Looking for advice on how to present lowball offer on REO in bad shape

[Robert Taylor]

I'll apologize right away for the LOOOONNNNGGGG post here, sorry but I was trying to get all relevant info included! Hopefully its a quick read for you!

Its funny, I know some of the guys/gals posting here on BP have done all or nearly all of their flip deals starting with buying an REO and have done very well with them. For me, even though I've been buying/flipping homes for a while, I'm just now looking at buying my FIRST REO! I've bought most of my homes to flip through the local sheriff's sale, some directly from the owner (non-REO) and one REO that sat on the market too long so they had an auction. Actually, I have submitted a few offers in the past on REO's but never had one accepted and wasn't really trying that hard on those few, because I felt at that time I could certainly get better deals through the auction, where I felt quite comfortable as well from experience.

Anyway, I read through some of the other posts on here, including the "Top 20 Tips on Buying From Freddie Mac". This REO is owned by Freddie Mac. I'll try to sum up all of the relevant facts regarding the property and my potential offer:

-This place has been on the market for nearly 3 months in an area where things usually move pretty quickly.

-I'm looking at coming in quite a bit below the asking price ($149k), I'm nearly done with my comps and still have to work on my projected rehab budget a bit more, but as of now I'd say that I'd like to get it for under $125k for it to make sense and I'm considering coming in even lower, maybe $110k or so. I'm actually looking to move in when the rehab is done or nearly done and then list it for sale at a high price. If someone really wants it and I can make some great money, I'll certainly sell and move somewhere else, but I'd also love to live there too, its in exactly the spot I want to be and will be a really cool place when I'm done.

-Here's why I'm thinking I can get in for considerably lower than the asking-the place has had some major damage to it and is currently totally uninhabitable without a lot of work first. Apparently, at some point after the former owner left the place, some pipes must've frozen or otherwise burst and there was major water damage to the kitchen, which has been completely gutted down to the studs. The house (actually its a condo, a large older house split 10 years ago into 2 side by side condos) has hardwood floors throughout the first floor and they're warped and cupped as bad as I've seen, they can't be sanded (unless someone wants to sand them for about 6 months straight!) they need to be replaced in at least one room and since its continuous wood into the other room and hallway/entryway, all the wood on the first floor needs to go for appearance sake. Upstairs, I'm not yet sure if plumbing repairs are needed (if pipes did freeze, its likely) I'm coming back through with a plumber in the next few days to fully assess the plumbing damage.

-The house (condo) needs more than the "average TLC" that nearly all REO's seem to need, lots of wall patching and other odds and ends need to be taken care of in every room.

-As I mentioned, its actually a condo unit, someone took a 1920's 4,000 sq foot tudor and split it right down the middle into 2 condo units. In the area, this has been done a fair amount here and there but I know from experience that banks are sticklers about these kinds of "condo complexes" where its 2,3,4 units, they really want to see that there is a real, legal condo association set up just like you'd do for a 30 story highrise condo or a 100 unit condo complex. I talked to the neighbor to see if they had anything set up like that, with a president, VP, tres and secretary, rules, INSURANCE-etc, and he just had a blank look on his face! I'll take that as a NO! I know that last year when I rehabbed and sold a condo in a 4 unit complex, the bank we have our credit line through was all over us about getting them copies of the condo association bylaws, etc and most importantly-PROOF OF INSURANCE for the "common areas". Apparently, this 2 unit complex has no such association set up at all and the neighbor didn't seem the least bit concerned about it either!

-The roof will need replacement soon, some of the shingles are already curling up pretty good and while it could probably at the very most hold out for a year, it should really be replaced asap, certainly before another wonderful WI winter hits! I'd estimate it as a $10k job for a tear-off and reroof, its a big house but a real simple roof and I have some guys that do a great job for low rates on roofs. The neighbor said he'd be all for replacing the roof and that the former owner of my unit just didn't want to kick in a cent for any maintenance and certainly not half the cost of getting a new roof! The whole outside of the place looks dingy and unkempt-not falling apart, just dirty. It needs a real cleaning, it has ugly unkempt vines crawling up the sides, etc. Even the tiny patch of lawn it has could greatly benefit from an application of crabgrass/weed killer!

-The only real "plus" for this place is the location, its in an area that's always hot and sought after in our metro area, although its not in the best part of that hot area, if I ranked it 1 to 10, I'd give it an 8 for location.

-My offer would be a cash offer, NO contingencies at all, could close in 14 days or sooner if title work is done, have proof of funds, etc. Also, from the top 20 tips article, I'd follow the other rules like making my offer good for 14+ days and I'm buying it as an investor, even though it could very well end up being owner-occ, I want to keep the option open to sell it as I mentioned.

So, thanks for reading through all my typing, here's where I need some advice-how or what do you all suggest for me to do to try to get all of these shortcomings across to the seller (I'm assuming that offers are actually being accepted/rejected/countered by a 3rd party asset manager) to get the point across that NO ONE is likely to be buying this place anytime soon and they're best off taking a nice cut off the price and selling it to me?

I see in the top 20 tips list, he mentions including a cover letter, although some other commenters disagree with that-any opinions on that? I'd think that the cover letter would be a great place to state my case as to why this place is a basket case as it sits now and why they should be darn happy anyone would even make ANY offer!! Also, if I would go with a cover letter, how about a few pictures as well, integrated into the cover letter, showing things like the gutted kitchen and whatever other awful scenes I can find in there?

THANKS!!!