Is this a deal to grab?

Question

I am evaluating a deal for an REO house 2400sf (4br, 2.5ba) in Seaworld area of San Antonio. Corner side, bricks in four sides floor to roof, large front and back yard and well established neighborhood. The bank initial listing was $99k in Aug then reduced to $79K after discovering a foundation issue that cause the structure to slope at one side. I consult a structural engineer and her recommendation is to repair with 12 piers with roughly $6k to fix. I am estimating another $10k to do few touch-ups and minor repair to make it appealed. No major rehab inside the house except the foundation.

My question is that my RE agent who has done the comp in the area suggests that the sold houses (only nine over 12 months) were averaged $95k. The county appraisal is $135k. The history of the home indicated that the previous owner tried to sell for $144k in 2009, but never sold. Guessing this was before the foundation was an issue. Current houses with comparable sizes as of today in active sale are averaged $145k+.

My goal is to flip for an end buyer.  I feel that the house would definitely worth $135k+ based on the active sale offering in the neighborhood if the house is in cherry condition. That motivated me to spend $300 upfront for a structural engineer consulting. Do you feel this is a deal that worth to grab?

Thanks
Sam

Aaron Mazzrillo · Answer

"The county appraisal is $135k." Ignore what the county says. They like to be above market because they get more in taxes. I love it when a seller tells me that their house is insured for (insert some ridiculous number above market value) so it must be worth at least that.

Listen to your agent. She seems pretty smart.

Soha Dessouky · Answer

This house was rented for $1100

Justin Kolls · Answer

The sub contractor working under the contractor will do your foundation for minimal cost. He will also hook you up with the rest of your crew to fx the house up. You can make this house look pretty good for only 10K if you know how to pick materials and find cheap labor. GOOD LUCK!

Justin Kolls · Answer

The best advice here is to submit a low offer with the engineer's report. It would be interesting to know what this home could rent for. This is not a flip.

Glenn Espinosa · Answer

Even if you were to get $59/sqft on this house you're still only netting a $98k sale price. I don't think you or those current houses on the market will get $135k-$145k.

Unless you get the house for 50k like what Mike suggested, you don't have anywhere near what I'd call a deal.

Don't even think about offering more until you have a recent sale that suggests what you're trying to sell it for.

Losing $300 on that structural inspection is a lot less than what you would lose if you moved forward at 79k.

Soha Dessouky · Answer

The comps based on the sold says on average $95K

Thanks
Sam

Soha Dessouky · Answer

Also, I may be misunderstanding your post, but your RE agent tells you only nine comps have sold in the past year, and even then only at $95k? Where are you getting the $145k comp number from?

Will
I got this from the average $/sq ft of 12 comparable active sale in the neighborhood.   There were houses sold for $59/sq ft in great condition and others sold for $29/sq ft in as-it is. That causes the average comp in the area to be low. I am shooting to add value to the house with the repair and quality interior design.  Down is the comp summary for the sold ones.

High 	Low 	      Average 	Median
Sold Price 	$116,000 	$66,200 	$91,600 	$93,000
Square Feet 2959 	1811  	2274 	        2280
$/Sq ft 	$59.54 	$29.03 	$40.29 	$36.01
DOM 	         201 	          9 	         56 	         27

Thanks
Sam

John Espinosa · Answer

What are the Days on Market of the the comps that sold, and also the ones that are active?

When the home was listed back in August at 99k, how long was it on the market before the price reduction after the structural issues were found?

With 10k rehab going to "touch-ups" Do you feel you are really adding enough value to the home to ask for the $135k price tag for the end buyer?

If the comps tell you, you can absolutely sell at $135k, it MIGHT be a DECENT deal, even then I would be cautious.

Mike Osterman · Answer

You should get paid very well for doing a foundation fix on a house. IMO.

Your RE agent is paid to sell.  I agree with Will's assessment, comps are telling you something.

So....95k sales price- 16k in fix up- 10% sales cost, 10% holding cost/cost of money 10% profit= $ 44,500 costs. Offer price is $50,500.00 maximum.  If I had to have it, I'd send that offer over with the engineers report.

Glenn Espinosa · Answer

Those figures can be thrown out the window. You have to go by what has SOLD in the area and not what people think they can get for their house. What the seller wants and wht the buyer is willing to pay are two different things and guess which one matters in the end...

Use the most conservative numbers and trust your realtor when he says that 95k is the average. With a purchase price of 79k + 16k rehab you have 95k. That means in the best case scenario you will absolutely lose money on this deal!