Foreclosure: insight appreciated

[Kisaki Nicole Kaopua]

Hi everyone! Me and my husband found a foreclosure in our area for $269K. They accept financing so all cash is not necessary and we are asking them to paying for closing costs. The only recent comp is around $280K. The place we are looking at is in desperate need of new floors, carpet, paint, etc. all throughout the home. No apparent structural damage, but will be able to confirm after the inspection. However, this area is up and coming with lots of construction happening (commercial and residential). We currently own a home here and are up over $100K in equity over the course of 4 years and will cash flow around $600 for perspective. Is this foreclosure a deal? If so, what financing option would be best? We would plan to “live and flip” (live in it for 2 years to avoid capital gains) while we rent our current home. 

[Jaren Woeppel]

Hey @Kisaki Nicole Kaopua - Great question. 

Based on the initial information provided, I agree with @Kristine Ann that there does not seem to be enough spread between the asking price and sales comp, considering the work that needs to be do. 

A thing to note would be, it may be difficult or impossible to get a qualifying mortgage if there are significant repairs that need to be made such as completely new flooring. If that is the case, you will most likely have to use more of an “investor” loan product, which will have a higher rate associated with it. 

There may be a price point at which this deal would make sense, my wife and I have done similar scenarios to live-in flips and I think it's a powerful tactic done right. The biggest thing that sticks out to me is, if the property is in good enough shape to qualify for a conventional mortgage, there is a larger pool of potential buyer, so there may not need to be enough spread between purchase and ARV. If it's not able to have a conventional mortgage right now, you may be able to use that as a negotiating point because the pool of buyers are going to be smaller. Please let me know if I've misunderstood any of the situation and we can keep thinking this over!