Jeffrey Kale Flagg Discusses the Value of Investing in Distressed Properties

Jeffrey Kale Flagg is the General Partner of the American Redevelopment Fund, LP, a business that invests in distressed properties in California, Nevada, and Arizona. The company has successfully sourced, purchased, improved and re-sold numerous distressed properties, Jeffrey Kale Flagg explains, earning significant returns for investors. Today, Jeffrey Kale Flagg explains why bank owned real estate properties (REO’s) are a great buy for investors.

Q: What is a distressed property?

Jeffrey Kale Flagg: “Distressed property” refers to a property that has either fallen into foreclosure or has been sold as a short sale.

Q: In this market, there are quite a few homes like this, correct?

Jeffrey Kale Flagg: Quite a few—but investors have to be very careful.  It’s always easy to buy real estate; it’s not always easy to sell it.   The key to profitability is working backwards from the sales price.  Once you know what a property will sell for, quickly—you back out the purchase price, improvement and holding costs—and that’s your profit.  The key is purchasing intelligently; knowing what improvements need to be made; and most importantly, pricing correctly.  Experience helps.

Q: Why should an investor go through the American Redevelopment Fund instead of trying to do it him or herself?

Jeffrey Kale Flagg: Economies of scale is the best answer.  We run price comparisons (comps), improvement estimates and title searches on 50-75 properties for every 1 property that we purchase. This is because of the competition in the market and the nature of auctions, where properties are often postponed or taken back by the bank.  An investor looking to purchase one property has to do the same work as an investor looking to purchase 100 properties—and most small time investors don’t do all the homework, they cut corners.  Which is how one can get burned—substantial losses are not uncommon by the inexperienced.

Q: Does the American Redevelopment Fund take care of fixing the property before selling it?

Jeffrey Kale Flagg: We use licensed & insured General Contractors to complete the improvements, like fixing landscaping, carpeting, kitchen, bathroom and even roof damage repair.  Through careful due diligence at the outset, we avoid major repairs and renovations by only purchasing properties that don’t need structural work.  As a result, improvements are pretty much never structural but rather simple upgrades like new paint and/or carpet, landscaping and perhaps a roof, bathroom or kitchen refurbishment.

Q: With so much money going into buying and rehabilitating the property, how does an investor make money?

Jeffrey Kale Flagg: The secret is being patient and only working on properties that promise great returns.  This is an art the American Redevelopment Fund has mastered. It’s very easy to buy properties and later hope their value (market price) increases when you find out you overpaid or overinvested—we don’t do that.  It’s also very important for investors to have partners that value their investment—our Fund is very generous with our investors— investors receive 50% of all profit.  And in the last decade, the partners behind the American Redevelopment Fund have returned their investors over 20% IRR in 9 of the last 10 years.

Q: Buy low, sell high?

Jeffrey Kale Flagg: This is the secret, but it takes years of experience in the business to recognize which properties will sell at your projected price—and what improvements need to be made, and which ones don’t, to get that price.

Q: So it takes an expert like the American Redevelopment Fund?

Jeffrey Kale Flagg: An investor easily can lose a great deal of money on a distressed property. It’s important to make sure you choose the right property in the right location at the right time.

Q: One type of distressed property is one that has undergone a short sale. Can you explain to our readers what that means?

Jeffrey Kale Flagg: A short sale is when a home is sold for a value less than what the homeowner still owes on it—with bank approval.  It’s basically a deal between the homeowner and the bank where the bank agrees to accept less then the outstanding balance on the property and not chase the homeowner for the deficit.  It enables the bank to forego the process of foreclosure, saving them time and money.  And in this economy we’re seeing quite a few of these.

Q: What is the benefit to the investors in a distressed property?

Jeffrey Kale Flagg: Wholesale versus resale.  A savvy property investor knows the inherent value of buying a property at the lowest price possible and reselling it at market value, but that savvy investor also knows the importance of doing this with a knowledgeable professional.

Jeffrey Kale Flagg works with experienced real estate professionals to maximize investments on distressed properties. A resident of Reno, Nevada, Jeffrey Kale Flagg enjoys traveling and spending time outdoors in his free time. Jeffrey Kale Flagg speaks Russian and French and can read a little Hebrew.

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