Margin too thin?

Hi guys, I have been a long time reader but have never posted here.
There is a house down here in arizona that just went up for foreclosure. Comps out at 110-115K conservatively. The loan originated back in 2001 for 84K, I am going to have to get a hard money loan. I have a few hundred bucks and some vacant building lots that i can use as collateral and i am just trying to figure out a way to make this work. my hard money lender is offering. a 70-75% LTV so i imagine the break down would be like this.

Bank is Asking 84K
Apprasial at 115K Hard money Loan at 75% 86,250.00
it would give me maybe 2,250 wiggle room for maybe paint or to pay the first few interest only payments.
Should I keep looking?
thanks for the help.

From your numbers, I would pass. The margin on this deal is not too thin, it doesn’t exist. Nor does it look like you know how much rehab the place will need or any of the other costs either. “…wiggle room for maybe paint or to pay the first few interest only payments”? It either needs paint or it doesn’t and I’m certain the interest payments aren’t going away. Frankly, you are in no position to buy properties with a few hundred dollars in your pocket. Those days are gone - sorry. I’d consider selling the lots to provide the cash you need to do deals like this.

I don’t know Arizona RE, but you must conservatively consider the days on market and assume the property will drop in value each month based on a historically derived percentage that you can calculate, until sold. Your $110k -$115k estimate might be correct right now, but months from now it will be too high. Few homeowners are currently paying list price: everyone wants a deal.

If the bank originally loaned $84k in 2001, then they enjoyed 8 or so years of interest payments and should take substantially less. (Which makes me wonder how a house like this went into foreclosure?) This is not how the bank determines current value, but it might make them more accepting of a low offer.

Ask your agent what comparable REO’s have been selling for and what the sales market for the home rehabbed is like. If your agent shows you comps for this property, as-is, at $84k or so, then walk. It means someone else is willing to overpay. If much less, then you have a chance, but you must consider the expenses you will encounter.

Subtract every possible expense over your anticipated holding duration (closing costs to buy, points, rehab, interest, insurance, utilities, deposits, closing costs to sell, fees, security, etc.) from the predicted future value, and then multiply by something in the 50% ballpark. That would be my firm cash offer to the bank assuming the house is in a desirable area and quickly salable in tip-top shape. If your agent calls you crazy, then find a more aggressive agent.

I have to agree with equity. You need to learn more before you go into this game. First of all you need to know what the house is worth now and what it will be worth in 6 months or however long it will take you to close on it, rehab it and market it.
If you can find a hard money lender to lend you all the money see if he will add the interest to the end of the loan or at least give you a couple of months while you rehab and market.
You need to know exactly what it will cost to rehab. Don’t guess. Take your handyman or contractor with you to look at it and have him start preparing an estimate while he’s there.
I agree you probably need to sell your lots to get the money as a back up to trying to do no money deals. The more money you have the easier it is to make deals with none of your own money.
Good luck,

Hey guys thanks alot for the responses, it really means alot.
Well I may be wrong in labeling this one really a rehab. it was built in 1995 and appears to be in really good condition, its a bank repossession that was auctioned off 2 days ago but as no-one bid it reverted to the bank for the original loan price. I have taken a look around the grounds and externally its really sound. it comps out like I said around 120K. the hard money terms were for 1 year and at 12% interest only. I would hope to be able to move it in around 3-5 months afterwhich i will bring down the price. if I cant get rid of it i would try and get a refi and rent. I hope this sheds a little more light on this one.
Thanks again for the help,