Bank owned Deal Analysis 25 posts by 11 users

Posted: 11/15/2008 at 05:29PM

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?

Posted: 11/15/2008 at 07:39PM

John,

Here is how I see this deal with more normal expenses:

Gross rents: $1,500 per month
Operating Expenses: $750 per month
NOI: $750 per month

Cost of money (in lieu of mortgage): ($15,500, 30 yr, 7%): $103 per month

Cash flow: $650 per month or $217 per unit per month

I would consider that an exceptional deal. You will need to sort out the water problem. You could have a leak. Additionally, if you are allowing tenants to have washers/dryers in the units, they may be doing all their friends and relatives laundry. I don't allow washers or dryers in rentals if I pay the water.

Good Luck,

Mike

Posted: 11/16/2008 at 12:25PM

If a water leak is the problem, that means that the leak is AFTER the meter. In other words, YOU will be responsible for fixing it. Been there, done that, got the bill!

Mike

Posted: 11/16/2008 at 04:43PM

Yea, HSBC Bank was asking $10,000. The property sold for $150,000 4 years ago, got forclosed, and I put in my offer one week after it was on the market and snatched it up.

I'm converting one of the two empty rooms (one's a living room and the other's a dining room) into a bedroom for a total of three bedrooms on that unit.

Posted: 11/16/2008 at 06:58PM

maybe the water bill is high bc it is carried over from the previous year

Posted: 11/17/2008 at 03:52PM

I have just called in to the water company and the representative told me something different this time. They told me the amount for the last quarter of 2007, which was $250. Last time they gave me an estimated reading for the whole year for $4,200 because they couldn't access the meter.
There is also an owed balance of $2,500. Can anyone tell me who is supposed to clear this debt before I take title?

Posted: 11/18/2008 at 08:32AM

John, In my area the water bill would follow the previous owner, but I would call the water company again and find out for sure.

Also can you post an est on your rehab cost break down?

Posted: 11/18/2008 at 09:13AM

Matthew has the perfect answer. I've done the same thing here in TX closings.

Posted: 11/18/2008 at 09:25AM

Thank you. I will ask my agent to resolve the water bill matter with the bank. Tom C, I did a rough estimate when i initially went though the house. I will post a more accurate breakdown of the rehab costs one I close on the 25 of this month.

Posted: 11/19/2008 at 04:56PM

The closing attorney handles the payment of the water bills outstanding on the HUD on the seller's side. You must push to get a copy before the closing and object if it's not there.

I just spent 4 days tracing a tub leak from a tub with shower and it was dripping down into the foyer ceiling below. The tenant had changed the shower nozzle to a high powered broad spray zone head and the water seeped through a pinhole in the tub caulking. What a mess.

Here the outstanding water bill is against the tenant but it used to be against the landlord. You need to know why that bill is so high. I know someone who just bought a beachhouse and his bill was $600 from a running toilet apparently.

Someone's been washing cars in the yard or taking in friend's laundry me thinks.