Foreclosure Auction in Utah, is it worth it?

Question

Hi,

I'm new to real estate investing and I just wanted to run a deal by you fellow Utah investors if that's a good idea to do. It seems like there is little to no information about Foreclosure Auctions in Utah. Are those deals to risky because you're buying as is? Are those deals overpriced because of a big completion in Utah?

We currently own 2 properties, one of them is out of state. We desperately need to move closer to our kids charter school, here in Utah and we're looking to make the smartest move possible. So this is the plan: Sell our current house (65% equity), take that cash and add some borrowed money from hard money lenders, go to an auction and purchase with cash. And just refinance after the purchase is complete. Pay off the borrowed money. Will it fly?

Ryan Naylor · Answer

@Olesya Richards ,

Hi, You have stated that you want to own properties free and clear and get them paid off as fast as you can. and your nervous about vacancy in rentals. Hard Money is going to be about the most expensive route you can go, AND you are going to have to refinance out of it within 12 months,

Lets take this example running your numbers the way you want to see it work. so purchase price is 206k running backwards from 300k ARV. Your thinking you have about 90k in equity.

+ 2-3 points and 12% interest rate. And you are going to bring in 10% of your own money as you won't get 100% financing, But i don't think you have that money yet because it's contingent upon the selling of your current residence. and then within the next year you'll have to refinance out of that hard money loan to get into a conventional loan, that's paying closing costs twice on the same house and in year from now getting the exact same loan on the exact same house twice with no guarantee that conventional rates are going to hold steady for a year when you are going to be forced to refi.

Let's keep in mind that we haven't run a single inspection or appraisal up to this point either.

You would have owned this house for at least 6 months up to this point without a single payment to your principal.

Your new loan amount and all in costs should be around 250k after all costs, inspections, 2 closings etc and your praying rates hold steady.

or..... buy a house right now on the MLS for 300k using 20% down no hassles and no mortgage insurance. Loan amount about 250k with a fixed rate for 30 years.

Justin Hammond · Answer

@Olesya Richards I'd be happy to go over comps with you or jump on a phone call or something. Ultimately I just want to make sure that as you make decisions about your next property that you have all the info you need. I know EM pretty well, I have a couple rentals in that area and have flipped a few there too.  LMK if I can provide any help moving forward!

Ryan Naylor · Answer

Olesya Richards

Hi, Yes that's a strategy that would fly. Why are you wanting a foreclosure and using hard money?

Here are some other thoughts you might want to consider.

Refi, use the cash to put money down on a new place closer to the kids school and you could rent out your existing place so you can keep the property.

Of course you could just list the property and use the funds as a down payment on a duplex/multi family property as well.

You can message me and go into specifics if you would like, I'd like to understand how far you need to move?

I can help you with this, I just need to understand a little bit more.

Ryan Naylor · Answer

sounds like you got it figured out. Good luck to you.  If you want my help doing your cash out, I'd appreciate the business and love the opportunity to work with you.

Good luck

Ryan

Olesya Richards · Answer

@Ryan Naylor thank you so much for sharing your perspective. My plan is this:1) first sell our existing home with homie spending very little on closing costs2) add 50-70K from private money lender such as Sofi 3) buy a house from an action4) refinance those private borrowed money right after the closing.

Our current residence was also a foreclosure purchase and I don't remember paying more money over the price that we got on auction. But maybe things changed, it was 5 years ago...

Justin Hammond · Answer

@Olesya Richards It's only 1800 sqf. If you pull sold comps in that neighborhood up to 2000 sft, the highest you'll find sold at 290k and that was 200sqf bigger than this property.

Olesya Richards · Answer

@Justin Hammond how do you get $265K value? It's very close to my neighborhood and I know that normally a house like this is in 300s...

Justin Hammond · Answer

@Olesya Richards That property is nowhere near 315k-350k. Zillow is a horrible indicator of value. That property's ARV is around $265k. So assuming someone can get that job done for $20,000 and they have no money costs or other holding costs, they'd make a total of $23,000 - That's with a 6% selling cost: 3% to buyer's agent, 1% for selling agent (assuming you can get a discount) and 2% for closing costs and other title fees.

If someone is using hard money, they can only afford to put like 5-10k into the property to make it worth it (and that's a lot of risk).

As someone who buys a lot of properties, I wouldn't have paid more than 190k for this property without walking through the whole thing.

You can start to see why these properties are  mainly purchased by people who either: a) run a high-volume flip business with no hard money and their own remodel crews, or b) retail buyers with cash who want to earn some sweat equity in their personal residence.

The high-volume rehabbers are ok with breaking even or losing a couple bucks on a flip every now and then if it keeps the crew busy.

I'm not saying you can't find deals at the courthouse, but it may require you to make that your entire business model in this market. You'd be better off introducing yourself to the players at the auction, tell them what you're looking for, and then letting them wholesale it to you. Better than bidding against them in my opinion.

Olesya Richards · Answer

@Ryan Naylor and @Justin Hammond There was an auction today and the home that estimated value on Zillow is 315-350K sold on auction for 206K. Here is the address if you want to look it up: 3578 E James St, Eagle Mountain, UT 84005Do you think it's still overpriced? I think they got a great deal for 206K...

I understand that private money will make the deal more expensive, but maybe I can ask around and get extra cash from the family and such for the lower %?

Ryan Naylor · Answer

Not exactly my conversation piece here, but I'll add my 2 cents, He is a lender and will loan you the money you need to purchase the property along with your 20%, and when you qualify for conventional financing, at least 6 months, you could cash him out and get the mortgage and title into your name.

It's a play, not the smart play here only because everyone in the forum is telling you foreclosure properties in Utah are not very discounted.

Use your 20% to buy a house conventionally and then learn the ropes of foreclosures for the future deals and stay connected with Justin Hammond, to help you finance a deal that is of value.

Your looking for a cheap house to save money right?

, A. it's unlikely your going to find what you need in a specific area.

B. Any money your going to save on a cheaper house, ....if you actually find one at an auction, you will pay in a higher interest rate.

This is your home, not a flip.

Foreclosure Auction in Utah, is it worth it?

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Olesya Richards