Hello everyone,
I’m just getting started in the REI business. And I was thinking about purchasing the following property.
Tax Appraisal: $315K
REO Price: $260K
Estimated Repairs: 65K +
(Termite treatment - $1,438 Foundation - $5,000 Pool Repair - $12,200 Master Bath - $10,000 Guest room & Bath - $5,000
Appliances - $8,000 Ext. Siding - $8,000 Landscape - $ 4,000 Sun Room Ventilation - $2,500
General Cleaning - $2,000)
I found out that the bank would accept an offer of $220K for the house. The house is located in Texas. It has 3200 sq. ft., 4 beds/ 3.2 baths, a sun room, a solarium (a room in the middle of the house that has glass walls where plants reside), and a pool/spa.
Also, it is a 2 story house. And the house has been on the market for over 220 days.
I estimated that it would take 5 months to repair and sell the property. My offer was $140K which was not accepted. My reasoning for offering so low was as follows.
Purchase Costs —> Down Payment $ 0
Holding Costs $5,000 (cost of money for 5 months)
$ 500 (home insurance for 5 months)
$3,000 (taxes for 5 months)
$2,000 (utilities for 5 months)
Mortgage $140,000
Total [b]$150,500[/b]
Net After Sale —> Selling Price $260,000
Commission 15,600 (6%)
Closing Costs 26,000 (1% of selling price)
Total [b]$218,400[/b]
Profit = Net After sale - Purchase Costs - Repairs = 218,400 - 150,500 - 65,000 = $2,900
The way this market is $2,900 is a risk I’m not willing to take. I really don’t know how long this property would sit on the market. Besides, there are approx. $23K of updates I would like to do.
I decided not to to buy this property as this time. BTW, I was going to FLIP it. Also, the comps showed a similar house SOLD in June for $299,900. And the rent comps are around $1800/month.
So, in your opinion, did I make the right choice? Any helpful suggestions would be appreciated?
Thanks in advance.