Pittsburgh area foreclosure,first deal, is this a bad sign?

Question

HI, i posted about this property a week ago and i have a follow up question. would you be interested in a property that has been on the market for a very long time? or would you make assumptions that something must be very wrong with it and walk away?

it's a distressed property so of course there are some things wrong.it's freddie mac REO, way past the owner occupant period which ended in january 2018. it was originally listed at 50k dec 2017. went under contract in july at 42k, now it came back at 38k. but looking on redfin it was on and off the market since 2012.

its in a neighborhood where houses are selling between 70k - 135k. in fact the 135k looks just like this one and its on the same street. on the inside it's pretty nice, seems like just paint and flooring. might need new mechanicals etc and some mold in basement.

so as a newbie i'm thinking, what am i missing? is the fact that no one else has bought this mean i should steer away from it? it's in new ken in a nicer neighbor hood of that area. hoping to walk through a 2nd time this week with contractor friend of mine to get a rough idea of total costs for everything before moving forward with an offer.

thanks in advance for any input!

Alex Deacon · Answer

@Laura Srocki I think we had discussed this recently. It does raise a red flag being on the market that long but if you can get it at a very very low price and your risk level can be greatly reduced and if you use very conservative numbers on rent and and very liberal numbers for repairs and vacancy then I would consider moving forward. Its wont cost you anything to make an offer of $15k and see what happens

Michael Garofalo · Answer

@Laura Srocki, I view properties that have been sitting on the MLS for a while as great opportunities. Of course if this house is distressed, the average person is going to walk away. If comps are going from 70k-135k, I would use the 70k figure as your base and then work backwards to see what the total rehab cost would be. Mold remediation is not cheap and I'm sure there is at least one hidden surprise you would uncover if you did this deal, so be sure to add a 10% overage factor for whatever your contractor friend estimates.

For the average flipper this deal probably wouldn't command a high enough profit margin to justify the work involved, but if your goal is to buy-and-hold, this could be a real winner.

Alex Deacon · Answer

@Laura Srocki I think at some point the asset manager for these REOs will accept lower than 12%. You have to catch them at the right time.

Laura Srocki · Answer

@Michael Garofalo thank you that makes me feel a little better about that. I wanted to be all in for 50k maybe a little more. I’m figuring 52k would be about 75% if 70k. So that would keep me 25% under market value. So as long as my rehab budget plus 10% or possibly more for overage would be pretty safe?

Michael Scott · Answer

@Laura Srocki I would argue that not a lot of people flip homes in New Kensington since it is a bit risky and more of a rental market. I wouldn't let the fact that it's been on the market for a while deter you from making an offer. However, since this appears to be your first purchase I would be careful and recommend a home inspection. Also when making the offer make sure you plan for the worst case scenario on the repairs and the ARV.

I actually did a flip in the Mt. Vernon neighborhood about a year ago. It was a HUD home and also on the market for quite a while. It ended up being a great opportunity and we made out very well. Good Luck!

Account Closed · Answer

First of all, look at how long other properties are taking to sell and then determine if the marketing period has been "too long" or not - not all markets sell the same. That said, the typical marketing time is the best indicator of how well a market in fact sells. All said, there can be numerous reasons a property is listed for an extended amount of time that have nothing to do with the physical condition of the improvements. I get this question from lenders all the time when a property takes longer than typical to sell. They get all worked up about it when in most cases it has nothing to do with much of anything! Possible reasons unrelated to physical condition could be: original list too high, poor marketing, unresponsive realtors (yup, it happens), prior deals falling though, and last but not least, timid buyers like yourself who think there is something wrong with a property if it doesn't immediately sell!!!

I am in no way saying there is nothing wrong with the property. You should absolutely check all your bases. But, maybe you just stumbled on to a great deal over-looked by everyone else! Would that be so horrible? It has been known to happen - lol. Good luck!

Pete Barrow · Answer

It's hard to say what you're missing, but the way to bet is that there is some such thing.

It is extremely unlikely that this is a good house for you to get rich on, when every experienced investor in your area has chosen to pass on it for six years.

It might be a good house for someone who can assess it and has just the skill set to fix it up well and economically. And if such a person comes along, he's probably going to want to get it for half of asking.

Like a poker player who folds most hands, it's not unusual for an investor to look at many hundreds of houses for every one he buys. I would say you should look at a lot more houses.

Dave G. · Answer

Do your due diligence and trust the numbers. How many other investors are out there that may be shying away for the same reason you inquire about? DOM might now be a self-perpetuating situation....until someone comes along, does an objective & thorough evaluation and buys it (you?!).

Laura Srocki · Answer

@Alex Deacon thank you and whens your next workshop?

Michael Garofalo · Answer

@Laura Srocki, yes if you could be all in for $52k, that would turn out to be a great deal. You should also factor closing costs into your equation as well (I am overly-conservative and always factor that in) but even then, this would still be a great buy assuming you could get it rented for $550 or more per month

Pittsburgh area foreclosure,first deal, is this a bad sign?

Pittsburgh area foreclosure,first deal, is this a bad sign?

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