All Forum Posts by: Tom Rockwell

I'm still in the area, but I never did do anything RE wise.  Still thinking about it, but I'm mostly focussed on other things at the moment.

I'm a new investor getting ready to actually start doing things and I was wondering if anyone else on here was from Sussex County?  You know, the REAL Northern NJ?  An hour north of what most people consider to be Northern New Jersey.  :)

I'm looking into doing some wholesaling and some simple flips and later getting into bigger flips and buying rental units. There doesn't appear to be an REI group up here that I could find. If anyone's interested in starting one I'd be happy to help organize it. I don't know any other investors in the area and want to start networking.

 That's what I need to find out.  I'll have to call the lake association and see what the rules are.

This would be my first deal and the numbers seem to work out, but I'd like a second opinion.

The Property
The property is a 3-season, single-family house located in a lake community in northern New Jersey.  It's a Fannie Mae foreclosure.  My intent is to do a fix and flip.

It's a 2 bedroom, 1 bath, 665 sq ft house on .24 acres of land.  It is currently listed for $25,900 (recently reduced from $33k).  It's on a dead-end street and backs up to the woods.  It was built in 1940.

The Money
My plan is to do a $30k balance transfer on my credit card (flat 4% fee, and 0% interest for 12 months). For the renovations I can take up to an $11k loan from my 401k (4% APR). If I need more than that I can possibly refinance the house. (70% of $25.9k is $18,130, but I don't plan to take that much.)

The Renovation
I don't know what kind of work the property needs.  I haven't gone to look at it yet.  Judging from the pictures online it appears to be in good shape.  There's a room that sticks off the back of the house that looks like it needs new gutters and maybe some roof work.  (Possible leak, judging from one of the inside pictures.)  Most of the house inside looks beautiful.  That outside room (I'm wondering if that was an addition) needs some new drywall or paneling or something.  The kitchen looks nice.  Nothing spectacular, but nice.  I'd repaint the walls in here, though.  Bedroom ceilings need paint.  There's another room that needs at least paint and a new ceiling fan.  The bathroom looks OK, but could benefit from a little sprucing up.

I don't know how to estimate that kind of work, though.  Are there any online tools or anything 

There's no heat in the property since it's a 3-season house.  I don't know if winterizing it is an option.  I'd need to figure out if that would even be allowed by the lake association, and then if so how much that would cost.

Holding Costs
I'm estimating about $950 a month in holding costs.  (401k payment: $104, CC payment: $312, taxes: $208/mo, association fees: $91, utilities: $150*, insurance: $85*)  
*Kind of guessing here.

The Potential
Here's the rub.  I need to get some good comps from the realtor.  All I have at my disposal is Zillow, which I know isn't very accurate.  (Although they are spot-on for my house which is also in northern NJ.  Either that or the appraiser who handled my refinance last year went to Zillow and just copied it.)  Anyway, their "zestimate" is $104k.  They have another feature called Price This Home which supposedly pulls comps.  I did that and it came back with $134k.  But I don't think any of those homes were 3-season so it's not really a valid comparison. 

The Numbers
Purchase price: $25,900
Credit card balance transfer fee: $1200
Closing costs: No idea yet.  (Assume $1000 for this example)
Holding costs: $950/mo; minimum 3 months, likely 4-6 (assume 4 for this example)
Renovation: $10,000 (hopeful) to $15,000 (really don't want to go above that; but assume this for this example)

Total: $46,900

Going for a 20% return means I'd have to sell the home for about $56k, which would give me a $9100 profit.  If we can sell it for more, even better, but I don't want to get my hopes up that we can put it on the market for $125k or something like that. 

Questions!
1. Are there any holding costs that I forgot to account for?  Or is there a better way to estimate utilities and insurance costs?  (Any online tools or anything?)

2. What's the best way to estimate how much the renovation is going to cost?

3. How do I estimate closing costs?

4. Is the "3 season" thing going to be an issue when I go to re-sell the property?  Anyone have any experience with these kinds of properties?

5. Is this a good deal?  (Especially for someone who is just starting out.)

6. What should I ask the realtor?

Sorry this is so long.  Thanks for the help!

@David Chan  Great.  Thank you for the info.  That's a big help.

@David Chan I have a question about the 100% LTV issue you mentioned.

Say I buy a foreclosure for $40k and the house is worth $125k.  If I want to refinance, can I only borrow based on the $40k I put in, (say, $28k), or can I borrow based on an appraisal that says the house is worth $125k?

I'm looking into something similar to what Tony has and this never even occurred to me.

@Martha Bueno Ah, thank you.  I hadn't heard of that.  I'll have to keep my eyes open.

Thanks for the feedback, @Martha Bueno.  My county only requires 20% cash on the day of sale and then we have 30 days to come up with the rest of the money.  I'm aware of the potential title issues.  I didn't do a title search on any of those properties I was interested in because I wasn't planning on buying them that day, just going to learn.  But if I was planning on bidding I would do a title search and then try to get a good look at the property.

But for my first house I do plan to find something from the MLS or maybe a wholesaler. What's a pocket listing?

OK, thanks.  That makes sense.

Newbie here. Short version: I attended a local foreclosure auction and one of the houses I was interested in went back to the bank. Is there a way for me to buy it now directly from the bank, or do I have to wait for it to appear on the MLS?

Long version: I'm looking to buy some rental property through a turn-key provider.  My current plan is to use my credit cards to buy the properties (cash advance at 0% for a year with a 4% one-time fee) then have the houses appraised and get a traditional mortgage to get cash out and pay off the credit cards.  The catch here is that the refinance won't be enough to fully cover the credit cards, so then I'll have a bit of debt to pay off, and I don't know if I'll be able to get it all paid off before the 0% offer runs out.  This isn't going to stop me, but it's an issue.

To address this issue I've contemplated buying local foreclosures to flip.  I did some research and found there are a surprising number of foreclosures in my area.  The Sheriff's web site lists all the properties that are going up for auction each week and I noticed that all but a few of them were going back to the bank for $100.  The higher priced houses in my area were purchased by investors, ($1.7M home sold for $600k, etc.) and there were some deals in the $20k-$50k range on $150-$200k houses that went to investors, but every week there are 20-30 houses up for auction and on average all but about 3 were going back to the bank for $100.  I couldn't figure out why, so I decided to go attend and auction and find out first-hand.  

I had no intention of bidding or buying, but I wanted to come prepared as if I was going to, so I went through the list and identified 6 or 7 houses that I thought might be good candidates.  I wanted houses that were in good shape and didn't require a ton of work.  I can do basic clean-up and repairs, but if it needed a new roof or foundation or something I'm not interested.  

At the auction there were maybe 10 other people and about 25 or 30 properties being auctioned off.  And I learned that the reason most of the houses go back to the bank is because the bank's representative is "authorized to bid up to X amount for the house," basically setting a reserve price.  

One of the houses I was interested in had a reserve of $125k. Since nobody bid, it went back to the bank for $100. If my research is correct, this house should have an ARV of about $230k, and other than the grass being overgrown it appears to be great shape. I wasn't able to get inside so the inside could be a disaster, but assuming it's not and assuming I am still interested in buying this house, what happens now?

I know the bank owns it, and the plaintiff is listed on the Sheriff's web site. Could I potentially just call the bank, tell them I'm interested, and make them an offer? Or would I need to wait for it to appear on the MLS? Or... what happens now?