Newbie---My first REO deal : What would you do with it?

Question

So finally i started 2013 by deciding to invest in the real state market. This are the details of the property.

3/2, 1000 sq ft living area , 7500 sq. ft lot...REO owned by the bank, it was being sold at 64K with a note on MLS saying "This property is being occupied w/former owner. Do not disturb them at any time. The listing agent may or may not have information concerning the former owners"

After reading on BP another forum with someone with the same situation, I decided to knock in the door with a gift card (BP advice ) . Tenant was nice gave me a lot of info, they pay rent to a management company and house is in OK condition ( she let me inspect only the outside) . So i called my realtor she was surprise i was able to get in, no other people was ble to see the property. Listing agent says bank will lower price to 59K since they had been no offers ( because of the above situation ) long stoy short bank accepted a 53K offer we sent, now we are waiting for the county certificate of occupancy ( all REO sales require COO in Miami Dade County).

Deal is all cash , will be be closing in the next couple of weeks.

Tenant has expressed interest in keep renting (rent is 1K monthly). She was renting previously from former owner and now from REO management company.

What would you do with this property? Flip? Hold and rent?

I was thinking in also in build a inlaws quarter and rent both, any insights?

Thanks!!!

J Scott · Answer

There's not enough information to help you determine exactly what you should do.

Are market rents (the average rent for similar houses in that location) around $1000?  Or is this tenant paying more than market rent?  If market rent is $1000, and you're purchasing for $53K with no rehab needed, that's a good return.

As for rehabbing and reselling, how much rehab would it need to sell at what price?  Would need those two numbers to have any idea if it might make a good rehab project.

Lastly, you mentioned that the MLS listing indicated that the house was occupied by a former owner; but you then said it was occupied by a tenant who is not the former owner.  There is a big difference here...so you might want to clarify.

Wayne Brooks · Answer

I don't know that the results of Miami Dade COO inspection is one of your contract contingencies?  My understanding is that theCOO is more geared to unpermitted additions and obvious safety and building code violations.

Sergio B. · Answer

OK so it has been a week since the bank took another higher offer than mine.

To sum up I got an accepted offer of 53 K, and since i am a newbie took me a couple of days to read and re-read the contact and the addendum's, when i finally signed , another higher offer was also accepted, leaving mine as backup

(1st lesson learned -->gotta be fast!!)

My offer  went from 53 k to 58 k (they were asking 64 k originally)  and just today I heard from the bank that the other offer fell out for some reason.

(2nd lesson learned--> I should have stick to my 53 k!!, BUT at least now the property is being sold vacant)

I signed everything right away and send the 1 k check for the deposit . Just waiting for the bank also sign and have a fully executed contract.

Good news is that the bank will evict the person living in the house (That's a relief) since the tenant is not cooperative  and they don't allow the county to do the certificate of occupancy (which is needed in my county for every foreclosure sale)

PS ( 3rd lesson learned: Deals are like taxis, when one passes, the next one will come...i read that somewhere in BP and in this week I found another potential short sale I am planning to pursue also)

Two questions:

-Assuming the Certificate of Use comes saying the property needs to fix X Y and Z before is a livable property, How can I leverage this lo lower down my offer again?

- When keeping a property as a rental, what are the best practices to rehab a place? I guess is different to rehab to resell and rehab to rent..... thoughts?

Raymond B. · Answer

Sergio B.,
You asked:  thanks for that 1% tip, never know about it....is that 1% return on rental rule supposed to be net or gross ( meaning after taxes and insurance and other expenses)

You're willing to pay $57,000. 
1% rent would be $570 per month.

I suggest that you click on this link to use as a Guide:
https://www.biggerpockets.com/forums/52/topics/16385-5-rule

Raymond

J Scott · Answer

You can do that, but realize that the listing agent has a legal responsibility to help the seller get the best deal.  So, the listing agent might do just  the opposite and drag things out in hopes of getting a better offer (which is likely what happened here).

In my opinion, you want an agent to be working for YOU, not the seller.

Sergio B. · Answer

Well i guess next time i have to get my agent get done things quickly...it is posible not to have an agent and just get the bank's real state agent present my offer? In that way he can get both comissions and he will be more interested in getting things done faster?  Just wondering ...

J Scott · Answer

Sergio -

The bank will typically continue to take offers until you have a fully executed contract, meaning all documents have been signed by both parties.  That said, once you get all the docs signed on your side and back to them, they will generally stop considering other offers.

Encourage your agent to work with the listing agent to get things done quickly.

Sergio B. · Answer

Thanks for your responses.

The deal is all cash ( my own) no hard money.

Ty Burns sounds interesting the option of see if the tenant wants to purchase, i 'll  research into rent to own option.

J  Scott and Brian Gibbons yes the market is around that price for rentals, i am pretty familiar with the area and also asked my realtor. No issues there

The property is occupied not by the former owner, but for someone who was renting from him. Once the property went REO , the management company started to rent to the same tenant. That is the situation better explained.

Sarah Bixby and John Thedford thanks for that 1% tip, never know about it....is that 1% return on rental rule supposed to be net or gross ( meaning after taxes and insurance and other expenses)

Now the plot thickens.....las afternoon i received a call from my realtor, that the bank is considering another higher offer , and if i would consider give a higher offer. After further deliveration with myself i went up to 58K ( 1k less that the original listing price) and will see what happens.

What i dont understand ( and if somenone can explain) is how the bank can be taken more offers when they told me already they accepted mine. How this mechanics work? When does the bank real real state agent takes the listing out of the MLS and place backup offers only? Because after they mentioned the offer was accepted it was still showing in the MLS.

For now...I'll  just wait learn and see what happends....i dont think i'll be going higher that 58K....i guess this is my " welcome to the real state world" first bump of the road.

Sarah B. · Answer

You have yourself a good little deal there. Not knowing what the comps are selling for I would say keep it as a rental.  I look for at least 1% of purchase price on rents.  If this deal were to come up here in Ca, is jump on it as a rental, especially with good tenant already on place.

Keep us posted!

John Thedford · Answer

I don't know "the formulas" yet but to a newbie that sounds like a great ROI. I now have 3 properties (2 leased) and I expect to get about 1% of the purchase price in gross rents. After taxes and insurance I will need to calculate my NOI. In your situation, if you are receiving almost 2% per month of the purchase price unless you took hard money to do the deal it sounds like you might have a very good return. I have also asked "buy and hold" or flip. I saw a man amass a huge fortune and he never sold a single property he purchased. Even after they were totally depreciated he held on to them and eventually gave them to his children. I believe there are few ways to defer taxes and having rentals is one step towards zeroeing them out.

Have a great day...and best of luck! We are just across the state. I am in Naples, Florida.

John Thedford

Newbie--->My first REO deal : What would you do with it?

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