Foreclosure deal analysis

[Maxwell Emerson]

I need help analyzing a deal and finding hidden costs that might come up on a potential deal. Here's the background:

-House in pre-foreclosure, $42k past due, $300k remaining on loan, auction on November 22nd, house is in WA state

-3/2 house with 2450 sf

-Good neighborhood, property looks well kept from the outside: lawn is green and mowed, house paint is good, general upkeep and maintenance seems to be taken care of

-Comparable houses in the neighborhood are valued at $430-480k, and comparable rentals are around $2500 a month

-House is still occupied

Here are the numbers that I came up with:

-$200k purchase, all cash from private investor

-$50k rehab as needed: $20k for kitchen, $7500 for laminate floors, $2500 to repaint, and $20k left over for unknown costs, closing costs, or wiggle room in the deal.

-All in price: $250k

-ARV: $400k (conservative)

-Rent price: $2500/mo

-6 month cash out refinance: $400k for 75% LTV, repay investor $300k (20% over 6 months)

-Mortgage after refinancing: ~$1400/mo (30 years at 4%)

Cashflow numbers:

Rent: $2500

Mortgage: $1400 (64%)

PM: $300

Maintenance: $500

Remaining: $300/mo cash flow, with $0 left in the deal by myself and the investor

Worries, Issues, and Concerns:

*Occupant must let myself, my realtor, and contractor/inspector walk through the house prior to purchase

*based on the condition of the house, (kitchen or floors don't need to be redone) then the price point of the sale can be raised up to $250k all in

*Possibilty of not being able to refinance. If that happens then

- option 1: pay investor monthly for $1500/mo for 20 years ($360k return, or 7.2% cash on cash return)

- option 2: list the house for sale and repay investor the original $300k promised

*Possibility of existing liens- work with realtor and escrow company to ensure a clean and clear all cash purchase of the property.

Questions:

- Do these numbers make sense? I feel like I'm being conservative on the rehab, as well as monthly maintenance and fees, to ensure that even in the worst case scenario this all works well in the end.

- What hidden costs have you had when purchasing a foreclosure?

- Do you think a purchase point between $200-250k is reasonable for a property with this ARV?

- Has anybody invested in WA, specifically with foreclosures, that could offer more advice or insight into this deal?

I greatly appreciate everybody's time, advice, and insight! Thanks,

Max

[Wayne Brooks]

@Maxwell Emerson You will Not Buy this house for $200k, or even $300k, prior to the auction......that’s just delusional thinking.  When a lender Allows a short sale(the borrower can’t just sell it for less than the mortgage without the lender’s approval) the lender will be looking for something close to market value, in this case $400k plus.  At the auction, I’d expect this to likely go for $350-$425k, IF your value and rehab estimate are accurate.