reo offer on property already under value

[John Lucero]

I recently found a reo thats been listed since nov. of 09 and has been dropped in price twice. Once from 129 to 120 and another last month from 120 to 99. My city cad values it at 154 and the home is located in nice area where other homes average anywhere from 160 to 200. I've checked out the property and contacted the selling agent and nothing seems to be wrong with it besides the fact that its located on a pretty busy street which im assuming is why it hasn't been sold yet. My question is what would be a reasonable offer to make seeing is how its already been dropped twice. I was thinking of low balling around 85. This would be my first investment property and any suggestions/comments would be appericated thanks.

[Jon Holdman]

You need to figure out:

1) What's it worth if its fixed up?
2) How much work does it need?

What's your strategy here? If its fix and flip, that's enough. If its buy and hold, you also need to know the rent.

Being on a busy street will make a big dent in the value relative to houses in the same area that are not on that street. Ideally, you'd be able to find a recent sale on that street, and an identical house that sold the same day that's not on that street. That would give you an idea of the discount. It could be pretty significant.

The city's tax value is not very meaningful.

If you're fix and flipping, you need to subtract 30% off the value, then subtract the amount of repairs. That's your maximum price.

If this will be a rental, you need to buy at a price that will be cash flow positive at market rent. Read in the rental property forum about the 50% rule.