Help Me Analyze! (Foreclosure Purchase)

[Jeff Lee]

Purchase Cost: Paid $66,250 (all cash), home inspection ($350), title (?). I'll just go with $67,000 to make it nice and even.

Details: 3 bed/1.5 bath, 1312 square foot

Objective: Simultaneously list for rent or purchase

Links:
https://imageshack.com/a/T5Iz/1 - Interior Pictures
http://goo.gl/HaRS36 - Zillow

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My cousin, the handyman, has looked it over and suggested the following:

Exterior: Patch the roof, fix/replace eaves, fix carport ceiling, paint, and removing that big tree on the right-hand side. (He estimated $2k off-the-bat and an additional $1,500 to remove the tree. I'm splitting the cost with the neighbor.)

Interior: Tile the hallway/kitchen/bathrooms, put in basic stove/fridge (nothing more), install new drywall in the kitchen/dining room, and apply fresh paint.

I want to do a bit more such as replacing the cabinet doors (I'd go with flat-panels), replacing light fixtures in the dining room, and putting in faux wood blinds. But he suggests we do what is absolutely necessary and see what the cost is before going on to the upgrades.

My thought process at this time is to list the house for rent ($1050-1100) and sell ~2 weeks before it is completed. I don't know how much I'd sell it for though. I'm thinking ~$115,000. A majority of houses in the neighborhood are aiming for $130-145K (http://goo.gl/ycjs42).

My mentality is, "I want to give potential buyers some flexibility. They may be content paying a lower price and not having granite, a new roof, new A/C, etc. If a buyer wants a new roof or cabinets, we can work out it in the contract and what not." A buyer may work out the numbers and figure out they'll spend a total of $120-125K to get the house they want it versus paying $130-145K.

Of course, if I find a qualified renter, then I go with the renter. (Personally, I'd go with a buyer.)

All thoughts and opinions are welcome!

[Nuhan Demirkan]

Jeff, I am not familiar with LA market but I can give you some ground rules to consider. Before breaking out the check book to buy the property you must first have a pretty definite idea about how much it will be worth after repairs (we call this ARV for after repair value). If you are going to rent the property you have to have a pretty solid idea of what it will rent for. If the ARV is $130K in your scenario, you multiply it by 70% = $91,000. This is your purchase, rehab and settlement cost on the buy side. If you are going to put it on the market for sale for $130K, figure about 9%-10% closing costs.

You paid $66,250 for the property, 91,000 - 66,250 = $24,750 is your rehab budget.

Listed price $130,000, less 10% closing cost = $117,000 your side of the HUD1

$117,000 - $91,000 = $26,000 projected profit.

I would not involve the prospective buyer in on the rehab decisions it will open up a can of worms you don't want to deal with. Rehab it, put it on the market and let the buyer purchase it.

If you are going to rent it, know what the rental rates are. If they are $1,050 per month or $12,600 per year subtract taxes and insurance. $12,600 - $2,000 (estimate) = $10,600. Subtract any maintenance, management and vacancy rates (10%) = $9,500. If you spent $91,000 to buy plus rehab your annual cash on cash return is 10%. You can play with the rehab cost to lower it but this is the basic idea.