I am thinking of placing an offer for a REO 2/2 duplex in Milwaukee for a buy and hold. The home has only been on the market for 3 days and all best and final offers are due on Monday.
The property is listed for $44,000 which is way below market. I walked the property and it needs some work. It needs: interior paint job, 2 stoves, hardwood floor refinishing, and needs repairs to the outside deck on the upper unit. It has 2 furnaces, 2 water heaters, that are about ten years old. The roof, while certainly not new, does not appear in bad shape to the untrained eye. The house is in a very popular/trendy area (Riverwest for those from Milwaukee) of the city, so renting it out would not be a problem. The property could probably get about $1,400 to $1,500 rent, so it shouldn't be a problem being cash flow positive. Looking at some of the comps, I think the house could be worth $125k to 140k after finishing some of the cosmetic repairs. It is assessed at $135k currently and sold in 2004 for $130k.
My question is how much should I put in for an offer? Should I do all cash? Should I offer over list price? If so, how much over list price. I'm not certain if the bank will review all offers and give people another chance. It seems like it's a one time deal to make an offer. There were multiple people touring the house when I was there since the house is so below market value. I am a new to this and still looking for my first deal. I have no experience as far as what to offer in a situation like this. I have the ability to offer all cash and still be able to do the repairs that are necessary. I would then refinance as soon as possible.
I'm assuming my best bet would be to do all cash at least at list price without asking for any concessions and with a short window to close. I would still want to do it contingent on a home inspection as I am not experienced enough to wave that part of the offer. Any thoughts from all my fellow members of BP who have much more knowledge and experience than myself would be appreciated. FWIW, the MLS number is 1382026.
These REO deals are usually not 1 and done. The bank is likely to take a look at the bids and then come back asking the highest of the bidders for their best offer. Don't bid against yourself!!! Establish your MAO and DO NOT go over it.
For my part, it seems like you need to do some more work on the comps to get a firm ARV. Is it closer to $125k or $140k? And, you listed what you felt the repairs needed would be, but what is the cost of those repairs in Milwaukee?
If I assumed an ARV of $125k and use the standard flip or wholesale formula and just figure $10k for repairs my MAO would be $70k. That's (ARV - rehab - fixed costs) * 70%.
You are buy & hold, so you can get away with a higher % of ARV. Plus, I don't know what your financing strategy is or what your cash down would be.
Hope that helps some.
I don't know the rules of the bank selling the property. Will there be a call for a highest and best offer or will there be time to do inspections.
As far as numbers, if you can buy, spend $10,000 in fix-up, and rent for $1,450 per month, experience a 50% expense ratio you will enjoy NOI of $8,700. If you apply a cap rate of 12% to the NOI you get a price of $72,500. Since you need $10,000 for repair the highest price to buy would be $62,500.
“all best and final offers are due on Monday”
Do not get stuck into over paying for property.
Know your maximum purchase price and stick to it.
" It is assessed at $135k currently and sold in 2004 for $130k. "
Look at the city assessed value and now wipe it out of your mind.
Go for the cash flow and possible appraisal value for your final numbers.
You most likely will need all cash to pick up this property and
refinance as soon as possible.
Piece of advice: remove the mls number from you above thread comments <-
Good luck moving forward
I would ideally like to put 25% down and finance the rest. However, I feel like a cash offer would be stronger in a situation where there are multiple offers. I do have the ability to do cash so I am leaning in that direction. I would estimate repairs and such to be about $10k to $15k but I am a novice as far as that goes. I'm glad to know that banks will usually allow a second round of offers after the initial deadline. We are still trying to find out the exact rules of the bidding process as the deadline was just announced today. How long of an inspection period should I put in the offer if I go all cash route in order to make my bid competitive?
Thanks for the note about the MLS number Jenkins. I will try to remove if I can figure out how.
Offer cash with a 10 day close. You should be able to get an inspection in a week and they will know you are serious.
My guess is it will go for 60k but that is a pure SWAG.
I totally agree with @Jenkins Ramon , wipe the city assessed value out of your mind, lol
All good answers. Go with Hattie on the numbers, but I would go much lower based on the list price. Remember, other investors are using the same information you are. So, to get your offer accepted over theirs, offer cash with no contingencies. They may offer more, but contingencies say to the bank, "this deal could fall through."
It sounds like the list price is a good value. I would offer full list price, as-is, no contingencies, cash (if you can), close in 10 days. The bank can't close in 10 days anyway, but it sounds good on an offer. REOs are usually as-is anyway. They will not repair anything from the inspection. You are going to rehab it anyway, so an inspection will just state the obvious. It needs rehab.
I only mentioned the assessed value to give some general information about the property. I know the assessed value has no bearing on the fair market value, particularly in Milwaukee.
I did put in an offer in for a little over list price, as-is, all cash, with no contingencies and a 10 day closing--very similar to what Anthony suggested in the above post. All offers are due on Monday so we will see what happens. Thanks for all the replies and advice.
good luck on it, let us know how it goes!
Did not get the property. There was no opportunity to make more than the initial offer. So when the bank said all final and best offers due on Monday, they meant it. I will be interested to see how much the property sells for. Obviously more than 10% over list price.