looking at my first potential ss

[Jim Stevenson]

i say potential because i've only got the homeowner's on board so far.

first of all, i'm in memphis, tn. market here is a little beaten up but not too bad in this price range.

house today priced to sell in 90 days or less is going to be in the 360-370k range, approx 10% less than what they paid for it. loan balance is 364k. arm reset in october '07 and there is also a health hardship involved. have no idea about rehab costs yet but the house is only 8 or 9 yrs old so prolly not too extensive.

i need to put together a packet for a local mortgage company and am curious to know what sort of offer to put in on the house assuming 10k of rehab costs and a conservative fmv of 360k after 10k of rehab.

using 70% tells me that my target price should be 252k. if i were to offer, the bank were to accept, i put 10k into it, and am able to sell it at 360k, i'd make about 80k after closing. can this be right. will a bank actually accept this offer.

has anyone ever bucked the percentages and basically tried to save the bank there foreclosure and closing costs? that's prolly about 70k. basically, what i'm saying is that right now it makes sense to me to buy houses like this for less profit than 80k. i'd be more than happy w/ 40-50k.

i hate banks so i'd love to gouge them as much as possible but i don't hate them enough to keep me from only making 40k. have i lost my mind or am i missing something?

[Jon Holdman]

If you buy for $252K, put $10K into it, and sell it for $360K, you will NOT make $80K. You might make $35-50K, which is still a nice profit.

You will have a bunch of costs - buying costs, holding costs, money costs, and selling costs. Altogether, these will probably leave you between 10 and 15% of the ARV as your profit. The high end if everything goes smoothly, more toward the low end when things inevitably don't.

Jon

[Jim Stevenson]

Originally posted by "Wheatie":

If you buy for $252K, put $10K into it, and sell it for $360K, you will NOT make $80K. You might make $35-50K, which is still a nice profit.

You will have a bunch of costs - buying costs, holding costs, money costs, and selling costs. Altogether, these will probably leave you between 10 and 15% of the ARV as your profit. The high end if everything goes smoothly, more toward the low end when things inevitably don't.

Jon

wheatie, that sucks!

like i said, i'm new.

i've never done a ss. how much is it going to cost me to buy from the bank? nobody involved but me and the homeowner.

[Jon Holdman]

You won't have to pay a RE commission when you buy from the bank, but then you never do as a buyer. You will still have to pay most of the normal closing costs. I usually figure about 2% of the purchase price, though that's on the high end. But, it will vary depending on where you are.

Then you have your money costs. If you have your own cash, these are minimal. Even then, you shouldn't consider them free, because you could put that money into a bank CD and earn 4-5%. If you have to borrow hard money, you're looking at 5-12% of the borrowed amount if you hold for six months.

Then you have all the usual costs associated with owning a house. Taxes, insurance, utilities, lawn care, maintenance (other than your rehab). Taxes vary a lot from place to place, but could be several thousand dollars.

Often some of these have to be paid up front.

Then, when you sell, its likely you will pay some real estate commission. Maybe just the buyers agent if you don't list it. But, figure that you will have to pay the full 6%. Plus, you'll pay some other closing costs, maybe 2% or so. These days, its pretty common to see the seller pay the buyer some concessions. I just looked through the comps on a pair of properties I have under contract, and the concessions average about 4%.

Don't fall into "flip this house" math. You need that 30% discount just to cover your costs and leave you, realistically, 10% profit.

Now, if you just want to buy it and quickly flip it to another investor, you'll have less costs. Especially if you have the investor lined up before you close, and you can use their money to fund your deal. Banks often won't let you assign a short sale (you can try, though), so you'll have to double close.

Retail buyers who are using conventional financing may run into seasoning issues if you've only owned the house a short time. Their lender will be reluctant to do the loan if you've only owned it a few months.

Jon