OK, my first posted question!

Rehabbing, Fix and Flip, Rental Properties
1

I thought that I would post this, to do a sanity check…

Details:
Bank owned house (not even cleaned up yet after the foreclosure)
Listed for 128,900. In neighboorhood (older tract homes, all on slabs, built in the 50s, all basically the same design) where homes are listed for between 145k and 165k. The average list/sale price of homes is 157k.
Now, there are about 9 listings in the sub. There is only one sold. the other 8 all popped on the market about 90 days ago. So, in short, there aren’t many “sold” comps, just listing averages.

The house is in tough shape, cosmetically. Structurally good.
Cost to remodel to an attractive, saleable condition would be 25k (+/- 5k).

Mathematically:

150k sale price post-rehab (trying to be conservative).
25k (or so) in expenses
8.5k in interest payments (12 months of carrying costs)
2k in taxes
1.2k in insurance
4k in closing costs to acquire
4k in closing costs to sell

****not figuring a 6% selling commission quite yet.

I would really need 25k in profit upside to make it worth it to me.

To me, this means that either my offer needs to be about 80k, for the math to work, OR the rehab needs to cost less than 25k (I can shave money off this, or course, but my fear is that the house will be less attractive and saleable, in a neighborhood with many listings to compete with), OR I would have to be able to get more than 150k post-rehab (risky).

That is where my head is at, now here is the question:

Are there any experienced REO rehabbers out there who can offer an opinion as to whether the bank will consider my offer seriously?
I have done 3 other remodels (I am a GC), and one was bank-owned, but was an absolute wreck and sat on the market for a year with no offers. This one has only been on for 2 weeks.

Please don’t say “make your offer and see”, or words to that affect. I already know that much from my broker and my experience. I am looking for someone that can give me insite on how the bank will see it, and what my chances would be…

ALSO:
Since I have these estimates that justify my offer, as a legitmate business person, should I share these numbers with the offer that I submit? I don’t know if that would help (especially sharing my projected profit!). I mean, these people do this for a living, so would it really help to try and justify my offer or not?

2

The bank may consider your offer if you submit the package with all of the rehab costs to a saleable level. Most likely, given it’s low number of days on market, they will not accept your intial offer. Over time they may accept it if you continue to submit it however it will probably have to sit for a while.

Another problem you’ll run into are investors who underestimate repairs / overestimate ARV or are willing to work for less profit than you and just offer a number that you can’t make work.

In my area we had a property that we looked at that had an ARV of approx 149-152k. The bank had it listed for 117k but the foundation work alone was 20k (looked as though Satan himself had come up through the floor after the carpet was ripped up). The foundation was so bad that instead of the doors rubbing from settling, they wouldn’t even remain open if you walked away. Anyway, some investor bought the house in May for 115k and it’s still not done being rehabbed. Unless the investor’s numbers were way off of ours, there is just no way he is going to make any money on the deal. Bottom line, someone always seems willing to work for free so the banks appear to be expecting this in my area, and won’t come off their asking price unless it sits for 200+ days.

3

I agree with DFWHoldings. The numbers will keep you out of trouble. There is no way you can get 2+2 to equal anything but 4. Every now and then someone will overpay for a house you are trying to sell, but you can’t build a business on it happening. Some deals just stick. Don’t fall in love with the house, fall in love with the process.

I have told the seller my fix up costs before to make sure he understands why I can’t offer any more for the house. (He didn’t sell it to me for that price) The house never did sell. He decided to fix it up and stay in it.

4

I knew that I would get good feedback, and I appreciate it.

I can’t imagine someone paying list for this, even to live in, because of the cash outlay to make it liveable. If a homeowner had the money, they probably wouldn’t live there.

It is a good point about someone working for less money and offering more for the home. Tha certainly could happen.

There are 2 more in the area that are great candidates. I basically have money that needs a project; but only the right project. This one happens to be the one that needs the least extensive repairs.

Great input, it does validate my thought process…

Take care,
Tom

5

Your thought process seems sound.

Blue’s quote about don’t fall in love with the house, fall in love with the process is right on the money.

6

Where in Michigna are you? I am in the process of selling my first rehab and its always good to network with fellow Michiganders. Don’t worry, not looking to steal your deal, thats way out of my price range, lol. Good luck and just remember. The numbers don’t lie!

7

I am in SE michigan. I live near Ann Arbor. And you?

8

I am in the Flint Area.

9

It is certainly a buyers market up there! I a have seen listings for homes as cheap as 5 grand up there, for rehabs that would cost me 120 down here.

Are you renting them out, or can you actually find buyers up there? I have seen fully remodeled homes listed up there for under 35k, which is almost the cost of labor and materials alone. A little scary, but I have been curious…
Tom

10

Well, if they are buying, it isn’t mine…yet. I did my research and got a home in a nice nieghborhood in Flint. It was a bank owned and the comps in the area were for 63-68k. I have total about 53 into it at this time and its sitting there with a 67k tag on it. I have done an ad and some other minor advertising for an open house this weekend. Wish me luck.

Your right about those cheap houses, and lately I have thought about saying screw it and just get a bunch of those and rent them out and hire a management company to do the work for me. I guess I am just getting discouraged at my place not selling.

11

I’m assuming that by advertising the house, you are selling it yourself and not using a realtor. Is that the case?

I grew up in a town north of Flint, so I have a feeling for what you are saying. So, if you have $53 in it and could get your $67, you’d be looking at $14 in profits, minus any fees at closing, etc.

Mortgage payment of that house would be, what, $600? Am I close?

Idea: tell your prospective buyers that you’ll pay the first three months of their rent for them. If I’m close on the note, instead of netting around $13-14, you’d net out around $11,200 - $12,200. Your buyer would not have a payment for four months and you still have a nice payday.

I think it’s a win/win.

If you could sacrifice another small piece of the pie, go to Cosco and buy a $1500 Plasma TV. Include that as well in your ad in the Journal.

Good luck!

12

I meant their first three mortgage payments…

13

Thanks for the suggestions! I am considering the payment offering, especially at the open house this Sunday. What town north of Flint did you grow up in?

14

Cee-EL 10, baby.

15

Good Ole Clio, if you haven’t been there lately, they are really up and coming. I live in Flushing! I actually have my eye on a 4 unit in Clio if I can ever sell this place.

16

Hey everyone,

I grew up in Flint and now live in DC area…went to school in Ann Arbor. I wonder if the bank has a lot of inventory in that area, might be good info to see how flexible they are.

A lot of good insight on those posts. Although I do not do many Bank REOs, my very first investment property was a Bank REO.

Back end sold for about $125K, I had to put in about 19K in construction.

I offered the bank $80K for the property. They said no way…but then came back and said "we will take $88.5K for the property and give you 6K back at closing. It seemed weird, but I did get the property for a net of $82.5K…because it seemed the bank was more concerned about what the property “sold for” and not what they netted.

Learned a lot on that first deal, only made about 11K, but it beat workin’.
Best of luck to all.

Chip

17

Hey man,

Let me give you a name of a guy I recently spoke to who specializes in REOs in western Wayne and Washtenaw. He’s actually in Ypsi and has a ton of stuff there around EMU.

Jack Brown – represents 6 bank’s REO props – 734-482-3484.

Good luck.