Sound like a good deal?

I am currently looking into doing my first rehab. It is an REO that I can probably get for 60k-65k, needs about 20k-25k worth of repairs and holding costs, ARV is approx. 125k, so says the realtor…
I know that the numbers seem to add up, but can I get a conventional mortgage for this property, considering the house is probably not even able to be lived in the way it is now. I have the cash and credit to do it but will the bank finance this type of house?
Also, do you think I am estimating the repair cost properly? I plan on doing about half of the work myself and contracting out the other half…I can do the siding, ceramic tile, and cosmetics, but will need professionals to do some drywall work (probably five walls), new toilet/tub/surround, and new carpeting (about 700 sq. ft).
Opinions would be appreciated!

It is very unlikely that you will be able get a convention mortgage on this property. Most banks sell on the secondary market and this one can not be sold until it is fixed and liveable. The fact that it is not liveable is going to enable you to get it at a better price. Use the fact that you can not get conventional financing as a way to work the price down. You will here this phrase many times if you continue in real estate and i don’t know who gets credit for coining it “You make money when you buy a house not when you sell it”.

Your best bet is to go to a small local bank or credit union to discuss this project. Even many bankers in smaller banks will not do this loan because they may consider it speculation??? I have heard that on more than one occassion. Don’t quite because you should be able to find one. Hard money is also an expensive option.

You will be better off running a Tri-merge credit report before you start going to bankers. You don’t want five different banks to run your report it could drive down your scores.

It is impossiable for us to estimate your repair costs without a walk through. If this is your first project chances are that your estimates are low.

Good Luck!


You would be an exceptional rehabber if you accurately estimated the costs of repair on your first rehab. I sure didn’t. :o But that’s part of the process- the only way to learn, imho, is to jump in with both feet. The worst that will happen is that you might lose a little money; if so, consider it tuition paid.

If the lot value is in the 60 to 65K range, a bank will loan you the money, regardless of the house’s condition.

It sounds like a decent deal, but, I’d hire an independent appraisser to double-check your estimated A.R.V. It’ll cost you a couple hundred dollars but it could save you a bundle if your realtor is being overly optimistic.

I’ve bought houses (REO and otherwise) that was completely trashed and had no problem getting conventional loans. If you have water and power running at the residence and no holes in the roof, then your probably good to go with a conventional lender. “liveable” is a relative term; bank could care less about holes that have been kicked in drywall. It just need to appraise correctly.

Roc, truthfully, I have no idea if this is a good deal or not.

You say that you can get it for $60-65K, repair costs $20-25K, and that your Realtor says that it’s worth $125K. From the basic numbers, you’re doing good, however, basic numbers don’t make a deal.

Can you get it for $60K? I can’t tell you if you’re estimating repair cost properly because I didn’t see any repair cost estimates. If you are planning on doing some work yourself, are you figuring your per hour labor into your equation? If not, then you’re working for free as a laborer and cheap as an investor.

Do YOU know that it’s worth $125K? How did the Realtor determine this figure? Have you seen the comps? What is the market area like where the property is located? Is this a first time homebuyer house or upper middle-class purchase? What is your estimated holding costs and holding time?


Your realator may be inflating the ARV. If you are familiar with the area housing prices then use your best common sense to gauge the ARV and do get some comps from the realator. The lending institution will want an appraisal anyway so you’re gonna know if you were in the ball park or not. Get a dual appraisal w/ the before and after repair value. Find a local bank that does this kind of busineess and see if the bank will lend you the additional money for repairs. Be prepared to put down more than is typical for owner occupied props to get your note.
Good luck. I say go with your gut instinct. It is often is your best bet. If it feels right, go for it. Sounds kinda corny but it works!