A realtor sent me a foreclosure listing today that within 7 hours had 6 written offers. This is not surprising as Nashville is a hot market. I like the way the numbers are looking and am ready to make an offer. I'm hesitant for a couple of reasons. 1.) It will be outside of the budget I had originally planned on spending and 2.) there is a squatter. I need advice on whether I should go over budget and what the hell to do about the squatter.
Below are some of the numbers from the BRRR calculator. I have about $210k in a HELOC that I am willing to spend on a property. They are asking $145k for a 3/2 and 1/1 duplex in Nashville. It will sell for more than that. The numbers below are at my budget. I am also fortunate to have $80k+ in savings that I could put forward but had no intention to do so. Seeing the numbers below do you go over budget on the asking price? If so, how much?
- -Purchase Price: $155k
- >This is $10k over asking but it will likely go for much more.
- -Estimated Repairs: $55k
- >Based on 2 quotes. No walk through because of squatter. Unknown condition of large cap ex. HAVC, plumbing, etc...
-Total Project Cost: $210k
- >This is at my max budget. Any increase in asking price or rehab will come out of savings.
-After Repair Value: $323,400
- >Based on a very conservative $175/sqft. Agent and myself came up with $200/sqft comps.
-Loan Amount: $258,720
- >80% LTV no seasoning. At this price we'd walk away with $48,720 in our pocket. This is also the break even point.
-Monthly Income: $2,400
- >Again conservative estimate and could be upwards of $2,750/mo.
- -Monthly Cashflow: $457.72
- >Includes property management at 10% but does not include vacancy, repairs, cap ex estimates.
Now what to do about a squatter who is living in the back sunroom/screened in deck. My agent, contractor and myself are going to make an appearance at the house. There are no showings because the bank does not want the liability. Hopefully we'll be able to gather more intel on the true condition of the house and squatter sitch. Wish us luck and this may be my last post. Just kidding! I've read that, "There are no “squatters rights” in Tennessee, but there is adverse possession." which is 7 years. My RE lawyer says you'll have to serve him a eviction which takes around 60 days. I have it in the budget to pay him to leave and also have a particular set of skills to be very convincing if need be. HA! Anyone have experience with this?!
You already pre-paid your cap-ex with the $55,000 in repairs. ARV doesn't really matter unless you are going to sell. As a rental, it's decent, but you would get a higher ROI in a lower priced property. The squatter can be chased away with the correct amount of deterrent. I won't go into it, but there are ways to make people want to leave.
@Anthony Dooley I appreciate your feedback! The estimated ARV matters to me because I'm wanting to cash-out refinance the capitol invested. Hopefully the estimated ARV will match the appraised value! My cash on cash ROI is infinity % as according to the math above I'd be getting back more than invested. In regards to lower priced property I've been looking outside of metro Nashville as there is not much to choose from sub $175k. It's not that far from Columbus to Nashville. If I get this house maybe you can drive up and have a conversation with the guy! Thanks again
The question I have is do you really want this place? I ask because based on your numbers above, this fits right into your budget however you're claiming it's beyond your budget. It sounds as if you're trying to talk yourself out of it. You need to make a decision and stick with it, no half-steppin'. Back in the high FC days when we'd find ourselves in bidding situations, we had a rule: we run our model and whatever number we came up with is what we'd go with. We never got caught up in hype, because ultimately the numbers had to work. So I suggest you run your numbers and figure out the ideal as well as max purchase price - and do not go past it. Good luck!
@Tchaka Owen Maybe you can pick up Anthony on your way up to Nashville! We'll get a team of squatter removal specialists. Also, maybe you can get with BP to right the next book "How to Be Rid of Squatters".
I really want any property that numbers work. The numbers above are based on my max budget of $210k ($155k purchase + $55 Reno) for a purchase price. However, this property will likely go for more than $155k purchase price. The question is do I tap into my cash savings to purchase this one. Because the comps are so good I'm confident I could increase the purchase price 30-40k and still break even on a cash-out refi. However, that would entail me spending that in cash which I had not planned to do. Is this deal worth doing that? That is what I have to figure out...
As long as the cover has us in long trench coats and dark glasses, I'm down! >:-)
If you are comfortable that the deal will work, then go into your savings. Make sure that you don't go all the way into it though, you need a solid cushion in the event that something unfortunate occurs. Eg, your rehab budget ends up $10k higher. Given that this is a non-auction bidding situation, it may be in your interest to use an escalation clause offering $1000 more than the highest bidder. That way, if you're willing to pay $190k and the next highest bidder is at $180k, you'll get the home for $181k. Your agent should be able to help with that.
I feel more comfortable analyzing this deal then the previous 30 I've analyzed over the last couple weeks. I have plenty of reserves but would certainly not over extend myself for one house.
Escalation clause sounds like a fantastic idea! Hypothetically lets say I'm willing to pay $166k. Should the escalation clause read something like "We'd like to make a full price offer of $145k with an escalation clause to go $1,000 over the highest bidder up to a max bid of $166k.". So if the highest bid is $145k then we'd win at $146 and so on until a $165k bid and we'd win at $166k. However, if someone bid $166k+ we'd lose the bid. Am I thinking correctly?
Also, how can I trust that they are telling the truth about the bid amounts?
Double check that ARV. That sounds like way too good of a deal for Nashville at a foreclosure. I've looked at foreclosures and auctions and every single time the buyer has over paid for the property by A LOT.
I wouldn't care about the squatter. Wave some money in their face and they will leave. If not, there are other ways. I had squatters once and called the police. 3 officers showed up and told me if I wanted to I could have them arrested immediately. I instead gave them the weekend to figure it out and some cash to help them move. It wouldnt' worry me too much. I would just be worried about the ARV, bc personally in my experience you can find the deal you mentioned above but not on a foreclosure or auction. Just my experience.
@Luka Milicevic - Thank you for your input!
I looked at homes sold in the last 6 months, of similar size, in the same neighborhood and came up with a $209.18/sqft. The trim levels of these homes were better than a rent ready flip so I decreased the projected ARV to $175/sqft. I then asked my contract (who also in an agent and wholesaler) and my agent for an ARV. They independently told be $360k ARV or $194/sqft. Granted the numbers above look fantastic because the property will likely go for much more than $180k+ because there are many offers on the property. How would you advise me to pull the most accurate comps?
When you say you can find the deal above but not in foreclosure or auction. Where exactly are you finding deals like the above?