My 156K REO Lesson

[Diane J.]

I'm posting this for the newbies that might be timid about jumping into the biz. This is the "before" and don't have an "after" but it looked pretty nice after painting and landscaping.

http://www.biggerpockets.com/photos/show/118523

In 2003 this was listed for $176,900 and Countrywide accepted my cash offer of $156K. No counter offer. Uh oh, paid too much! I like to do my own inspection before writing the offer and close in 10 days. This lets the bank know I'm really accepting it as-is and I'm not kickin' tires.

1st mistake: It's a bi-level. I was hoping the large lot, cul-de-sac and the AWESOME view from the back deck would make up for this fact but nope, it's still a bi-level. I estimated ARV at 199K even including some bi-levels as comps.

2nd mistake: Personal problems. I was divorced, my teenage kids were getting into trouble and my idea was to move them into a different school away from old friends and live in the house during fix-up. I needed to stay focused on the house and keep a lid on the kids at the same time. Something had to give and it was the house.

The good news: No major repairs. I estimated 15K in flooring, paint (exterior and interior) new kitchen, bathroom tile and landscaping. For a 70s house it had a big-*** master suite over the garage that also opened to the deck, away from the kid's bedrooms. Still a bi-level. Damn.

Spent 17K for the rehab but could have saved on the landscaping. I found a guy on ServiceMagic and wasted $4500 for him to put in a 4 zone drip system (adding on to existing sprinkler system) plant some bushes, a small Mugo pine on the new berm and some rocks for my xeriscaping plan. He showed up with a few plants, lots of rock and some cheap labor. I ended up buying more plants at Lowes to fill in and rearranged the rock so it didn't look like a gravel pit. Shoulda passed on the drip system and hired my own labor.

The Sale: Sold for 190K but made concessions and after realtor's commission netted 175K at closing so the whole thing was pretty much a wash.

So, the lesson here is you can make mistakes and still come out OK. Sure, I didn't make a profit but I didn't lose my shirt either and still learned something. Just stay away from bi-levels unless they sell well in your area!

Also, I should have looked at other options instead of selling. I could have held and rented, offered selling financing and got my full price, refinanced and bought more property or even flipped it to another investor and saved the $9500 commission. Lots of options with a house owned free and clear.

And where is that 156K today? Don't ask!!!

[J Scott]

Originally posted by sunshine_lady:

forgive the ignorance, but what is the problem with a bi level, and does it apply also to 2 stories?

There is nothing inherently wrong with a bi-level (or any other specific design/layout) unless it is uncommon for the neighborhood or overly-specific to a particular owner.

Most of my rehabs are split-levels and I never have any problem selling them...this is because split-levels are common in my area and especially the neighborhoods where I buy. Now, if the typical house in my area were a brick ranch, then it would be much harder to sell a split-level, both because the comps are hard to come by and because most people don't like to live in houses that stand out.

So, it's important to know your neighborhood and the types of houses in it before you pick your rehab project...