Bank owned Deal Analysis

[John Chan]

Please give me your thoughts on this REO deal located in Cincinnati. This is my first property under contract and I am set to close in 2 weeks.

Purchase price: $9,100 Cash
Est. Rehab Costs: $5,900
Est. 1 Month Holding Costs during rehab: $500

Total Annual Rents (3 units): $18,000
Last Year's Water: $4,200
Heat: Paid by Tenants
Taxes: $2,900
Insurance: $1000
Mainanence: $1,000
5% Vacany Loss: -$900
5% Rent Collection Loss: -$900

I am using all cash for this offer but am calculated a ROI around 40 percent. I know the water bill is extremely high, I am wondering what caused that too. This house just forclosed a few weeks ago and is located near walnut hills high school.

Is there anything I missed that anyone can point out?

[Matthew Gil]

The water bill is the seller's responsibility and the REO lender will pay for the outstanding balance. However, in some counties water is not lienable and will not show up on a title search. Now, you are saying no big deal, right? I will just give the water company a HUD and they will just bill me starting on the date that I bought the property.

Wrong! Some water companies will not turn on water until the entire balance has been paid and will not care one bit if the seller did or did not pay off the existing balance. It is possible for a buyer to get stuck with a 3+ thousand dollar water bill after the close.

To solve this problem, what we do is have our attorney get the most current water bill for the property and have it added to the seller's side of the settlement statement prior to close.