BiggerPockets

All,

I have run across an HUD owned home in a great neighborhood...1700 sq ft, 2 beds, 2 baths, a rec room, and an office (bedroom w/ no closet). It is on a corner lot, and similar houses are going for 130-160K. This has some work to do...mainly cosmetic, as the carpet has been pulled up, walls are hideous, etc. However, its was reduced down to $96K and has been on the market for 4 months. I would be willing to pay up to $95K, but any lower is bonus.

The question is where should I make my first offer. The house was originally listed @ 120K and I believe it will only take $10K to get it sold @ 135K. I am thinking $80K would be a good starting point.

Thoughts?

1. Figure out After Repair Value
2. Estimate Repairs
3. Figure out how much you want to make on the deal.

Base your offer off those values. Discount your offer by additional 10-15% and that should be your initial offer.

Eric,

Thanks for your response. I am looking at making an offer on this property next week. I have my contractor getting in this week to give me a quote. Right now I am looking at offering $78,850...just to see what happens. I really like the looks of this property. I will definitley let you know how this one works out.

Thanks again,

James

I agree with Jon. I would even go lower than that. With HUDs you even get it, or you don't. There's no countering. If it's been on the market for four months just keep bidding everyday with a slightly higher offer until your maximum is reached, or you win the bid.

HUD bidding is very clean and easy. I prefer to buy HUD houses over any other type of foreclosure or shortsale. No opportunity for games.

I typically get HUD houses for 25-30% of their original list price just by watching them get bid on, then not close, then come back on the market, etc.

Two of my properties are x-HUD homes and I bid on several others. Here is my experience. HUD prices are all over the place and usually have nothing to do with the condition of the property. Someone at HUD seems to look at the amount owed on the property, the general neighborhood and he /she just ball park it. If the condition of the property don't match the asking price, eventually over time, the price would drop.

I bid on one property in Center Point, AL where the house seemed to be in a great condition (New paint, carpet, trims etc) The asking price was $34,000. I bid $28,000 and got it. But then I discovered that the house needed a new roof, new plumbing, new HVAC and new septic tank. It also needed an upgrade of the electrical system which was not urgent but eventually would have been required. The total estimated costs of the rehab almost reached the price of the house which for me as an investor, wasn't worth it.

For an owner /occupier it could have been a different story. You buy a house for $28,000 (similar retail houses in the neighborhood usually go for $55,000) you put in another $22,000 and you have a new house for slightly less than the market value, but as an investor, the calculation is different.

The notion of HUD countering an offer is new to me. How does that work? I've NEVER seen HUD counter an offer. The electronic bid is either accepted, or it isn't.

Mark,
The way it works is the typical electronic rejection followed by another seperate email stating the exact NET amount they will accept (so you have to add back in the 5% the realtor gets). This just started happening with an offer I made in June. It has happened again several times since including one earlier this month.

James,

It looks as though all of the information is all about entrance to the deal. Help me undestand your exit strategy?(especially with 2/2 inventory)

How many DOM are comp sales posting?
Do you have the reserves to "feed the alligator" should buyers depress?
How will a prolonged selling period affect your net profit?

What is legal exposure (bought in your name or LLC)?
Have you consulted with CPA on tax consequences?

Establish a ratio of FMV range and, per many seasoned investors, submit this figure as "HIGHEST." If the bank won't bite walk away. A business plan, not love for one property, should guide your investments.