I am new to investing in real estate, just 27 years old but have decided to start now while I am young. I want to Landlord and flip and see which one better suits me or possibly do both. I have come upon a REO in a very sought after location here in NY about 1 hour from NYC. I have a close friend who has been looking for a house in this particualr area for one year with no luck. He was telling me to fix it up and I could sell it to him for a profit but I know the location is so good that I could find a buyer even if he backed out on me.
I need to know before I even go look at this house if it seems a priced right for a REO and any advice you guys have for me to ask the agent when I go see it.
About the property
It was built in 1900, 3 BR/1BA 2700 Sq. Feet. and the lot size is 1.12 acres.
An ARV on zillow.com has it at $249,500
The bank is asking $168,500
There is some freeze damage
I took a drive by it and and it needs some TLC in general, exterior painting, and I’m sure the interior needs some work too.
the bank is willing to pay 3% of buyers closing costs.
I do have a good friend who who does handyman work for a living and he has a lot of contractor contacts, as well as myself to do most of the work on the house.
Is it worth taking a look at or should I pass up the opportunity and keep looking b/c I know freeze damage can get deep into your pockets. Any advice ??
You can either invest with your limited/lack of experience and learn the hard way,
OR you can use the money that you have for that REO property, and invest in your REI EDUCATION. I don’t mean to plug anyone but, when it comes to buying REO’s, you should read Andy Heller’s book, BUY EVEN LOWER.
I’m going through his course right now. Feel free to contact me if you have any questions about it.
Don’t depend on zillow for your comps. Have a realtor run true comps (sold only but make sure to eliminate anything sold by banks). Then get a handle on all your costs: accurate rehab cost, purchase cost (if you’re borrowing the money), holding costs (monthly payments ie. mortgage, utilities, taxes), sales costs & misc. costs.
Plan for multiple exit strategies. If your friend does not buy it or anybody else for that matter what is your contingency plan? Are you willing to rent it? Are you willing to do partial owner financing?
Even if you do not buy this property, at least you will learn what it takes so that you will be more prepared for the next one that comes.
Now basic rehab formula that many investors use is ARV x 65% - Repairs = Maximum allowable offer
$249,500 x 65% - $20k (rehab estimate for example) = $142,175.00 This is the amount I need or lower to buy this property to make sure I make money.
Of course, I will still run my exact costs to be on the safe side.
Also… you might want to low ball it at 130-135 because the bank must likely will counter offer and if they don’t well you got an even better deal! Good luck
Have your freind get estimate for repair, got 2 more contractors in and get estimates, use the formula from above post.
Zillow ARV come close just some areas, some areas is moon and earth. If you don’t have a realtor check for you, you can use Zillow to find sold houses within 1 mile, 6 months, similar bed,bath,year built, better if same style too, but you have to drive by which is time consuming so I think you can skip that, get rough number, see if it work. Drive by can be done after make sure the numbers work.