A new one for me - something I have no experience with, but this one is full of potential on the upside, I just want a reality check before I make an offer, should I?
The home in question is in the nicest area in town, homes range in price from $400,000 to over $1,000,000. It’s in the mid-range on comps, no less than $475,000, not likely more than $659,000, dependent on upgrades we need to do to it if we go forward - it was built in 1985 and the appliances in the kitchen, as an example, were last updated in 1995, the counters are laminate and original from when it was built - it needs updating badly.
The asking price is $375,000 at the moment, down from the original list of $549,000 three months ago - it’s a foreclosure, a bank REO, and public records show it was foreclosed for $275,000…that is the amount I’m willing to pay the bank, what they have in it, the current agent for it feels the bank will take $250,000 at this point to get it off its books, so I’ll offer $225,000 and see what comes back.
We think we’ve figured out why the owners walked - the house settled, badly, the lower level foundation buckled to the point where it lifted the entire sub-floor up and the lower level flooring needs to be redone, along with a re-pour on the foundation. A structural engineering analysis shows the house is sound, that a year ago a full piering on the foundation was done to stop the settling and that the house (I know the guys who did the work) should not have any additional structural issues other than repairing what looks like a horrific nightmare to anyone walking in downstairs. The estimate on the re-pour of the foundation is $7,500 and includes rebar in the foundation to increase its strength, there are no additional piers needed since even the center of the house, on the main load bearing walls, were piered.
Adding to that expense is the master bath gut and remodel - $15,000
Kitchen counters, appliances and new floor (cabinets are amazing already, no change) - $10,000
Lower level flooring - $10,000
Repairs to cracks throughout interior - $5,000
New Deck outside - $8,000
Grading front yard - $5,000
Driveway resurface - $5,000
Painting interior throughout - $10,000
Miscellaneous - $10,000
Price to Pay $250,000; down payment will be $50,000
Total in $353,000
Holding cost 1 year (PITI + basic utilities) = $25,000
TOTAL = $278,000
My out of pocket over the year $50,000 + $25,000 + $78,000 = $153,000
ARV estimate $450,000-550,000
Low sale price = $450,000
RE Commission 6% = $27,000
Loan = $195,000
Down-payment back = $25,000
Hold costs back = $25,000
Repairs back = $78,000
PROFIT = $100,000
If you had the cash on hand to do this, would you?
EDITED to add, my fall back position would be to rent it out, the neighborhood it’s in gets $2,500 a month for rent, so it wouldn’t make money, but I wouldn’t lose money if I had to rent it out.