Advice needed whether to pursue a deal

General Real Estate Investing
1

I am planning to make an offer for a house.

  1. It is a short sale. I have bought foreclosure property before, but not a short sale.

  2. Seller disclosure says that they have built a bedroom in the garage without permission from Homeowner association. I saw the house & found that the garage door remains closed and there is no way anyone would know about it. Will this be a problem if I purchase the house? (Making me nervous). Worst case, we can tear it down, but the bedroom has A/c, electric wiring etc and is really nice.

  3. When my agent called, the listing agent said there is an offer already and he wouldn’t let us see the house. (house was on the market just for 1 day) So I called the listing agent directly. He showed me the house himself and has written up an offer for me. He wants to be intermediary and pocket the full 6% commission. That is fine with me, but I didn’t like the fact that he refused to show the house first time.

I had made offers on similar house in same neighborhood and did not get any.
House is really in good condition (year 2006) and may be rented for $1200-1250, maybe more (extra bedroom?) giving positive cash flow.
I made offer asking for 10 day option period for $10 fee just to be on a safer side.
Considering the above do you think I should pursue the offer?
Thanks in advance.

~UB

2

First of all, I would consider having your original agent file a report with your state real estate board against the listing agent (maybe after this deal is done, so you don’t end up shooting yourself in the foot). His license should be suspended and your original agent should get their commission (if you close on it). Agents like this listing agent are why people are constantly on this forum asking for ways to avoid using Realtors.

As far as the extra bedroom goes (apart from issues you may or may not have with the HOA) you may have trouble listing it as an actual bedroom. You may consider having somebody take a look to see if it meets code. Does it have an actual closet? The right kind of windows? etc… If not, this bedroom could become a liability for you as a rental. What would it take to convert this back into a really nice, air conditioned garage?

I would be interested in running comps for the area and see what kind of rental increase you would get for an additional bedroom (I’m guessing it brings the total to 4 or 5 bedrooms) as opposed to the rental decrease for not having a garage. In my market I would estimate getting a better return for having the garage as opposed to the 4th or 5th bedroom.