New Deal, weighing options.

[Keith Torsen]

Hey all.

A property came to my attention this week, and today I finally sat down to look at pictures and see if its something that I want. I live in Sacramento, but the house is 800 miles away in my hometown in Arizona. I have tenants lined up for it. I need some more solid numbers, but with what I've got right now, can y'all weigh in? I will give updates during the upcoming work week as I hammer down the digits.

Listed for auction at starting bid of $160,000. Listed on another listing as about $198,000. Both from Zillow.com.  My realtor informed me that there is a current $185,000 asking price from her source. Other than the floors needing to be redone, the house is in otherwise good working order. New roof, new water heater, landscaping seems good and up to date.

Average rent for 3 bd/2ba house in the area is $1,375. I will use this as my starting point for rent.

Mortgage payment through conventional banks, at 3.5% down as a new home buyer, means that my mortgage payment is $900/ month on the high end.

Taxes, from the county website, come out to about $106/ month. 

Tenant will be paying any landscaping/lawn care, and utilities. 

So my questions are first; since this is a listing going to auction in 3 weeks, what do I need to look for in that? Auction.com states that it's been foreclosed due to nonpayment on the last mortgage, issued 6 years ago. Any hangups or snags regarding auction properties?

Two, I don't quite understand how to calculate cap ex and vacancy, especially on this house.

A $185,000 asking price for a decent house that needs new floors. Once the floors and a new paint job have updated the property, according to Zillow, comparable houses in the area go for $250,000 - $400,000, thus we could be looking at almost $70,000 in leverage in one or two years, once I'm ready to refinance. I'll be going for the BRRR strategy, as that is my strategy of focus, and this will be my first deal.

Again, I know i need more numbers, but for the more experienced folks out there, what can we make of what I have, and what do I need to look out for on something like this?

[Wes Blackwell]

@Keith Torsen

Biggest thing to consider when buying an auction property in Sacramento is all the added terms put forth by the bank that's selling the property that usually put you at far more risk than you'd like, especially for an out-of-state investor.

1) Buyer Premiums: Has your agent indicated if there are any added buyer premiums that must be paid on top of the purchase price? Was looking at an auction duplex for a client the other day with a buyer premium of $25,000!!! Yours will likely be much less, but still need to factor it in to your acquisition costs.

2) Other crappy terms: Non-refundable deposit, only cash offers accepted, won't turn utilities for your inspection, no inspection or appraisal contingency, non-standard purchase contracts, and all sorts of other crap you won't like. Make sure you read the fine print. Buyer beware.