What Risk Premium do you use when buying an occupied foreclosure?

[Kristina Adams]

I am in direct negotiations with the bank on a foreclosure. They want just a little bit more than where I was comfortable bidding. I think the deal has plenty of upside potential, but what risk premium do I use if 1) I can't see inside the home and 2) it's occupied. I'm not worried about the eviction process at all, but the risk that the occupant deliberately destroys the house is my biggest concern. How often does that happen? What will homeowners insurance cover? What's a safe rehab estimate? The home was flipped just a few years ago, but I know damage can be done relatively quickly. It's small, only 1,000 sqft and inner-city low-income area, so not a high-end type of finish needed or anything. Is $30/sqft a reasonable rehab budget on it?