After sleuthing the market for a few days we found some reasonable candidates. Ultimately, we whittled our list down and placed an offer on this property:
824 24th Street was a bank owned (REO) property. It was originally listed by the bank in August 2008 for $79,900. No offers were accepted. Then a month later they reduced the price to $72,900. No offer were accepted then either. Two weeks later...another price drop to $69,900. Then three weeks later yet another to $67,500. At that point, the bank received and accepted an offer. The offer included FHA financing. The home didn't pass FHA inspection so it came back on the market in January 2009. The bank reduced the price to $64,500. No takers. A month later they reduced the price again to $59,900.
That's when we arrived and placed our cash offer of $55,000. The bank immediately accepted. However, our inspections revealed some foundation issues, electrical problems, and a few other issues that were not apparent upon our initial view of the property. We amended our offer to $49,000 based on what we found. The bank tried to counteroffer us but ultimately accepted our terms. Are all these numbers confusing you? Here is what I just said in chart form:
You will notice that the price follows a nice stair step pattern. This is traditionally how bank owned property is listed and sold. For those of you frustrated by overpriced bank property, it's important to watch because it may be just a matter of time before the price drops and the property makes sense as an investment.
So what kind of bargain did our lucky (or well advised by a real estate professional) investors get? Here are the post-fixup comparable sales:
By looking at these comparables, our investors have done well for themselves. A CMA puts the post fixup value around $95K. Here is another way to look at the value comparison:
I always resort to $/SQFT when doing investment analysis. As we can see here, our investors are paying about half price for their investment property. Not a bad deal at all! As long as rehab costs are managed effectively, they should do well and be on their way to their next property.
Want to do this same thing? Bring your cash and your contractor and lets start making you some money!
sounds like alot worms in the can, what about the roof it looks as old as the house? U dont need a Realtor to find a shack like that just drive down the street there are 100's. Hopefully the inside is updated because after the shock (ha) from the electrical contractors bid, not to mention the permit that the city will require, I would imagine another 50k to make that at all desireable and not to mention that is a lousy neighborhood, hopefully whoever works on it doesnt leave their tools there. Was it checked for mold, termites, meth? scary. The bank was lucky!
ReplyDeleteBadski-
ReplyDeleteThe roof is brand new. You should drive by and take a look. Your imagination on fixup expenses is just that. The bids for fixup are right around 20K from experienced and trustworthy professional contractors. You are right about one thing, there are lots of dumpy houses out there. There just arn't that many sold at such a bargain as this. I will put up another post in a few months about the money they made on resale. Stay tuned...
These type of properties have a much greater potential for cash on cash return. Example: Buy a single family home in Davis County for $150k, add $20k in improvements and resell for $190k. net $20k.
ReplyDeleteOr you could buy two or three homes like this one and net $15-20k each. You do the math badski. The key is having the right contractor.