Can this REO be saved???

Should I stay with this pursuit (my first deal). Description: foreclosure, SFR, 4200 sq. ft, only four years old–hot, upscale neighborhood–but owner trashed and took everything not bolted down (fixtures, mirrors, appliances). It’s listed with a realtor for $530K. It’s going to take at least $30K to get in marketable shape.

Bank had “as-is” appraisal done. Came in at $570K with only 10K needed for repairs (even listing agent said this rehab quote was way too low, but REO dept won’t listen to her) Property was “sold” for 370K in March. Deutche is trustee, but we are dealing with Ocwen Servicing (don’t understand all the parties involved). They rejected my 400K offer. I heard that only offer they considered at all was $470K, but couple backed down after seeing work involved. I think ARV is about $675K (huge basement is 1/2 way finished out and not included in appraisal, so could be worth a lot more if finished out). Why is bank holding out when they only have $370K in it? It’s been on market for 5 months! Numbers don’t work for rehab loan at 470K, but conventional lenders won’t lend “as is”. I see potential in quick rehab/resale, but getting frustrated. Any advice would be appreciated!!!

Based on what you wrote, I am only guessing that the bank bought it back at auction for $370k because no one else (third-party bidders) wanted to buy. The $370k is either the miminum bid, or the highest bid made by the lender. So, they probably have a lot more in the property than $370k.

Have you submitted a detailed repair estimate? Give them an itemized account of all of their costs: repairs, commissions, holding/forgone interest payments, maintenance, etc.

If your ARV is correct, then don’t you have a huge spread even if you bought at their price? $470k + $30k = $500k. Add in your holding costs, etc., and there is still a huge spread. This is probably why the bank won’t budge. This is not something I would touch, even with that spread, but my educated guess is that is why the bank is not budging.

Thanks for your reply. The bank only allows the real estate agent to electronically submit an offer. And apparently they are only interested in the amount, rather than terms. They have rejected, rather than countered, all offers so far. Five agents that have represented potential buyers have submitted comments to the bank stating that they are too high, but they still won’t negotiate.

Even at 470 with 30k in repairs, there is still $200-250K in equity. Why wouldn’t you touch that? I know it is a little higher than the standard 65% ARV, but I felt that even if I reduced it to 650K I’d still make a good profit on a newer property in a hot area, where the average house stays on the market no more than 30 days. And two weeks of cosmetic touch ups is not too demanding.

Why wouldn’t I touch that? First, your initial numbers were different. $675k minus $500k is not $200k - 250k in equity. So, my initial impression is based on a $175k gross spread. Add to it the additional expenses of closing costs, cost over-runs, holding costs, sales commissions, unexpected costs, possible seller concessions, my margin is much less than $175k.

Obviously, I don’t know how HOT your area is so I cannot factor that in. If you think it can move quickly, then it might be a good deal for you. I am not trying to disuade you… just not my cup of tea, I guess. Although, it would be a property I would assign in a heart beat.

Turbo is right. Your spread is much less than 175. Your acquisition costs would roughly equal around 10K assuming you put nothing down. Your sales costs would total roughly 8% of 675K which would equal 54K. You have to assume that the rehab cost will be over 30K. Unless you are an expert on rehabbing, most investor typically underestimate the costs. For arguments sakes let’s say your costs would be 40K. Now you also have to assume holding costs. Again assume days on market will be roughly 120 days. Assuming you put nothing down, at @8% interest you are now going to shell 18K out of your pocket. Then you may have to also give the buyer some concessions. Here you may calculate roughly 1% of sales price which will be 6.75K. Then you also would need to pay for the interim taxes @ 1.25% tax rate would equal around 2800. If my math is right, then you would have to take 675-602=73K. (Numbers are rounded)

73K is nothing to sneeze at, but maybe you should re-think your strategy a bit. Turbo suggested an assignment. That is probably the way to go if you do not have the funds to see this project through.