First REO deal for duplex - questions ? Please help.

[Jerry George]

I am new to REO investing. My offer was accepted by the bank for a duplex of 2 units. It is valued at $210K by the city tax dept. My offer was 152K. It was listed for 170K. It needs 10K rehab work to make it perfect. I am closing the deal soon. Inspector found some mold in the attic plywood under the roof. It needs another $1500.00 to fix the mold. Two units can be rented for $725 each.

Questions to REO experts and Gurus
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1.How is this REO transaction ? Will it make some cash flow in this price ? I am planning to hold it and rent it.

2.Mold issue - Is it a big deal to fix? Should I be worried about it too much? Can I ask the bank to fix it ? it is a Fannie mae owned house.

3.Should i do a land Survey before closing?

any other suggestions ?

[Stefan Forsberg]

Originally posted by Jerry George:

I am new to REO investing. My offer was accepted by the bank for a duplex of 2 units. It is valued at $210K by the city tax dept. My offer was 152K. It was listed for 170K. It needs 10K rehab work to make it perfect. I am closing the deal soon. Inspector found some mold in the attic plywood under the roof. It needs another $1500.00 to fix the mold. Two units can be rented for $725 each.

Questions to REO experts and Gurus
-----------------------------------------------------
1.How is this REO transaction ? Will it make some cash flow in this price ? I am planning to hold it and rent it.

2.Mold issue - Is it a big deal to fix? Should I be worried about it too much? Can I ask the bank to fix it ? it is a Fannie mae owned house.

3.Should i do a land Survey before closing?

any other suggestions ?

Hi Jerry,

What the tax department values your property at is fairly irrelevant, you need comps from an agent with sold properties with similar characteristics to yours. The comps should not be older then 3 months preferably.

As far as Cash-flow, there is a wealth of information here on BP, the most common rule for cash-flow is the 50% rule. In short 50% of your gross rent goes to expenses (Vacancies, Taxes, Insurance, Office Supplies, Property Management, repairs etc.) the other 50% of the gross rent should cover your Principal and Interest plus your profit. If you can cash-flow 100$ per door per month you are doing good.

I have not calculated your numbers but a mortgage of 152K would probably not support this property using the 50% rule. You could always make a bigger down payment but that ties up your cash.

I am sure other more experienced investors will chime in..