Purchasing a Foreclosure property

2 Replies

I want to put a 3Bdr 1Ba 1,328 sq ft Foreclosure property under contract.  The list price is 150K.  They will not accept any offers lower than asking.  I estimated the rehab to be between 45k and 50k.  Homes in the area have sold for as high as 253 k.  Can this be done with this list price?

You Could, but with an REO you'll need a legit POF or preapproval, you won't be able to assign it, and you likely won't find a flipper willing to pay that price, let alone with any fee on top of it.

@Regina Joners work your way back into the deal. Have your agent run comps for the last 90 days, see what type of finishes the houses had, and look at DOM to see how long it will take you to sell. Once you have all those important numbers, a SPOT on rehab budget with 10-15% contingency, then you choose your profit, then you get your offer number. 

So lets say 253k ARV

253x.75= $189,750 ($63,250 buffer, minus closing, holding, fees, etc.)

189,750-rehab (50k) = your offer ($139,750)

This is just to show you the process. 

My thoughts: 

  • 50k rehab seems cheap for a 253k house in CT. I can get a 1300sq ft house done for 50-60k hired out, only cosmetics with new kitchen and baths. 
  • Know your prices on your capital, are you paying private or hard money? Understand the true costs when you put it through the BP calculator. Those work great for this. 
  • I did 75% of the ARV. Adjust this for your comfort level. Some use the 70% rule.
  • Understand your comps, a agent will get you the data but it is your job as an investor to really know what you can sell it for. Especially as we go into a winter session where sales start to slow down and purchase prices decrease. The holding costs alone on that big of the deal can eat your profit through winter. 
  • THIS is the best advice ever I can give you, have your number, and STICK to it. Don't negotiate with yourself, "oh I will take a 20k profit over my rule of 30k per deal." This will be very hard to resist in the early stages of your career. (I learned that one from J Scott:)

Best of luck!