Say the subject property's going to list around two hundred fifty thousand dollars. I'm not looking at all of Des Moines. I'm looking at non new construction in that two hundred to three hundred thousand dollar range, because that's the competitive set it'll actually get measured against. Then I narrow further, down to the specific suburb or zip code if I can.

 

[MAGGIE] And what does that number actually tell you once you've narrowed it down that far?

 

[NEIL] Whether the trend's compressing or expanding. Properties moving faster than they were three months ago, or slower. That trend feeds straight into your holding cost assumptions and your contingency. A market where houses move in fifteen days is a different budget than one where sixty days is normal, even on the exact same rehab.

 

[MAGGIE] And that's not a one time check. That's something you're tracking constantly.

 

[NEIL] Constantly. It's not a vanity number. It's a budget input and a risk signal at the same time. An investor who's not watching it is underwriting blind.

 

[MAGGIE] And let's get real neighborhoods and real numbers in here, because I know that's what people actually want.

 

[NEIL] Sure. Ankeny and Waukee, still active, still absorbing new construction competition, so comps there need to account for that. Beaverdale and Highland Park, older housing stock, tighter inventory, comps move differently than the newer suburbs. Norwalk and Grimes, growing fast enough that a comp from eight months ago might already be stale.

 

[MAGGIE] And that's a lot of variation for one metro area.

 

[NEIL] It's why nobody should be running one rule of thumb across the whole Des Moines metro. Pull comps specific to the submarket, track days on market specific to that submarket, and build the rehab number specific to that house. Specific, specific, specific. That's the whole method.

 

[MAGGIE] And you mentioned rising foreclosure inventory changes a few things about how the analysis actually runs, not just the volume of houses on the market. What specifically changes?

 

[NEIL] Three things, mainly. Condition swings wider first. Distressed sellers defer maintenance longer than a typical seller, so your contingency needs to grow, not shrink, just because the discount on the sign looks bigger.

 

[MAGGIE] And the second thing?

 

[NEIL] Comps get noisier. A wave of foreclosure sales can drag your after repair value comps down if you're not filtering hard for true renovated sales instead of letting distressed sales sit right next to them in the data.

 

[MAGGIE] And third?

 

[NEIL] Timelines compress. Pre-foreclosure sellers often need a fast, clean close. That rewards the investor who already knows their number cold and can move the moment the math clears, not the one still running comps three weeks into negotiations.

 

[MAGGIE] And that timeline piece ties straight back to funding speed, doesn't it. If the seller needs to move fast and you're still waiting on a lender, somebody else gets the house.

 

[NEIL] Exactly why speed on our side matters as much as speed on the analysis side. A good number that arrives too late is the same as no number at all.

 

[MAGGIE] And we're going to take a quick break, but when we come back, a real listing that looked like a deal on paper and wasn't once the math got run.

 

[MAGGIE] And we're back. Walk me through the Waukee listing.

 

[NEIL] Pre-foreclosure listing in Waukee, came on the market this spring at two hundred ten thousand dollars.

 

[MAGGIE] And on paper that already sounded like a deal to you?

 

[NEIL] On paper, yes. Comps on similar three bedroom ranches nearby, all sold within four months, fully updated, put after repair value close to three hundred five thousand dollars. That's a wide spread if you stop at the comps.

 

[MAGGIE] And then you actually walked it.

 

[NEIL] Different story. Original nineteen ninety eight mechanicals. Roof at the end of its life. Kitchen needed a full gut. Real rehab estimate landed at fifty eight thousand dollars.

 

[MAGGIE] And that's where the seventy percent rule comes back in.

 

[NEIL] Seventy percent of three hundred five thousand dollars is two hundred thirteen thousand, five hundred dollars. Rehab comes out of that ceiling first. That leaves one hundred fifty five thousand, five hundred dollars as the most this deal could pay.

 

[MAGGIE] Not the two hundred ten thousand dollar asking price.

 

[NEIL] Not close to it. Fifty four thousand, five hundred dollar gap between what the listing looked like it was worth and what the math actually supported.

 

[MAGGIE] And that's the exact number from our cold open.

 

[NEIL] Same one. That gap is where rising foreclosure inventory catches investors who skip the process. The discount looks real until you run the numbers.

 

[MAGGIE] And did that deal happen for anybody, at the right number?

 

[NEIL] Not at that asking price, not that I've seen. Somebody may still get it once the seller comes down closer to reality. Or they don't, and it sits. Either way, the math didn't move just because the story around the house was sympathetic.

 

[MAGGIE] And I want to push on something, because I think a lot of people listening are thinking it. If foreclosure filings are up thirty percent, isn't that itself a red flag? Why would anyone want to buy into a market where more people are losing their houses?

 

[NEIL] Fair question. But rising foreclosure filings is a supply story, not a value story. It doesn't mean Des Moines home values are falling. It means more distressed sellers are entering the market who need to move on a shorter timeline.

 

[MAGGIE] And that's a very different thing than the whole market being in trouble.

 

[NEIL] Completely different. More supply, same underlying demand. If anything, it's more opportunity for the investor who's disciplined, and more risk for the one who isn't.

 

[MAGGIE] And here's the other objection. What about somebody who runs the numbers, and honestly, nothing clears the seventy percent rule right now? Does that mean they just sit out?

 

[NEIL] Sometimes, yes. And that's the rule doing exactly its job. A deal that only pencils if you round favorably in three different places isn't a deal. It's a bet dressed up as one.

 

[MAGGIE] And that's hard to hear when you've already got your eye on a specific house.

 

[NEIL] It is hard to hear. But the investors who last in this business walk away from houses they liked because the math didn't hold up. The ones who chase the story instead of the numbers don't usually make it to their third flip.

 

[MAGGIE] And once someone's got a real number they trust, purchase price plus rehab clearing that seventy percent line, how does the funding side actually work?

 

[NEIL] That's where we come in. Little Guy Loans finances up to ninety percent of the purchase price and up to one hundred percent of rehab costs, with every loan capped at seventy percent of after repair value. Same ceiling I just used to analyze the Waukee deal.

 

[MAGGIE] And that cap is what actually governs the loan, not the purchase price or the rehab number by themselves.

 

[NEIL] Correct. Which is exactly why the accuracy of your own number matters before you ever write the offer. Our cap is only as good as the number you bring us.

 

[MAGGIE] And how fast does that side move, once someone's got their number and their offer ready?

 

[NEIL] We approve in twenty four hours, and close in five days once title's clear. No appraisal slowing down the buy side.

 

[MAGGIE] And that's the whole loop then. Pull specific comps, walk the house, build the rehab number, run the seventy percent rule last, and move fast on funding once the number actually holds up.

 

[NEIL] That's the loop. Foreclosure inventory just means you're running that loop more often right now, not running a different one.

 

[MAGGIE] And before we close out, we like to end every episode with a piece of Iowa history. Something most people driving through never think twice about.

 

[NEIL] What have you got for us this time?

 

[MAGGIE] On July twenty first, eighteen seventy three, Jesse James and his gang pulled off what historians call the first train robbery in the American West, and they did it right here in Iowa, just outside the little town of Adair.

 

[NEIL] Not exactly the crime of the century, from what I remember.

 

[MAGGIE] That's the twist. They pried a rail loose near Turkey Creek, tied a rope to it, and yanked the track out from under the locomotive as it barreled through. They were expecting seventy five thousand dollars in gold.

 

[NEIL] And what did they actually walk away with?

 

[MAGGIE] About three thousand dollars, after cracking the express safe and going through passengers' pockets. All that planning, all that risk, for a payday that barely covered the job.

 

[NEIL] That's basically the whole episode in one heist. The number on paper and the number you actually walk away with are two very different things.

 

[MAGGIE] And if Jesse James had run his own version of the seventy percent rule before he pulled that rail loose, he might have skipped Adair entirely.

 

[NEIL] Might have saved everybody a lot of trouble. Ours included.

 

[MAGGIE] And that's Flipping Iowa. If you take one thing from today, run your comps specific to the submarket, not the whole metro.

 

[NEIL] Walk the property before you fall for the finishes. Mechanicals and structure first, always.

 

[MAGGIE] And run the seventy percent rule last, not first. Let the math tell you what the house is worth to you, not the story around it.

 

[NEIL] Rising inventory just means more houses to run through that same process. It doesn't change the process.

 

[MAGGIE] If you got something out of this one, share it with a friend, and be sure to subscribe so you don't miss the next one.

 

[NEIL] Thanks for listening, everybody.

 

[MAGGIE] Catch you on the next episode.