Buy next door house as short sale using After Repair Value?

[Jerry Finzi]

This is the situation. My wife and I would like to purchase the house next door to ours--an 1865 brick two family--an exact twin to ours (ours was converted to a large one family years ago).

It was last purchased in 2006 for $272K. Current asking is $270. County prices have dropped 21% in the last year alone. I always thought the guy overpaid due to condition and low rents at the time... a $230K price would have been more realistic in 2006.

Owner is in arrears on mortgage. Property advertised "as-is" and "bank must approve" price (sounds like a pre-forclosure to me). One of the two units is rented at $770 per month, the other empty. The current tenant is unemployed and hasn't paid rent in about a year. The owner's health is failing and has recently re-married and moved out of the house entirely.

I'm 58, my younger wife is the main breadwinner bringing in over $120K typically as a consultant. I've been a work-at-home Dad for my 5-1/2 year old boy since he was born. He's starting full time school next year and I'd like to jump start my career again as well as get some real estate going.

This house would be perfect since it's a physical twin to mine. I know it inside and out--almost as well as my own. None of its problems overwhelm me.

The plan. Buy as a short sell... hopefully for around $200K. See if I can get them to deliver it empty (don't want to hassle with getting rid of a problem tenant right out of the gate... I know too much about him... many personal problems & drinking). One side is freshly painted. Fix up both to maximize potential rents... perhaps $900-1200 per month in this area. Each has a nice yard, country location, storage barn, each side has a basement, seperate furnaces, etc. Each unit has 4 BRs and one has an extra half bath.

Long term... to convert to single family--like mine. A country gem in a great location.

Questions:

I would not like to use our own home's equity or take funds out of IRAs. We don't have enough cash on hand for a 25% down + closing. The home would appraise for between $315-380 currently. Is there a way to finance using the home's After Repair Value or "instant equity" (if I get it as a short sell) to cover all costs (down payment, fees, etc.) Our home (its single family twin with a bit more acreage) is currently valued at $480K.

Also... finance as an individual or create a corp (we have an LLC now but for consulting/creative services). Should we set up a real estate/development corp before we make an offer or can we just make the offer as individuals and then turn it over to a corp to protect our other interests?