Buying a Foreclosure

Foreclosures
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Buying a Foreclosure

Ryan O'Leary
TX · Member since 2018 · 45 posts · 10 votes

Hello everyone. I'm currently in living in Hawaii but am originally from Massachusetts. I used my VA loan in Hawaii that I'm currently house hacking until I leave in 2021, where I'll try to rent it out once I leave.

While I’m over here, I would like to buy my second investment in Worcester, MA where I’m originally from. I would like to buy a 3-family foreclosure that is going for $100k that needs work.

1. Via Auction.com, does anyone know how these foreclosures work? Can I just bid for $75k and see if I win it? Or is there usually a minimum on the given property?

2. If I were to win this bid at $100k, I would be able to put the 20% down myself to qualify for a conventional loan (since I can't use the rest of my VA loan benefits since the property isn't in Hawaii and I wouldn't be occupying it for 12 months). However, I would want to put about $50-75k into the property to update floors, carpets, appliances, etc if needed... should I be getting a second loan for the rehab? I'm not too familiar with other financing options. My family was willing to give $30k that I would pay back over 3-4 years. I'm not sure how else to rehab it.

3. My dad is about to retire and would be my property manager, working with the contractor(s) to figure out what is needed for each unit, keep track of rent, tenant complaints/requests, etc. Any thoughts on family as property management?

4. Regarding property management... are there tax benefits to creating an LLC regarding my properties? Or an LLC regarding property management run by dad?

I know there’s a lot of scattered thoughts on here but I appreciate any feedback from the community. These podcasts and forums have been extremely helpful and I look forward to hearing from you all!

- Ryan

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Cynthia Bankston
Irvine, CA · Member since 2017 · 17 posts · 6 votes
7y

Hi Ryan. My name is Cynthia. I work for Auction.com. Very nice to meet you! The seller of the property will have a reserve price--the lowest amount the seller is willing to accept for the property--that will need to be met before the seller is obligated to sell the property. Please let me know if you have questions. Thank you. 

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  • Cynthia Bankston
    Irvine, CA · Member since 2017 · 17 posts · 6 votes
    7y

    Hi Ryan. My name is Cynthia. I work for Auction.com. Very nice to meet you! The seller of the property will have a reserve price--the lowest amount the seller is willing to accept for the property--that will need to be met before the seller is obligated to sell the property. Please let me know if you have questions. Thank you. 

    1Reply
  • Timothy Lewman
    Flipper/Rehabber · Worcester, MA · Member since 2016 · 179 posts · 113 votes
    7y

    @Ryan O'Leary I can only speak to your auction.com question. I've been bidding on these from time to time, they're tough as you bidding against investors and retail buyers who will live in them so prices usually get out of hand. You can set up an auto-bidder up to whatever your number is. You'll usually need hard money or private money, read the details of the particular auction to see what, if any, financing the seller will accept. Good luck.

    1Reply
  • Mike Bean
    Worcester, MA · Member since 2018 · 69 posts · 41 votes
    7y

    Hi Ryan, 

    As previously mentioned you'd probably need hard/ private money for an auction purchase. I'd suggest looking into a 203k loan as it seems it might align with your goals/ situation. You could put the 20k down on a property and finance your rehab costs right into the loan amount. I know there are limits to the loan amount based on the ARV but i'm Not sure the specifics.

    Connect with a lender and find out if you can have VA loan and FHA loan at the same time. If you can, put the 20k down on a C or D property and try to keep rehab costs under your family's 30k loan??

    Just spitballing ideas.. good luck! 

    0Reply
  • Mike Bean
    Worcester, MA · Member since 2018 · 69 posts · 41 votes
    7y

    Disregard. I thought you were moving back and planning to owner occupy. Oops! 

    0Reply
  • Ryan O'Leary
    OP
    TX · Member since 2018 · 45 posts · 10 votes
    7y

    @Mike Bean @Timothy Lewman thanks guys for reaching out. Mike I also thought about the 203k loan but forgot I needed to live in there too. I'll look more into the auction.com details to see what I need to do. 

    -ryan

    0Reply
  • Timothy Lewman
    Flipper/Rehabber · Worcester, MA · Member since 2016 · 179 posts · 113 votes
    7y

    @Ryan O'Leary oh I forgot - also check the buyers premium and add that to the purchase cost when running numbers. Its generally 5% of purchase but can vary.

    0Reply
  • Ryan O'Leary
    OP
    TX · Member since 2018 · 45 posts · 10 votes
    7y

    @Cynthia Bankston nice meeting you too! I looked on auction.com and there are very little properties that do financing through conventional loans. Is it a common theme with auction.com to be cash only? 

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    7y

    @Ryan O'Leary often the homes on auction.com are distressed and their condition will not qualify for many loans.  The seller, generally banks, will not do any repairs, nor let you do any.  They will not even let you into the house for an inspection.  Expect major damage, and be happily surprised if it is not destroyed.

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  • Ryan O'Leary
    OP
    TX · Member since 2018 · 45 posts · 10 votes
    7y

    @Lynnette E. thanks Lynette! Do the banks have any control of what you do to the property (rehab it) after you buy it? Not sure why I’d buy a property for cash and then not be able to do anything to it. I understand some don’t allow you to do inspections, and I can imagine the possibility of a disaster inside the house, especially if it’s selling for so cheap.

    Again, thanks for reaching out!

    - Ryan 

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  • Ryan O'Leary
    OP
    TX · Member since 2018 · 45 posts · 10 votes
    7y

    @Timothy Lewman thanks my man! How do you find flipping and rehabbing in the Worcester county area? Definitely would love to grow my portfolio around there, but I’m always traveling for work full time. 

    1Reply
  • Brian J Allen
    Real Estate Agent · Worcester, MA · Member since 2018 · 516 posts · 409 votes
    7y

    Ryan,

    Boots on the ground is very important.  If your father is around he can check out the property likely to limited extent.  it is rare to find a place in Worcester at this point under $200k that has not had a fire or something.  As said above, most of these places at this price point will not qualify for conventional loans and you will need to have cash or hard money.  It is a great idea so keep looking.

    1Reply
  • Cynthia Bankston
    Irvine, CA · Member since 2017 · 17 posts · 6 votes
    7y

    Hi Ryan. You are correct. This is typical with auction properties. The majority of our properties require a cash-only purchase. 

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    7y
    Originally posted by @Ryan O'Leary:

    @Lynnette E. thanks Lynette! Do the banks have any control of what you do to the property (rehab it) after you buy it? Not sure why I’d buy a property for cash and then not be able to do anything to it. I understand some don’t allow you to do inspections, and I can imagine the possibility of a disaster inside the house, especially if it’s selling for so cheap.

    Again, thanks for reaching out!

    - Ryan 

     Guess I was not clear in what I wrote.

    When you are is escrow to buy the property, the bank that owns the house will not let you do anything to it.  So, say your loan company says that the broken window must be replaced or they will not fund the loan.  The bank that owns the property will not fix the window.  They will not let you fix the window.  Even if you are willing to pay for it, the window will not be fixed when the bank owns it.  

    That is why these houses are generally cash only, because auction.com knows the houses will need things fixed before another bank will loan money on them.  And the bank that owns them will not let anything be fixed when they own it.

    Once you pay cash and the house is your house, they do not care what you do.  Burn it to the ground, and they do not care.  They have their money!

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  • Ryan O'Leary
    OP
    TX · Member since 2018 · 45 posts · 10 votes
    7y

    @Lynnette E. ahhh gotcha! Ok that makes more sense. Sorry for all the confusion!

    - Ryan

    1Reply
  • Timothy Lewman
    Flipper/Rehabber · Worcester, MA · Member since 2016 · 179 posts · 113 votes
    7y

    @Ryan O'Leary just started on my 1st house in Holden. 3 bed 2 bath 1520 sq ft. I was just there Sunday, it's almost done, another week or two and it will be listed. I partnered with my contractor, whose is doing a great job - on time, on budget. There's a lot of houses for sale in Holden now, thinking about dropping from original arv of $336 to $329.

    0Reply
  • Ryan O'Leary
    OP
    TX · Member since 2018 · 45 posts · 10 votes
    7y

    @Timothy Lewman nice man! Holden have some up-and-coming neighborhoods over there? Did you buy it via foreclosure?

    0Reply
  • Timothy Lewman
    Flipper/Rehabber · Worcester, MA · Member since 2016 · 179 posts · 113 votes
    7y

    @Ryan O'Leary yes it was a reo on the mls.

    0Reply
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