Getting a deal on an Overpriced REO Property

[Eric Frissell]

Hi guys, long time listener, first time caller... I have found an REO home in Florida that needs some work that I would like to fix up and move into. It's a dream house, in a dream location, but has a few issues that would need to be taken care of before I can move into it. The bank has held the property for 7 months and is asking way too much for the house given the work that needs to be done to it.

The situation: First and foremost the original wood siding is rotting all along the base, under some windows, a bit under a gable, and a few random spots so it NEEDS to be replaced and I'd prefer to replace all the windows at the same since they're single pane and will need to be replaced eventually.  In the interior there is some mold on an interior wall from a leaking toilet valve and the A/C will need to be replaced. Outside of the siding and windows the house is what an investor would look for to have an easy flip; carpeted floors, laminate kitchen counters, old paint etc... .

The financials: The house was sold last in 2004 for 500k, was foreclosed on in October of 2018 and went to auction for 650k where it didn't sell.  The bank has then listed it for 650k but has come down to 400k.  Comps in the area have it priced between 400 and 600 with all the repairs finished.  I don't want to pay any more than 280k to buy the house and complete the siding and windows so if the bank isn't willing to negotiate I'll walk away and find something else.  The house is 3,200 sq ft so I estimate vinyl siding and windows to be approximately 40~50k (25~35k for vinyl siding, 10~15k for windows).  Full disclosure I grew up in Michigan where vinyl is the siding of choice so if vinyl is a no-go in Florida then I'll have to refigure the cost for siding. 

What kind of financial tools do I have? I will be taking out a mortgage loan for the property and would prefer the mortgage covers the house and repairs. I believe my realtor has suggested making an offer of 270 but having 50 of the 270 placed in escrow for repairs to the siding/windows/air conditioning so that it's livable however I've never dealt with an REO nor placing money into escrow for repairs. If this was you how would you do this?