All Forum Posts by: Muks M.

Looking at a REO property which is in a good neighborhood and could potentially be a good investment for buy and hold strategy, however, I heard that the previous owner was arrested and bank foreclosed the property couple of months back and listed as REO. I heard that owner was in jail and perhaps in jail even now but not sure. If the deal works out with bank, would there be any legal liabilities as a new owner and/or what I should be careful about while buying this property where there were some legal issues with the previous owner ?

How common is for investors on buying side to give commission to his agent if the listing has less than agent expectation of 2.5% for buyer agent. I was asked to pay the difference of 0.5% because bank on REO listing is offering 2% to the buyer agent. Not sure how to react to his request I had never heard this before ?

@Chris Grenier

Thank you fro your comment. But my question is why would one buy investment property (irrespective of the rules and/or market) if it is negative cash flow, no equity build at the time of buying and all you can do is rely on potential appreciation and/or very little equity built over the years for buy and hold strategy  ?

@April Crossley

Thank you for your insight. GREAT suggestions!! Being a newbie, was kind of scared with the idea of rehab but think these kinds of deals may not come that often where potential 15-20% equity is there right in the beginning if rehab estimates are in line with what my realtor estimated. Have to rely on his knowledge as I have not prior experience in rehab unless I can convince my realtor to take a contractor to the property. Regarding rule of thumbs, my main concern is that any deal I look at and include include all those expenses (vacancy, repairs, capex, HOA, PM fee) to PITI, it does not cash flow positive for nice neighborhood properties I am looking. So my naive take on this is that if equity is not build in the beginning when you buy the property, you have to simply rely on appreciation which may not be a wise investment ?

Really finding it hard to find 1% rule properties especially when you factor in vacancy, repairs, capex, HOA, PM fee in the total expense along with PITI. Recently found a short sales which may meet this criteria but would need much more than cosmetic repairs (~35K rehab). The numbers does make sense for the deal if offer accepted at the my max price and if rehab cost is in line with estimates from agent. But kind of worried with the idea of handling rehab (not well versed with rehab cost and the hassle it brings along) and short sale (this perhaps would be OK as time is the only risk here ?).

Any suggestions would be appreciated from seasoned investors or someone who has started out like this (major rehab for their first buy and hold strategy unit) along with a full time job ??

@Joseph M.

I am not looking to flip. But for the math sake, with 5% agent commission (if not 6%) and another 5% for closing (is that a good number to use in general for selling?), 10% of FMV after rehab (190K) would be 19K. 19K+166K (total project cost if everything goes as planned) = 185K which will perhaps leaves me 5K in my pocket and I am not sure all this hassle will be worth of 5K ?

@Nick Stageberg

I am leaning in the direction of 110K offer – reason being it is satisfying 70% ARV criteria (as you correctly pointed out) plus I am feeling embarrassed with offer, but kind of concerned that my realtor may think it is low ball and/or seller may just ignore us ? This being my first offer on investment property, I honestly was not looking for this big rehab but perhaps will do if only numbers make sense.

Have to agree that I am little scared with the idea of this rehab but willing to try as it may be good learning experience as I start building my portfolio on rental properties!!

@Greg Scott 

Thanks for your feedback. Really appreciate it!!

My reaction to the roof was same as yours when I asked my realtor. His take on this was that this roof is not big plus it was very straightforward plain roof (Sq foot listed for house is 1450). Regarding doors, all of those were original doors from perhaps from 1980’s and he said it was ~$200/door installed and will give good look to the home but I can certainly cut on couple of those doors where it is more of looks vs necessity option. The heating unit does not seem to be original (38 yr old home) and so is the AC unit and nothing disclosed on the life/condition but seems to be working as of now as the seller is living there currently. Could not disagree there may be a big ticket soon. Any idea how much it could cost for both units and/or could I factor this cost into my offer at all ? Regarding repair cost, you may be right with me being conservative.

From the MLS description and pictures, both my realtor and myself thought its just cosmetics repairs (10-15K) and we were thinking to offer 130K to cap at 140K with a final price ~155K. Now that rehab is estimated at 30-35 K, corresponding offer price goes to 110K and perhaps cap at 120K (and final price of ~155K) but kind of concerned that 110K number on the offer may result in rejection right away ?

Looking for advice from seasoned investors for a potential offer I am going to put together. The house is in the market for now over 100 days and is a short sale but may satisfy 1% rule for buy and hold strategy.

Details below:

List Price:155,000

Potential ARV:~190,000

Rehab cost :~30,000-35,000 

Rehab cost breakdown (from my realtor who has done quite a few rehabs himself over the years and seems to know what he is doing unlike me who does not know much about rehab!): 

• Roof (Shingles and wood replacement as there seems to be a leak)= 5000
• Paint (entire home) =4000
• Hardwood (first floor)=2500
• Carpet (stairs/second floor)=2500
• Windows=4000
• 2 sliding doors/8 standard doors=3000 
• Kitchen remodeling/appliances=3000
• Powder room remodeling= 1000
• Main Bath room remodeling = 2000
• Junk removal and cleaning (owner may not remove his stuff given short sale) = 2000
• Potential mold remediation (roof leaked and perhaps mold exist) = 2000
• Ceiling repair in the family room (there was leak in the ceiling from first floor bathroom) = 1000
• Miscellaneous = 2000

Monthly Rent = 1500-1600

Monthly Expense = 1400 (PITI, HOA, property management, vacancy = 5%, repair = 5%, capex = 12.5%)

Monthly cash flow= 100-200

 I am wary of the following facts, so any comment on any of the following will be appreciated:

• The estimate on rehab cost may be completely off 
• Why no investors put an offer on this for 3-4 months where finding 1% rule properties are really tough
• What would be a good offer price where I feel embarrassed on my offer as well as don't offend the agents/seller/lender

I am leaning for an offer of 120000 (or may be lower ?) and cap myself at 125000. If I get it at 125,000, then with rehab cost added (if the estimate is correct ?), I am looking at ARV of 155-160,000 which is still 15-20% lower than FMV for comparable homes.

Looking forward to some advice!!

@Sarah Ziehr

Yes they do have an offer letter stating the salary and start date and my property manager also called the employer for verification and all looks good there!