If it's a great deal, why hasn't someone else bought it?

Question

I've come across (what appears to be) a deal.  But if it is such a deal, why hasn't anyone else bought it?  It's a HUD home.

It's listed for $130k and has been reduced from $150k.  Been on the market for 135 days.  A realtor has said it's market value is $180-200k.  It's in a good area and pretty good condition with minimal repairs needed and all appliances convey.

Rents should be $1400-1600 range.  Taxes are high though at ~4500/yr.  My initial plan is to hold for 2-3 years and then sell.

Are other investors noticing the market is slowing down?  Is it due to the holiday season?  I have an offer of $100k on it, should find out early next week if it was accepted.

Rob K. · Answer

On HUD houses, the bid is due by midnight each day and you will know the result by morning of the next business day. If you make your offer today or tomorrow, you should know on Monday if you got it. From your numbers, this is a horrible return for a rental. If you're betting on appreciation, you might do ok.

As far as why someone else didn't buy it, you never know. I've wondered that many times on houses I bought and made a lot of money on.

Johnny Aloha · Answer

Thanks for all the replies.  The house is on a semi-busy street, but not a highway.  I actually lived a few doors down from this property when I was in college.  It's right around the corner from houses that sell from $300-400k.

I agree that realtors will be optimistic in their assessments.  I've done the research and think $170k is reasonable, but if my offer of $100k is accepted that still gives a nice safety factor.

@Dawn Anastasi This is a pretty desirable area for the location and schools, although the semi busy street is a negative.  HUD hasn't disclosed any repair items.  Planning to have an engineer and HVAC inspect if offer is accepted.

Rob K.  Rent prices too low?  Could you explain?  If I buy it for $100k, market rent is $1500 (rentometer and zillow say reasonable rent is up to $1800 for whatever that is worth), and there is $50-70k built in equity, how is that a bad deal?  Taxes are high, but for the area it seems like a solid deal.  I will be using Homepath financing which is a 10% downpayment.  Using 50% rule, it's a 23% cash on cash.  If I assume 1 month vacancy, 1 month rent for maintenance/CAPEX, actual taxes and insurance, and 12% PM, it's a 12% cash on cash.  Not a home run but still solid IMO.  Am I missing something?

Greg  H. This property isn't in Hawaii, it's in the southeast.  I wish Hawaii properties were selling at these prices!

Johnny Aloha · Answer

Thanks everyone.  This is why BP is so great!

Wendell De Guzman · Answer

@Johnny Aloha , I agree: if you get it for $100K and if it's worth $170K, you have a great deal there. I will lend money on deals like those all day long.

Steve Babiak · Answer

Re-read my post. Rent too low for the ASKING price; buy for less and it could work out.

Stephanie Dupuis · Answer

I'm with @Steven Stokes on the concept that sometimes good deals hide in plain sight. One of my favorite deals was on the market for over 180 days, went pending five times, and I bought it at 50% of list price. In a great neighborhood, great CCR, CF, etc. I couldn't find anything but cosmetic wrong with it when I did my walk through, and once I had it under contract, the inspector only found very minor things. Was a great deal. Who knows why it was on the market so long. I'm glad it was. Do your due diligence and trust your experience and knowledge.

Steven Stokes · Answer

If you know what you can BUY it for (assuming there are no major repairs needed) and you know what you can RENT it for which is easy to find out a good target range then it doesn't matter that no one has picked up this property yet.

Put it under contract, rent it out fast and make your money. Sometimes great deals hide in plain sight.

Just make sure all your ducks are in a row before pulling the trigger.

Greg H. · Answer

The answer could be as simple as being in an area where very few if any agents are approved to sell HUD homes .  I know that Hawaii has a very low inventory, in fact usually a handful for the whole state.  I buy many of my HUDs in small towns and when I ask an agent in the area why they didn't sell the property, I get that answer over and over

Steve Babiak · Answer

In this particular case, the ratio of rent to asking price is too low IMO.

Dawn Anastasi · Answer

Have you checked out the condition of the major repair items?  (Foundation, etc.)

Is it near an airport or train tracks or somewhere else people wouldn't want to live?

Sometimes a property is listed so cheap that people might not check it out because they assume that something major is wrong with it.

If it's a great deal, why hasn't someone else bought it?

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