Hello everyone. I am very new to investing. I had someone contact me thats in preforeclosure that wants to sell his home for the payoff amount. He owes 107,641. He has only owned the house for 1 year, but did make a $19,000 down payment on it. He is willing to do most repairs except repair the roof and get the central heat and air unit installed(he already has the unit). He bought the house for 120,000 as is. But have made improvements on it. He stopped because the tenants never paid rent. He is in the process of trying to evict the tenants, but the house will be foreclosed on July 6, and thier court date is July 18. Homes in this area go for 150,000 to 160,000. Is this a deal.
To have the heater installed will be rather minimal, probably only a few hundred dollars if the ductwork is in place. The roof replacement costs vary. If it only has 1 layer you can just shingle right over the top of it, costing you only about $42 a square (100 sq ftl) in materials, plus about $50-$60 a square to install it (if the roof is walkable without roof jacking). If it already has 2+ layers on it, you must do a tear-off and reshingle. Older homes may have not only multiple asphalt layers, but wood cedar shake beneath it. Cedar shake is a real pain in the ass to remove and often times you then must re-deck the entire roof as there’ll be 1" or so gaps between the roof boards. Newer homes will have been sheeted originally and shouldn’t need to be redecked.
Basically, get a few estimates from a roofer. They’ll certainly check for the amount of layers and whether or not there’s cedar shake (usually you can see this from the inside of the attic as well as by just peeking beneath the asphalt itself).
So depending on roof size and whether it’s just a shingle-over or tearoff costs could vary from $3000 to $15000, probably somewhere in the middle.
As for the tenants, err, “squatters” I meant, you’ll be responsible for the eviction. Depending on state laws this could take months and if the Sheriffs are required to forcefully evict this will be another $500 for each unit. Factor for at least 2 months of no income, court costs, and likely rehab/junkout costs after you finally get them out. I personally aim for 20% profit (hopefully in equity) on preforeclosure acquisitions. After expenses, it looks as though you’ll be right at that point.
Is the current owner’s bank willing to let you assume his loan? This would be ideal for you and the bank, as banks are not in the property acquisition business.
Thank you so much for responding. I will check to see if I can assume the loan.
Or you could buy it utilizing a land trust. This allows you to buy the property Subject To the existing financing and gets you away from the “due on sale” clause that many lenders use.
Your better off looking for a short sale with the bank to increase your profit margins. Maybe try and get this home for around 70-80K. Let the bank know about the deadbeat tennants…they may not want to inherit the headache of getting them out. I know I would not want to…
Thank you all for your help.
Let us know what happens and good luck!
107,641. So he say. Have him show you his pay off. Depending on what state figure 107,641 + 13,000 prepayment penalty + any arrears.Then you add the repairs .Get a structual bid and a BPO . Take that to the migiation dept. Tell them the problems. Try to get 62 cents on the dollar. Cost banks 30,000 to 80,000 to foreclose. They will negoitate… look at what they are getting back. They are not in the real estate business.They will minimize there loss.Hope this help