What makes this a good or bad deal?

Question

Currently there is a house across the street from me that was a foreclosure that is for sale for $10,000 it is an older 3 bedroom home that two years ago would have probably sold for $50,000 the area I am in has one duplex and two single family homes that are rented all most constantly. Plus my one bedroom apartment above my garage that my current tenant has been there for 3 years. I could easily get the money for this home by refinancing the mortgage on my house which would save me a point or two in interest and may not raise my payment more than $20. My preliminary numbers on the house are $1400 year taxes and $500 insurance, should rent pretty quickly in the range of $500   What are reasonable numbers to figure for repairs, and what am I missing?

Mark Yuschak · Answer

Yep, that's very normal.  99% of all foreclosures want to see the proof of funds or preappoval letter in order to review an offer.

Eddie Ziv · Answer

Scott. I would add to the list a foundation water treatment and a sum pump. It should prevent flooding if done by a reputable company (Dwyer is one of them). If it doesn't require any digging outside the property, you are looking at about five grands. I had it done in one of my properties and so far so good. Also, some of those companies offer financing through Wells Fargo Home Projects with no finance charge for one year. If you play it right, the rent should be able to cover that in one year.
It seems like an excellent deal, so go ahead and grab it. Just remember one more thing, if you buy dirt cheap cash, even if you have to invest in repairs, you will recoup the money rather quickly.

Good luck

Chris L. · Answer

Scott,
I would want to get a good estimate on what it will take to get the storm sewer fixed.  
Let's say the city won't fix it.  You have tenants in there and the basement floods, I can envision scenario's where they will want out of the lease, damages for ailments, and even ask for you to pay for a hotel room for them.
Now, this does not mean that you are obligated to do any of those things but you are potentially setting up a rental that may be more of a headache than it is worth.
I have walked through many homes and written down: NFF
As in, Not For Free.
I would advise caution with a flooding problem that is not resolved.

Scott Conner · Answer

May not be the right place to ask this, but here it is.  I found another little house in Wabash, I have been in it before as some of our friends were buying it, up until the divorce. It is a foreclosure listed with a local realty. The listing states that in order to make an offer you have to have proof of funds, or letter from financing institution guaranteeing funds plus earnest cash. Is this normal?

Scott Conner · Answer

I now know why he walked! 
                    To put it simple NFF  It does not have a "furnace" it has a boiler. I saw two broken hot water lines to the upstairs registers, and have no idea the condition on the boiler.  The upstairs bedroom has a pole holding the ceiling up and you can see a big dip in that area from the attick. Plus there is plaster falling out all over the house. 
 The house does have a nice kitchen and some beautiful wood work. However I would not mind a week or two's worth of work but this will need months or BIG $ to get it rented.

Off to find my next possible victory!

Chris L. · Answer

Scott,
I was guessing that was the case.  You have to walk through a lot of houses to find the right ones.
Keep looking and good luck.
Chris

Marcus Ware · Answer

Hey Scott. How often do the taxes increase?Get those repair numbers nailed down. If your buying for cashflow you may cut it close if repairs are miscalculated. Definitely equity rich.  Go for it!!!

Scott Conner · Answer

After I get in it tomorrow 5:15 pm I will let you know what I find.  This water problem typically only happens 5 to 6 times a year and his sump pump was always able to keep up. When we get heavy rain and there is a lot of debri (leaves and such) in the street it blocks the drain and the street floods. There are drains on both sides of the street, if I open the one on my side it is no problem, but if the city came and opened the one on his side before very much was drained then he got water, if the street did not flood he never got water.

Thanks to all for the insight.
          
          Scott

Scott Conner · Answer

Very good points. I just wsh I knew how much he tried to get the city to fix their problem.

Scott Conner · Answer

I have $2000 dollars easy maybe $3000 available to get this started. Ant ideas on quick money to complete? At least until the refi is done? I have an appointment to get in the house tomorrow, here is what I already know. I have lived across from this house for 14 yrs and the same owner had been their the whole time. He worked on the house a lot and did many major repairs including putting a new front porch on the house. This house will need very little to get it rented, appliances and new furnace is about it. Known problem, the storm sewer tile is broke in the alley beside the house, when it rains hard the broken tile goes into the basement. He has tried to get the city to acknowledge and fix the issue with no luck. My fear is sitting this summer with no electricity that the basement will be full of water!

What makes this a good or bad deal?

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