House Hacking Question

5 Replies

Hi,

I'm a newbie investor with one property that I lived in for 2 years and now I'm cash flowing $600/month on it. The deal literally fell into my lap a few years ago and I'm dying to do more.

I found a distressed and vacant property that my wife and I would love to house hack and live in for a couple of years. I found it last year and after a lot of work, tracked down the owner. She was extremely difficult and essentially said that if I wasn't willing to get her loan current, pay all the liens/judgements ($30k+), pay attorney fees, etc, which shockingly nobody she'd talked to yet was willing to do, then she'd just let it get foreclosed on. It is now in pre-foreclosure and I'm trying to understand my options.

Option A) Buy at the foreclosure options. My understanding is that banks will usually start the minimum bid somewhere around whatever is still owed on the property. Is that an accurate statement? Obviously they want to recapture the greatest amount they can. Which in this case the property is worth less than what I believe to be outstanding on the loan Hi,

I'm a newbie investor with one property that I lived in for 2 years and now I'm cash flowing $600/month on it. The deal literally fell into my lap a few years ago and I'm dying to do more.

I found a distressed and vacant property that my wife and I would love to house hack and live in for a couple of years. I found it last year and after a lot of work, tracked down the owner. She was extremely difficult and essentially said that if I wasn't willing to get her loan current, pay all the liens/judgements ($30k+), pay attorney fees, etc, which shockingly nobody she'd talked to yet was willing to do, then she'd just let it get foreclosed on. It is now in pre-foreclosure and I'm trying to understand my options.

Option A) Buy at the foreclosure options. My understanding is that banks will usually start the minimum bid somewhere around whatever is still owed on the property. Is that an accurate statement? Obviously they want to recapture the greatest amount they can. Which in this case the property is worth less than what I believe to be outstanding on the loan which would mean if the min bid was high enough it probably won't be sold at the auction. Will a title search show how much is outstanding on the loan? Also can I order a title search on my own or does it have to be through a title company? The property ARV is about $500k and the balance on the loan is probably somewhere around $525k. The property needs about $50k worth of work.

Option B) Buy as an REO property after nobody buys at the auction and the foreclosure process is completed. The thing I don't like about this option is that it's likely I won't get as good of a deal. Who knows the bank may decide to become the flipper and do the renovation themselves.

Are there any other options I am not considering? The Breach and Election to sell has been filed with the county so the foreclosure process has begun. Is there anything I can do to try and get the property prior to the auction (which here in Vegas is pretty competitive)? If I can't get it at the auction is there anything I can do to try and get it before it's offered on the MLS?

This property is located in Las Vegas.

Thanks for any thoughts!

KC Morgan

You could possibly short sale the home but that takes a lot of time and there is no guarantee this will work either.  There is also a possibility that someone at the auction may try to buy it also.  If you are able to bring them current you would not want to do this unless there was a guarantee you would get the home.  I think that you need to strike up a buy price and then have your closing attorney communicate with their lender to get a pay off amount.  

Good luck

When you say cash flow $600/mo remember to account for maintenance, vacancy if applicable, capex and management even if some of these don't apply. If you know you will never manage, and you decide to sell to another investor they will likely factor that into what rent you're getting to get a IRR. I'm not sure if you factor those into your purchase offers but they should be considered. Good luck!

@KC Morgan

Hello and welcome to BP.

Option A) You should go down to the foreclosure auction at Nevada Legal news and observe. You are correct that banks usually start the bidding where current balance is, which makes most properties far above ARV. If the house is worth buying, you'll find stiff competition there, all with cash in hand, looking for the same diamond in the rough you are. Generally speaking, grabbing the property pre-foreclosure is the best way, but the numbers need to work and often in Las Vegas they do not.

Option B) Much harder to find deals post foreclosure. Most REO properties are listed on the MLS and watched by hundreds of investors here in Las Vegas.

-Christopher

If you go with Option A, it sounds like you have a very hard to deal with seller on your hands which would make later negotiations very difficult and stressful for you. Just my 2 cents. 

KC Morgan

Maybe I am confused... what is the purpose of buying a fixer upper for 25k over value and putting 50k into it? Won't you just end up 75 k in the red?
Why not find a house that is AT current market value and put 50 down on it and end up with 50 in equity?
Is this a common trend in Las Vegas?

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