Should I buy this bank owned home for 3000?

Rehabbing & House Flipping
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Should I buy this bank owned home for 3000?

Nandy B.
Rental Property Investor · Los Angeles CA · Member since 2016 · 128 posts · 55 votes

An opportunity just came up for me to purchase 2 separate 2 bank owned properties in a rural area where I grew up (I moved after college and now live a big city).

♦️House 1 - 

About $3000 with double closing cost total purchase of 5500

894sqf -- 2 bed 1 ba on about 1-2 acres of land (will have to do a survey)

Will need about 20k worth of work

Can rent "if it does" for about 550-650

I would give out more comps buy it's a very small farmer town of about 1300 people so none really exist.

♦️House 2

About $10000 similar closing costs about 2000.

1168sqft -- 3 bed 1 ba on about 1/2 acre along with a large shed that could be a mother in law suite.

The house has been completed gutted and ready to build a new. Will need about 30k worth of work

Can rent for about 650-850.

They just build a new hospital in the area so this city has a little bit more potential.

OPPORTUNITY

I have primarily been a buy  and hold investor who s done cosmetic updates. In the past 2 years I have learned a lot about basic cosmetic repairs (I know how to do doors, floors, framing work, baseboards, trims, etc...). 

I see this as an affordable way to learn how to do more challenging renovations.

I would love to be able to invest in a flip here in Dallas but lack the confidence and experience. This could be an opportunity to develop both.

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John Teachout
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
7y

$150k is west coast prices. Around our area you could build from dirt a house that size for less.

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  • Jeff C.
    Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    7y

    Roughly 1200sqft of gut rehab will run a lot more than $30k. Also if these are bank owned why would you be paying for double closings? Sounds like a wholesaler presented you with this "opportunity"?..

    0Reply
  • Nandy B.
    OP
    Rental Property Investor · Los Angeles CA · Member since 2016 · 128 posts · 55 votes
    7y

    @Jeff Cagle

    The realtor told me about the double closing. I plan to push back on that if I do make the offer or offer a lower purchasing price given that the property has been sitting there for over 200 days.

    Yes I do agree my estimations are very rough. I need to work on that.

    It's a small town, so the labor rates are lower. Some of the labor will be performed by us. I also plan on putting in the very basic fixtures, appliances etcc

    The 1st house won't be a complete gutt but the second one is already completed gutted it just need to be framed and have walls put in.

    0Reply
  • Parker Eberhard
    Contractor · Seattle, WA · Member since 2019 · 339 posts · 325 votes
    7y

    @Nandy B. Does it need new electrical, plumbing, drywall, flooring, insulation, siding, windows, doors? You’re looking at $150k + remodel right there

    0Reply
  • Nandy B.
    OP
    Rental Property Investor · Los Angeles CA · Member since 2016 · 128 posts · 55 votes
    7y

    @Parker Eberhard

    Is that for 1 property or for both??

    Please give me a breakdown of where you are getting the 150k??

    1Reply
  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    7y

    $150k is west coast prices. Around our area you could build from dirt a house that size for less.

    2Reply
  • Account Closed
    Property Manager · Winston Salem, NC · Member since 2016 · 63 posts · 27 votes
    7y

    @Nandy B.  Double close sounds like a whole seller. Don't let him trick you to thinking he is a investor or a Realtor. Total I added up the estimates on both and added both high end rents. Might not be a good move if you want to keep them. But I'll leave that up to you. Shop around to find a good contractor (s). 

       I won't say anything about how to fix them up or what to place in them but I wish you the best. IF you have any questions you can hit me up. I don't mind helping where I can. 

    1Reply
  • Nandy B.
    OP
    Rental Property Investor · Los Angeles CA · Member since 2016 · 128 posts · 55 votes
    7y

    @William Goodlett

    Both of these properties are on the MLS.

    Unless whole sellers list thru Keller Williams.

    I definitely hear all of your input and will consider them all.

    Thank you

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    7y
    Originally posted by @Nandy B.:

    @William Goodlett

    Both of these properties are on the MLS.

    Unless whole sellers list thru Keller Williams.

    I definitely hear all of your input and will consider them all.

    Thank you

    Whole sellers do not list through Keller Williams. However, scammy whole sellers will make an offer on a house listed on the MLS, put it under contract then find a sucker who will buy it from them at a price more than they are buying it for. Then they do a double closing, and stick the buyer with their closing costs, twice!

    If there is a double closing, just check the records at the recorder of deeds office and make sure your contract is with the owner, not a whole seller!  Double closing means something is up, and its not good for you.

    0Reply
  • Mike Sedlacek
    Portsmouth, VA · Member since 2015 · 330 posts · 191 votes
    7y

    Here is what you do. When you put your contract to purchase these properties add this clause to the contract for closing costs. " Seller to pay Buyer 3% to be used towards Buyer's closing costs, prepaids, selling firm fees or any other use at Buyer's sole discretion, as allowed by law.

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  • Nandy B.
    OP
    Rental Property Investor · Los Angeles CA · Member since 2016 · 128 posts · 55 votes
    7y

    @Mike Sedlacek

    Your awesome!!

    Thank you for the very practical and to the point advice.

    Nandy

    0Reply
  • Nandy B.
    OP
    Rental Property Investor · Los Angeles CA · Member since 2016 · 128 posts · 55 votes
    7y

    @Lynnette E.

    You were right!!!!

    It is thru a wholesaler!!

    They are freaking out because the property hasn't been selling. They are trying all they can to sell it. But only digging themselves deeper. I did make them an offer for lower the purchase price and only the Byers closing cost with closing as early as 1 week.

    They can take it or leave it . I m not the one who s desperate here. I have options.

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    7y
    Originally posted by @Nandy B.:

    @Lynnette E.

    You were right!!!!

    It is thru a wholesaler!!

    They are freaking out because the property hasn't been selling. They are trying all they can to sell it. But only digging themselves deeper. I did make them an offer for lower the purchase price and only the Byers closing cost with closing as early as 1 week.

    They can take it or leave it . I m not the one who s desperate here. I have options.

     Don't even go through the whole seller, go directly to the realtor with the listing.  Tell him/her that they have a contract with a whole seller and you would like to make a back up offer for when the whole seller falls through on his contract.  Then offer what you want.  This avoids the whole seller's mark up and the double closing.  And you might get a great price too! And you can get title insurance.

    1Reply
  • Donald Robers
    Kenosha, WI · Member since 2015 · 89 posts · 81 votes
    7y

    @Nandy B. - No matter how this deal works out you learned a lot about REI, and you did it without losing a bunch of money. You showed great initiative and good sense by running this past the people on this site with more experience. Those traits will be of huge value going forward with any career.

    And kudos to all of the knowledgeable posters who rapidly divined the truth behind this transaction.

    2Reply
  • Nandy B.
    OP
    Rental Property Investor · Los Angeles CA · Member since 2016 · 128 posts · 55 votes
    7y

    @Lynnette E

    Thank you for your input... I do have to ask some follow up

    The guy thru Keller Williams insists he s a realtor and not a wholesaler

    We looked at the propertye and there was a "note/ad" from a wholesaler company asking for an even lower price than the one listed on realtor.com. The realtor wants to see proof of funds...

    It looks to me like the wholesaler is marking down and the "realtor" (who insists is not a wholesaler) is the one marking up and asking me to pay the double closing.

    How do I handle it?

    I would hate to involve my realtor on a $3k deal I feel like it's a easy of their time.

    I do want the house but will not pay more than $5k total for it. I ll either offer a lower purchasing price $1900 and pay the double closing or a price closer to the listed price for only buyer's closing $2500.

    That's the offer I was going to make the realtor.

    0Reply
  • Nandy B.
    OP
    Rental Property Investor · Los Angeles CA · Member since 2016 · 128 posts · 55 votes
    7y

    @Lynnette E.

    I ll clarify with the realtor...

    Is a double closing the same as paying both closing costs.

    The realtor said double closing but he went further and said the bank wanted me to pay "their" closing costs.

    I ve asked the seller to pay my closing costs before and that was normal, are they in this case asking me to pay their closing costs or pay to close the deal twice?

    I ll clarify with the realtor, but if he s a "scammy" wholesaler he probably won't be honest.

    0Reply
  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    7y

    A double closing means the property is technically changing ownership twice, one right after the other. I'd avoid it in this case. eg. A is selling to B who is selling to C (you)

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    7y
    Originally posted by @Nandy B.:

    @Lynnette E.

    I ll clarify with the realtor...

    Is a double closing the same as paying both closing costs.

    The realtor said double closing but he went further and said the bank wanted me to pay "their" closing costs.

    I ve asked the seller to pay my closing costs before and that was normal, are they in this case asking me to pay their closing costs or pay to close the deal twice?

    I ll clarify with the realtor, but if he s a "scammy" wholesaler he probably won't be honest.

    A double closing is when the property is sold by one owner to a purchaser who often has no money and does not intend to keep the property. (And yeah, its usually a scammy whole seller.)   The property is immediately resold to another person hence the double closing.  

    And it appears that he wants you to pay for the totality of both closings, which is stupid on your part if you do since they are having trouble selling the house.  At most you should pay the normal and customary buyer's closing costs for only one--your--closing.

    And if the whole seller price is lower, its because the realtor/property owner has agreed for the whole seller to buy the house at a much lower price.  You should think about making an offer at lower than the whole seller's price to the realtor.  That lower price is because the whole seller is making a profit too. And make a note that the listing agent is getting all of the small commission, there is not a separate realtor for you.

    The double closing does not make sense though as it appears that they are asking you to fund the first closing and something is going on with the title that the seller doe not have title.  Could be a death, RE transfer outside of probate, or whole selling, or private mortgage that is in default.  Be careful, seek details and make sure you get title insurance because something is going on..

    1Reply
  • Nandy B.
    OP
    Rental Property Investor · Los Angeles CA · Member since 2016 · 128 posts · 55 votes
    7y

    @Lynnette E.

    Thanks

    It's not a "double closing" the realtor used the wrong term.

    They want me to pay both the buyer and the seller s closing cost.

    I also just found out that the wholesaler is the LLC that has ownership of the tittle.after I placed the offer she asked me if I wanted to negotiate bcs they suddenly got multiple offers.

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    7y
    Originally posted by @Nandy B.:

    @Lynnette E.

    Thanks

    It's not a "double closing" the realtor used the wrong term.

    They want me to pay both the buyer and the seller s closing cost.

    I also just found out that the wholesaler is the LLC that has ownership of the tittle.after I placed the offer she asked me if I wanted to negotiate bcs they suddenly got multiple offers.

    Sounds scammy still.  If its listed and he sells it on the side, the realtor generally still gets the commission, so why undercut the realtor's listed price?  

    And if there re multiple offers, let it go, there are more houses available.  Likely there are not any offers but yours.  Tell him to circle back to you if the other offers do not pan out.  That keeps the doors open for you, but does not require increasing your price.

    2Reply
  • Account Closed
    Property Manager · Winston Salem, NC · Member since 2016 · 63 posts · 27 votes
    7y

    @Nandy B. how has the process gone?

    0Reply
  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    7y
    Originally posted by @Nandy B.:

    @Lynnette E.

    Thanks

    It's not a "double closing" the realtor used the wrong term.

    They want me to pay both the buyer and the seller s closing cost.

    I also just found out that the wholesaler is the LLC that has ownership of the tittle.after I placed the offer she asked me if I wanted to negotiate bcs they suddenly got multiple offers.

     I would slow play it, I don't believe for a moment that they magically got 2 offers.

    Honestly, I don't know if these houses are worth anything.  My guess is if the wholesaler is having problems selling it, others who have looked at the deal are either nervous about the price of the rehab, or finding decent comps, or are worried about the ability to find tenants, or all three.

    I think it will be really difficult to do a full rehab for 30K.  Just the kitchen will probably run you 20K, a bathroom will cost you 5-6K.  4-5K for AC, a few thousand dollars if the electrical and or plumbing need to be redone, and call it 3-4K for new flooring, and a couple of grand for paint, and trim.  Is the roof & foundation ok?  those can run you 4-5K each.

    Throw in taxes, and its tough to make any money at $500-600/M in rent.  If by the time you add insurance and property taxes.

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    W/o Posting some photos showing the actual condition, I am afraid they are not detailed enough. 

    0Reply
  • Lam N.
    Rental Property Investor · Troy · Member since 2017 · 175 posts · 271 votes
    7y

    First rule of REI is do not get emotionally attached to any property. Several people have outlined that this is a bad deal. Walk away.

    Do not listen to your instinct or feelings. The numbers don't really work out. This is what separates RE investors from normal folks. We know it's just business while normal folks follow their feelings. 

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