Unique Situation, Please Advise

[JohnPaul Pacheco]

Hey everyone, this is my first Bigger Pockets post and I’m excited to be here! I found Bigger Pockets through The Book on Rental Property Investing some time back and have been an active content consumer of Bigger Pockets ever since.

I am reaching out for advice on a unique situation I have ended up in. I am attempting to buy a house that is held by the lender Freddie Mac. Zestimate is $230k. It has now been on the market by them for roughly six months now. It initially started at $190k and was pulled of the market at $140k. It was then put on an online auction in which I placed a high bid of $85k, it ended Wednesday, I did not reach the reserve price, but they did counter to me for $112k. I didn’t accept the counter and it is now back in the realtor’s hands. The auction attracted only one other potential buyer that offered $70k. This property currently does not have water as it sits. It is on five secluded acres of steep and rocky terrain. My question to you is at what price does this make investment sense to you? How low do you think Freddie Mac may be willing to go?

I am an active rancher, nearly a year ago, I was able to finance and purchase 400 deeded acres adjacent to government owned land that I lease. I had to travel through this property to get to the land lease which in turn left me feeling obligated to purchase it, the deal made sense and has worked out so far. This property first went up for sale back in March of 2015 for $500k and included a house along with the 400 acres, out of my price range. Almost exactly one year ago, I received a Zillow update for the area that the house and land were now being sold separately. I moved in quick and grabbed the land for my ranch for $130k. The house had been occupied by an older single lady which I learned had passed away. Apparently, she had the house financed separate from the land, I purchased the land from whoever she willed it to and they let the house go to foreclosure. Per the tax record, Freddie Mac is the lender that currently owns and is trying to sell the property.

This house sits in the middle of the land that I purchased, it is down my private road, more than half a mile from a county maintained road, roughly 1.5 miles to a paved highway. I previously toured the house with a realtor, it has been uninhabited for probably 2-3 years now, has a nasty pet related odor inside. Maintenance on the outside is beginning to deteriorate, but overall the property is in sound condition. The property is located about 30 minutes out the door and through the gate to a popular tourist mountain town. 2200 square feet, built in the late 90’s.

I’m not sure why it happened, but when I purchased the land, I purchased the ownership and rights to the well that supplies the house. One of the previous owners had drilled a well at the house, but it turned up dry. The next owner must spend a minimum of $20k to drill and install a new well and that’s if they can find water on the first try. It is very possible they won’t be able to find water at all.

I would love to get ahold of this property, but only if I can cash flow it. I feel that the secluded location of the property will significantly decrease the amount I will be able to get in rent for it. Im not positive about rent prices, but I estimate it would only rent for between $800-1000 per month, Zillow estimates $1,400. Being somewhat close to a tourist destination I have also considered doing an Airbnb option and after considering it I think it could rent for $150-200 per night if people would be interested in it.

This seems like a tough situation to me and I don’t want to end up upside down. What do you think about this? I intend to finance the property and have a bank approval letter which I can do for 15% down. Any thoughts are appreciated, Thank You!