I am closing on a HELOC next week on my primary home with the purpose of using to buy another property. I am looking at a bank owned house for $70000, but i don't want to pay that much. It needs about 20000 of work to make it great for the area. I am up in the air on if I want to flip or buy and hold. I am wanting to offer 40000 to start, just to see. Is this tip if it is it worth it to find a starting point.
I am trying to figure out how much was still owed on it, but I am struggling to find the info. My uncle told me that his business partner for a flip said that banks look to get 70% of what is owed, is that true?
I don't think there is any consistent method to determine what one bank will take over another bank. Once you think you have it figured out the next deal will completely baffle you and go against whatever you thought you knew.
With a low offer you really only risk someone else swooping in and offering more than you and you lose the property. If you can live with yourself if that happens, great, start lower...it's almost always easier to raise your offer later than it will be to lower it (although there are ways to tie it up quickly with a high offer and then renegotiate the price during the due diligence phase, although that's an entirely different thread...)
If you absolutely "must have" this property don't mess around with a super lowball offer and go with something higher. All depends on your motivation to own it and what you think your competition (other buyers, if any) will be offering.
With bank-owned, I generally tell people not to be scared. Go low, I've never seen a bank that refused to work with someone over it. Worst case, they will just say that's not enough to cover their expenses and tell you to go higher. I say try it.
As for the remaining left on mortgage (which is what I base the offer price off of) I would just call a local real estate agent up, they can generally find it with a click of a button. I would just call and see if they can find out, or if you're already working with someone, ask them. I think that's the best place to start for coming up with an offer for a bank-owned property.
You are missing the most important number of all to be able to discern if you are offering to much... the ARV... What will it sell for when you are done fixing it up.
If you are not 100% confident on this number then get a local market specialist in their to help you out. This number is king.
If they take 40k for it and you put 20k worth of rehab into it, and sell for 70k, you lose... If however, comparable sales in the area tell you you can sell it for 145k with 20k in upgrades then Maybe 70k is a great deal!
Don't ever make an offer based on what a bank is asking. I have seen foreclosures, listed at 50% of maket value and I have seen them listed at 125% of market value. dont mater what their asking, what is it worth to you... offer that amount.
Again, find out what the ARV is and THEN make a judgment call on what the deal is. If it is ONLY a good deal if you pay 40k for it, then offer 40k. If they say no, move onto the next one. Let the ARV be the filter, not how much they owe on it.
Excited for you taking action, don't want to see people lose their shirt on deals because of something simple.
Good luck out there!
Originally posted by @Collin Smith :
My uncle told me that his business partner for a flip said that banks look to get 70% of what is owed, is that true?
Banks try to get 100% of what is owed. Trying to figure out a bank's formula for accepting offers is not practical. If you'd be happy paying $40,000 for it, offer it. It is not an emotional decision for a bank. Some analyst in some office will review your offer, and more often than not, look to see if it is higher or lower than the price they are told is acceptable. They then say 'yes' or 'no.' It isn't like they're going to get all mad and stop dealing with you.
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