Hello,

I just won a bid on a HUD Home.

Winning bid: $150K

Closing costs: $3.3K

Estimated in repairs: $50K (with margin)

Potential rent: $1,850

Potential resale price: $220K-$240K (at $230K, I'd make $211K after closing costs, according to my realtor)

Rent cashflow: $945.33 or 5.58% Cash on Cash ROI

---

I was going to pull money that's allocated to my retirement, currently in stocks (so supposedly growing 6-8%/year) to put into this property and pay for the whole thing cash.

I have multiple part time jobs instead of one full-time, so according to my lender (broker? I probably should know the difference), I can't really get a loan.

This would've been my first investment property, so you can see that this is a nerve wrecking purchase.

The house needed a ton of work (redo two bathrooms -- including moving walls, redo kitchen, siding, etc), but it's literally 3 minutes walk from my home. I'd have to do most of the work myself to stay within the $50K mentioned above. 4-6 months of work.

I had an inspection done without electricity, water, gas. They noticed that the power line has been literally cut off. There's a big black spot behind the electrical meter. Probably a branch fell on the line, but could've been a lightening (less likely).

An electrician said that I'd spend $1,100 to restore power (based on pictures, he didn't go to the site). $2,000 if the problem was more serious, but he didn't think the wiring at the whole house was shot.

So, $1,100 to restore power + $1,000 earnest deposit to HUD only to make sure there were no other unknown issues. If I decided then to pull out, I'd be out $2,500 (including inspection).

I walked away from the deal in the last minute.

I don't necessarily regret my decision, but I want to know if it was the right call or not. I know we make wrong decisions and that's okay as long as we learn from them.

Now, based on the info above. Does it seem reasonable that I walked away or would've been worth to stick with it?

Thank you for taking the time to read through all of this.

Hi Danilo,

Like Kenny Rogers said "You gotta' know when to hold em', and you gotta' know when to fold em'. "

Good Luck!

Originally posted by @Danilo Dias :

Hello,

I just won a bid on a HUD Home.

Winning bid: $150K

Closing costs: $3.3K

Estimated in repairs: $50K (with margin)

Potential rent: $1,850

Potential resale price: $220K-$240K (at $230K, I'd make $211K after closing costs, according to my realtor)

Rent cashflow: $945.33 or 5.58% Cash on Cash ROI

---

I was going to pull money that's allocated to my retirement, currently in stocks (so supposedly growing 6-8%/year) to put into this property and pay for the whole thing cash.

I have multiple part time jobs instead of one full-time, so according to my lender (broker? I probably should know the difference), I can't really get a loan.

This would've been my first investment property, so you can see that this is a nerve wrecking purchase.

The house needed a ton of work (redo two bathrooms -- including moving walls, redo kitchen, siding, etc), but it's literally 3 minutes walk from my home. I'd have to do most of the work myself to stay within the $50K mentioned above. 4-6 months of work.

I had an inspection done without electricity, water, gas. They noticed that the power line has been literally cut off. There's a big black spot behind the electrical meter. Probably a branch fell on the line, but could've been a lightening (less likely).

An electrician said that I'd spend $1,100 to restore power (based on pictures, he didn't go to the site). $2,000 if the problem was more serious, but he didn't think the wiring at the whole house was shot.

So, $1,100 to restore power + $1,000 earnest deposit to HUD only to make sure there were no other unknown issues. If I decided then to pull out, I'd be out $2,500 (including inspection).

I walked away from the deal in the last minute.

I don't necessarily regret my decision, but I want to know if it was the right call or not. I know we make wrong decisions and that's okay as long as we learn from them.

Now, based on the info above. Does it seem reasonable that I walked away or would've been worth to stick with it?

Thank you for taking the time to read through all of this.

Purchase Price $150,000

Closing Costs $3300

Repairs $50,000

total investment $203,300

After Repair Value $220,000 (I'm going with your lower ARV number to be conservative)

That means you really only were getting the property for a $17,000 or 7.7% discount from retail. That isn't exactly a slam dunk deal, especially since you were paying cash and you had to do an extensive rehab. 

In terms of rent, I personally don't think a 5.5% is very good and I expect more.