First Purchase - Forclosure REO??? New Jersey

[Andrew B.]

Hello everybody. I am currently researching two properties that I am considering making my first purchase into the world of Real Estate. I am considering renting as a buy and hold, or just flipping it. Anyway, I met an agent today at the first property I am interested in and was informed this is a bank owned foreclosure property.

Can anybody give me any advice about what I may need to know if I try to move forward? I am from New Jersey to those that care, and have purchased my own home, but I have no idea how to purchase a foreclosure. Any and all advice is appreciated.

Thank you!

[Jennifer Petrillo]

Watch out for realtors! The more you pay, the more they make!!

Offering highest and best does not mean you have to offer over asking price, you should offer what you want to, and you should base this on, among other things, your ARV (after repair value), your exit strategy (flip, buy & hold, etc), how much you can afford (most important!) and your local market (comps).

I have bought 3 REOs in Hunterdon County, all for at or less than asking price. Depends partly on how long the property has been sitting around and how much the bank wants to get rid of it. I like REOs b/c they give me instant equity but @Christopher Phillips is correct, the banks have gotten greedy and don't want to leave much of a spread for investors anymore. They see how much flipping is going on and figure they'll try to get as near to ARV as possible and not leave a margin for anyone else to make some money off the property. Of course, you are the one taking all the risk and buying an 'as is' property that could have mold, bad septic, needs new well dug, needs roof, etc. And a realtor is NOT the person to tell you how much work the house needs, a contractor or inspector is. You first need to see whether you can get access to the property and walk through with a good contractor or inspector, have them itemize all the work the place needs, follow them around, ask questions and take good notes. Realtors don't know building code. It is worth the $500 or so to figure out if the property is worth buying and rehabbing (and what price you should be offering for it). It is worth even more if you find out the property is NOT worth purchasing. Some of the best money I ever spent was to find out a property I was considering had no septic system and basement walls that were collapsing inward from water pressure in the ground outside. Phew--you can bet I was happy to walk away from that one! Inspection fee well spent! And don't trust what the realtor says the property will be worth all fixed up, remember, their job is to get you to buy the property, not to make a good financial decision. They pocket their piece, walk away, and you're left with a turkey that you can't get rid of or can't afford to fix up. OK, enough about realtors, just don't trust one to tell you what you should offer on the house. Use the 70% rule: ARV X 70% - repair costs = "what you should offer" (or offer lower if you can get away with it). Try to get local comps so you know what you can resell or rent the place out for.

Other than that, the foreclosure process is like any other home purchase (at least it has been in my experience) but it takes 3 to 4 months to close (not the traditional 60 days). I bought one REO with a 203K rehab loan (rehab costs are part of the loan and you request a "draw" as the work is completed--this was a live in flip). Another was bought with a traditional 30 year mortgage and I am living in it now and plan to stay here. Third, currently rehabbing to flip, was bought with private money. You need some cash in the game in any case--down payment and some to put in escrow for rehab costs, depending on your loan terms. We had to de-winterize all three properties ourselves, the banks would not do it. On the second one, the electric cable had ripped off the front of the house in a storm and was lying across the front yard, we got the bank to reattach it for inspection. All three were bought with condition of septic unknown, which could have turned into an expensive nightmare. The third one had burst pipes and mold in the basement. So, an REO can be a real gamble. Or, an REO can be a fantastic way to get a good property at a discount price and earn instant equity!

PM me some details and we can talk more about your deal...