Folks,
I am looking into a REO.
The ARV is around 175K.
The house needs work.
Carpets, paint, wood rot around windows,
wood rot on siding, roof replacement,
very minor drywall patch jobs. My rehab
estimate is around 30K.
My holding costs for $7300
My supposed profit - 6k
REO is MLS listed for mid 180k.
Will they accept 131K as an offer?
This is wells fargo.
Thanks
Krish
Hi Krish,
Sounds like alot of work for only 6k! Is it really worth your time?I would think about not going over 80% of ARV minus repairs so you make a little profit on something that needs that much work.
Sounds like the Realtor/sales associate didn’t take into account the repairs if they are asking FMV in the MLS for this home.
Good Luck
Joe
Thanks Joe,
Here are the pics that i plan to submit with the offer.
http://www.house-buyer.us/test.html
Carpets - 5K
interior paint - 5K
wood rot around windows - 4K
wood rot on siding - 8K
( Either fix the rot and paint the entire exterior
masonite siding
or
Replace with new Siding)
roof replacement - 5K
very minor drywall patch jobs - $500
The total here is 27.5K
The rest might end up for any unknown issues
that might crop up.
So based on 80% ARV , the offer will need to be
worked back from 80% of 175K, which is 140K.
This will end up as 140K - 30K - 7.3K - 6K = 96.7K
Wow. Will the bank take that low an offer.?
The listing agent was telling that they turned down
an offer that was around 170K. But don’t know if
that was true or a sales pitch.
I would be glad to offer 100K for the place. That would
leave enough to cover any unknown that might showup
once the water and power is turned on.
The home is in a good location close to where i live.
But someone would be insane to purchase at close to
retail with these shortcomings.
-Krish
Hi Krish,
Its real hard to look at the pics and judge the amount of repairs needed. I was giving you an example of what I personally may do, as far as coming up with an offer. So based on 80% ARV , the offer would need to be worked back from 80% of 175K, which is 140K minus repairs = Maximum Allowable offer. This may or may not be my first offer depending on how bad I want the deal and how long its been on the market. The 20% includes my selling expenses closing costs, commission fees if I’m using a Realtor, holding costs ect.and of course my profit! I don’t normally want to pay more than 80% of the value Minus repair costs! Remember I start those figures at what I think the property would be worth after I completed the repairs.
Depending on your area you may need to tweak your numbers.
You might want to call the Realtor or others to make sure your comps are right for after repaired value. How long has it been on the Market. Just be carefull and make offers that won’t get you in trouble. Like you said its vancant and there could be hidden costs! This will end up as 140K - 30K = 110 if your arv was 175K
I hope this helps and I haven’t confused you, this is a class all on its own.
Good Luck
Joe
Hey Krisch: Joe is absolutely right (and I’m not trying to rain on your parade). $6,000 is way to slim of a profit margin based on the amount of work you have to do. I’m not being critical, just learning from my mistakes. Your rehab projections will increase, I gurantee it. And with that thin of a spread, I’d try to find something else. That $6,000 can get “gobbled” up very fast with extra holding time, added costs, etc… I’ve only done a few rehabs, but all the books and seminars I’ve attended say unless you’re netting out $10,000 plus, forget it.
But don’t let my input influence you. It’s a personal decision. Just be open minded to looking at other properties with a bigger spread, or toss the bank a low-ball offer and hope it sticks.
Good Luck!
Folks,
Thanks for the help.
I will be definitely padding the offer with a much higher
cushion.
Will keep ya posted on how it goes.
I will be putting the contract on Monday.
Gash, i only wish i had a contact within the REO dept
of wells fargo. What are the chances that the Bank
Realtor will forward all the papers of the offer to the
bank for consideration, esp the Explanation of Offer
and the purchaser intro letter. I guess it will be good
to also fax just these 2 docs to someone in the REO
department. The Realtor might fax the contract, but
without these additional 2 supporting docs, the offer
will look dumb.
-Krish
Ask the Realtor if they would send the other docs with your offer.
It’s worth a try…
Not sure if I missed it somewhere but have you tried locating the REO Dept or the contact that is handling the property?
Call up the local Wells Fargo ask to speak to the REO Dept. or the person in charge of REO’s explain what your trying to do. Maybe you’ll get lucky…
Why bother with searching for, and calling, the REO dept? If you’re concerned about the agent not presenting your offer, then find another agent!
If you’re going to be dealing with REO’s, the majority or listed on the MLS, so you’re going to have deal with RE agents, so find one that you’re comfortable working with.
As far as your offer(s) go, REO’s is a numbers game. Make sure that your offers are low enough to protect you (not the seller). Hey, my train of thought is that if you’re not ashamed of your offer, you’re offering too much. Don’t worry about “offending” the seller in a REO. Make your offer based off of your numbers (and most gurus/course writers suggest 70% of ARV minus costs, btw). If they do not want to sell it, then move on to the next property.
Don’t get hung up on one deal.
Raj
Raj,
Thanks for the inputs.
It is the listing agent that i was skeptic about.
Here is what i did. I added the “Explanation of offer”
and “buyer intro letter” as addendum in the contract.
That way, they are one package.
I have 27K in fixup costs and then a 20% buffer on
the ARV in addition to the carry costs.
In addition, we have requested an inspection contingency
and a 40K walkaway limit.
Hence i guess i am protected for now.
-Krish