Real Estate Investor · Benton, AR · Member since 2017 · 11 posts · 0 votes
Hey Guys
I need some very experienced advice. My wife and I are leasing our home right now but we have found a great deal on a Foreclosure (HUD). The house is nice with a few cosmetic issues. However we would like to do a major rehab; hardwood , add island in kitchen, expand bedrooms, expand shower so on and so forth. We feel that with a major rehab and all the cost will still have a 100k in equity
So my questions are:
1. Is this even a good idea? Loaning for 20k more that our offer price to rehab
2. With Not having warranty and all the other normal purchase protection what are rehab expectancies?
3. How I should proceed knowing that anything could be wrong? What are the rehab/ business Priorities that should be looked into before we feel that we have a solid purchase.
Wholetailer & Architect · San Francisco, CA · Member since 2015 · 544 posts · 298 votes
9y
I'm going to assume in my response by REO you mean the bank owns it because it went to auction and they had the winning bid. If you are buying at auction most of the below does not hold true and I recommend against a newbie buying at auction sight unseen.
1. I think it is potentially a great idea if it is livable now and you don't mind living in a construction zone for a little while. I wouldn't recommend it with small kids. Also if it only has 1 bathroom expanding the shower may mean showering at the gym for a month during that part of the rehab. Maybe add a 2nd bathroom first.
Not sure what you mean by loaning more than 20k. A bank will probably not loan you more than 96.5% of the appraised value or the purchase price whichever is lower (3.5%) down so you will either need to have cash or another source for the rehab money: read up on 203k loans.
2. You usually only have a warranty on new homes and up to 10 years for hidden construction defects. You may be able to buy a appliance warranty from a 3rd party if money is tight and it helps with piece of mind. If this was a traditional sale you would have recourse if the seller knew of something wrong with the property but didn't disclose it. I think that still holds true for REOs
3. You should be able to hire a home inspector to give you an inspection report but they don't always catch everything and will not open up walls so there could be old electrical which you should have a good idea of based on the age of the place.
4. You should be able to get a contractor in there if it is bank owned.
Real Estate Investor · Benton, AR · Member since 2017 · 11 posts · 0 votes
9y
Thanks Sean
1. Couldn't we purchase it then do the work and move it afterwards? If we were investing this would be great flip. The home is very livable. We are trying make changes to get 200% bang for our buck!
The 20k for example is what the rehab cost would be.
It is bank owned.
2. So I've read Hud gives 11% discounts of listing. On country records I think bank acquired it for cheaper than their "acceptable bid." Cant I bid that?