Hello Bigger Pockets,
I am a United States Marine, and i've been looking to break into small multi-family investing for a few years now. After a lot of research and analysis, I have finally put in my first offer!
The property is a 5 year old duplex in Southern Missouri. Each unit is 1800 sq ft with high end features, such as: Granite counter tops, top of the line cabinets and vanities, 10 ft ceilings with crown molding, top of the line appliances, wide open floor plans with travertine floors, 3 beds 2.5 baths with a garage and an upstairs balcony. VERY NICE units in a B+ neighborhood. Heres the catch...
This property is a foreclosure listed at 230k. Only one side of the duplex is currently rented out, and to a Section 8 tenant playing a mere 800 per month. Their lease is up in January 2016. The comps in the area state that this property should bring in at least 1100 per month.
The exterior needs some maintenance, mostly cosmetic including minor water damage on trip boards and paint. The driveway was never completed from the original construction. The interior needs minor touch up as well as paint and new carpet in the upstairs.
My contractor did a walk through and estimated the repairs total 60k. I could honestly do all but about 20k of the work myself as I live in one side for a year.
On top of that, the listing agent knows the bank president personally, and has practically begged us every day for the past few weeks to put in an offer, ANY OFFER.
So I did. Considering all of the above, using the rental property analysis tool here on Bigger Pockets, I can afford to pay 150-160k max for this property. All while taking into consideration the lower than market tenant for a few months, repairs and all other costs of occupying this property.
From the asking price of 230k, my offer to the bank was for 140k, contingent upon inspection and appraisal. I pay my own closing.
The bank countered yesterday for 173k.
After discussing this with my lender, He stated that they would need to fix the exterior water damage before closing.
They are obviously taking my low offer seriously and are willing to play ball. Whats my next move? I was thinking of countering with 150k, same contingencies, and then in addition to add the water damage repair before closing. Any thoughts?
What would 1 unit like that rent for in that area?definitely go back and tell them 150k is your max!!
@William Donnelly - I second increasing your offer to 150k. That would be a pretty good buy if you can pull it off. You are better off doing the repairs yourself if possible - 60K can fix a lot! I am curious as to why the rented it out section 8. They may have had a hard time finding tenants...
The only issue is, with my VA loan, my lender wants all repairs done BEFORE closing. So it appears the seller will have to agree to this. Also, do banks normally agree to pay closing costs? I just figured its already a stretch getting them 80k below asking price...
Banks typically dont want to do the repairs but they might play ball on it. If your using VA I am assuming you will live in 1 unit. FHA is another option but also requires you live in 1 unit. I like the idea of countering $150k w/ bank fixing the issues required to be fixed for you using VA Loan
On this foreclosure, the bank postponed their initial counter offer until 5pm the next business day. At that time, they took back their counter offer and actually ACCEPTED my offer of $90k less than the asking price!!!!!
Needless to say, they are not willing to pay out anything else in the form of repairs, closing costs etc. So, I'll be responsible for paying the closing costs and any repairs the appraiser finds before the VA will close on the loan. Personally, with such a great deal and at least $100k instant equity on the property, I see no issues with paying closing costs out of pocket. The lender did mention raising the interest rate in order to establish an interest credit to help offset the closing costs out of pocket. Obviously this would increase my monthly mortgage payment slightly, less than $100. Is this a good idea? Does anyone have any experience with this interest credit?
Still, totally worth it in my opinion!
Also, the appraiser from the VA will be the determining factor on any required repairs. Although i'm not a contractor, the only damage that I noticed was some slight cosmetic water damage in a few small places on the exterior trim boards. Hopefully this doesn't derail this deal. Any thoughts on that?
Go talk to a couple more lenders. Talking to lenders is free. Compare all expenses. Simple as that.
VA appraisal follows the property for 6 months. If appraiser calls out repairs, and you choose not to fix them, the bank will be forced to fix them if they want to sell VA in the next 6 months. Because of this, VA buyer has the upper hand.
this is great news, congratulations on your good deal. I am inspired by the posts here and will "stand fast" on my price for a property i am bidding on through home search.com. They seem to be ending the bidding with no winner but then selling the properties at below reserve price to whoever the highest bidder was, plus 5k (based on an analysis of 2 sales so far, so not very many data points.)
So glad you got a deal and thanks for giving us the update!
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