Veteran businessman and entrepreneur J. Kale Flagg serves as the General Partner of the American Redevelopment Fund, LP; today, J. Kale Flagg shares some of his insights on the company’s strategies in distressed real estate.
Q: What does the term “distressed property” mean?
J. Kale Flagg: It’s a term for properties that have returned to bank ownership through foreclosure, or are going to be sold as a short sale.
Q: What exactly is a “short sale?”
J. Kale Flagg: “Short sale” refers to properties that are for sale at a price that falls short of satisfying the lender’s note on the property. In short sale deals, the lender generally agrees to absorb the difference and not come after the borrower for that difference, commonly known as the deficit.
Q: In the wake of the housing and foreclosure wave, there must be a lot of distressed properties for investors.
J. Kale Flagg: There definitely are, but investors should bear in mind that in a down market, it may be easy to buy homes…but not so easy to sell them again. The key, as is always true in real estate, is buying right.
Q: What sorts of advantages can you offer with your approach?
J. Kale Flagg: Experience in the business, for starters. The Operators behind the American Redevelopment Fund have purchased, rehab’d and sold over 1700 properties in the last ten years.
Q: What advice would you offer to investors considering getting into the market?
J. Kale Flagg: Get a good handle on sale price, and work backwards from there. Figure in things like cost of repairs, any closing costs, title work, holding costs, etc. in your calculations. It’s an area where a lot of newcomer investors get burned, especially if a house sits on the market for a long period while the investor waits for the market to rebound.
Q: Does American Redevelopment Fund do the rehab on a property?
J. Kale Flagg: Yes, we contract the necessary work out to licensed General Contractors. We are careful, though, to only buy properties that don’t need extensive structural work. Things like remodeling kitchens or bathrooms, carpeting, drywall work, paint, even roof repairs can be done relatively cheaply, but structural work cuts into the margin at resale time. Again, it’s knowing what you’re buying before you pull the trigger—buying right.
Q: Isn’t it tricky trying to assess a good sale price in a down market?
J. Kale Flagg: Yes it is, and again, this is where novice investors make mistakes. We do comparable values with up to 100 homes to get an accurate reading on sale prices. And for every property that we purchase, we easily have looked at 60 or sometimes 70.
Q: Do you have any other advice for investors?
J. Kale Flagg: Remember that it’s a wide-open market for buyers, but you’re best partnered with an experienced professional when it comes time to rehab and sell a distressed property.
J. Kale Flagg’s American Redevelopment Fund specializes in single-family homes in California, Arizona and Nevada. Under J. Kale Flagg’s leadership, American Redevelopment Fund splits all profits 50/50 with investors and helps mitigate risk at every turn. J. Kale Flagg lives in Reno, Nevada, where he enjoys travel and the outdoors. A 1989 graduate of Yale, J. Kale Flagg has over two decades in business and real estate.