3 Family REO....Need Advice.
I located a three family house on a great street in my neighborhood. Just listed and I was the first in line to set up a walk through(hopefully tuesday).
The house sold in 01' for 109k. Had a tax assesment in 02' at 110k. Comps in area at 115k-121k. List price 73k. There is obvious water damage below some of the gutters and on some of the siding. The realtor said it is a great, structurally sound house, but had a water leak on the second floor which damged over half of the original hard wood floors. The garage is in very rough shape but repairable. I have not been inside yet, but so far I can expect to replace the roof or most of it, put new siding and a couple of new doors on house and garage, need awning over 2nd story balcony. As long as the wiring is in good shape inside, I should be able to rehab the interior myself. I will know more tuesday, but my question now is for anyone who has purchased an REO multi-unit house. I should mention it is owned by FannieMae. What kind of exit stratedgy would you reccomend? If the inside is halfway decent, I wan't to move on this fast. I would like to submit an offer by weeks end but I want to incorproate a good exit plan that doesn't seem so much like an exit plan so my bid will be seriously considered. I read to many contingincies on an REO can kill a deal. So what would you do? Also, is owner occupying(which is an option for me) a strong argument, or do they not care one way or another?
Thanks!!
Sickdog
if it sold for 109 just 3 years ago why 79k now. somthing don't make sense
crunch the #'s make SURE you have all the costs of rehab figured in
John
The buyer that lost it in foreclosure paid 109k for it back in 01'. He lost it( I think he went to Jail) in 03'. The original lender assinged it's sheriff sale bid to FannieMae, who bought the Prop for 75k. It is listed for 73k. I will hopefully know more today after I go through it. I presume their is water damge throughout as the realtor said their was a water leak of some sort(didn't specify).
Believe me, I will definetly scrutinize the interior to determine exactly why the low listing. I wouldn't be at all surprised to find a mold problem, which could work in my favor. We'll see! I post more after I go through it.
Thanks!!
Sickdog
Generally when dealing with REO's since they are sold as-is they do not allow contingencies. You will also need cash to do this deal. From your desciption of the property you need to buy for 50% or less of FMV before repairs.
There usually are no exit strategy on REO's. unless you want to lose your earnest money. So put down the minimum(usually $1 K).
When estimating an REO if you live in a colder climate, always include plumbing repairs. I also always include rewiring the house to code unless it is obvious that it is new. I also assume that the HVAC is shot. Being on an empty house messes these units up.
Double check your water damage and double your estimated repairs.
I approach REO as a gamble with odds in my favor. Not knowing the property, my gut instinct is to offer half of the asking price or $35K cash with no contingencies and close in 2 weeks. I have done this before and I get them most of the time.
Thanks folks!
.
I appreciate the responces.
The earnest money in this case is only 500.00. I got a call today from the realtor stating someone went through another realtor and went through the house today and submitted a bid. He can't get down here today so I am going through it with a realtor friend of mine. Was really hoping to leave her out of it, but I need to get this done today. The realtor in charge of this REO is going to wait till the end of the day to submit the bid so I have a chance at it.
When you all say cash deal, I assume you mean no lenders involved on my part? I can get the financing for it, and can get @ 25k out of my two family.
What if I offer say 50k with 20k down? Think they'll go for it or should I hustle to find a HML? I know one guy who has the cash to finance this deal, but unfortunetly, his funds can not be tracked or traced. He makes his money on the "slide"
The area I live in isn't too harsh weather wise, and the C/A units look fairly new. I have an HVAC guy I can get in there to evaluate and repair/replace with financing if need be. The wiring may be an issue. I'll have to check it very closely.
I called my building department yesterday and they said the rental certificate hasn't been renewed since 2001(very common @ here) so they will be going through the place in order to issue Cert of Occupancy. That could suck out loud, but it's part of the game!
I'll post more when I get back today.
Sickdog
I went through the property earlier, then went back this evening with my brother-in-law(house appraiser!). It looks like just what the realtor said, lot of water damage to the floors. Most the floors are buckled. The sub-floor looked to be in great shape still. The electricity was still on in this place as well, so we were able to turn on lights, which was nice! It has two relatively new furnaces and A/C units, only one water heater though. The house was re-wired in 95' and 96'. The soffets are in bad shape and it has asbestos shingle siding. The box gutters need work also. The roof looked fine from the street.
It rained hard today for hours but the basement remained dry and no sign of leaks in the house. That tells me the water damage occured from inside. Busted pipe, running toilet or just a vengfull owner who let the water run on his way out.
Here are the numbers as I see it. Please feel free to correct me if they sound too low or high! The list price is 73k.
----60k purchice price
----15k siding, soffets
------3k gutter work
----10k Interior work(done by me)
----10k sale and holding(realtor friend discount)
----------
-----98k invested
---120k ARV according to comps
-----22k white meat.
I should mention this place is listed as a 3 family. However, only utilities and kitchens for a two family. I'm not real sure where they come up with the third unit.
This place is on a great street, walking distance to a shopping mall and very close to a major university. The rental comps for this size of a property are anywhere from 1100.00(low end) to 1500.00 high end, for both units.
Is this a deal to pursue???
What do you think?
Thanks
Sickdog