Buying a bank repo home with lowball offer

[Michael Mcguniess]

I am looking into purchasing a tri-plex rental property and could use some advice when it comes to making an offer.

For starters, this home is a bank repo and has been on the market for well over a year. The home is in distress and is not in marketable condition by any stretch of the imagination.

While looking over the house I noticed a water issue in the basement (Apartment number 3). There is evidence of moisture and mold growth. The growth of mold has been encouraged by the fact that it has been closed up and not rented for 1 to 2 years.

In short, this home will need some type of water remedy, cosmetic repairs, new carpet and possibly drywall in basement, and who knows what else.

The real estate agent representing the bank has been encouraging the bank to drop the price due to it’s condition and mold problems but the bank is dragging their feet and not responding. From what the realtor told me, the bank is looking to get this one off their books.

The home is currently listed at price that is comparable to similar triplexes in the area that are in move-in ready condition. For illustration purposes, let’s say that it is listed at $155,000.

I was able to get the bank to agree to an inspection (at my expense of course) prior to making an offer.

I am guessing that the inspection will come back indicating costly repairs somewhere to the tune of $20,000.

The house is listed at $155,000 and I plan to give the bank a lowball offer after inspection somewhere between $85,000 and $100,000, depending on how much work it needs. To sweeten the deal, I will place no contingencies in the contract and agree to close ASAP. I will present my offer and also justify it by telling them what is wrong with the home.

Now that you know the background, here is my question:

What are the odds of the bank accepting an offer that is nearly 50% below the listing price? Keep in mind that it is listed high and needs some serious work. Also, the bank has owned this house for a while and wants to clear it off the books.

Also, is it a good idea to spend the money on an inspection prior to having the offer accepted? I am doing this so that I can feel comfortable making an “As is” offer with no contingencies.

[Jeff B.]

Using your numbers and what is kind of the general rule of thumb on BP for purchasing investment properties....

ARV 155000
ARV * 70% = 108500
expected rehab cost - 20000
Max Offer price = 88500

That's all assuming you have estimated properly.

I'm not sure I would have paid for an inspection prior to getting the property under contract. If you are unable to come to an agreement on price, you just wasted your money.