All Forum Posts by: S Man

I put in an offer on an REO and hadn't decided whether to pay cash or finance it. So on my offer I had to stipulate that I would allow the seller/bank to cover closing costs up to 3% only (no more), because most mortgage companies view anything over 3% as a red flag that the buyer doesn't have enough cash for the transaction which increases the loan risk.

I have read that buying at the courthouse steps can also be problematic in terms of determining clear title ownership and researching other liens against the property (never mind the need to eventually evict the occupants). What kind of research do you perform to make sure you know what you're getting into?

Christian, where would "foreclosures bought on courthouse auction steps" rate on your scale? It's not a pre-foreclosure and it's not quite an REO at that stage either.

Just curious for your opinion as we will see thousands of properties hitting the courthouse auctions this August (in Georgia's Fulton and Dekalb counties alone)...

Shi'Mere, could you please share more information with forum readers on this?

Which bank allowed you to use the assignment phrase please?

What contingency did you use to back out when your buyer backed out?

And if the property was under contract, why were you expecting them to continue negotiating on price?

Thanks.

Just heard back from the bank on my offer:

============
Offered $148k
Earnest money $2k

Listing price $223k
-but the foreclosed loan was only $185k; listing agent must have an inflated opinion of the property.

ARV $230k+

Bank (GMAC) requires closing with their attorney.
===========

Bank flat out rejected my offer, no counter. Interestingly, the Listing Agent said he now had permission to drop ask price from $223.8k to $199k! I am walking away and will check back on it in 3-4 weeks to see if they've come to their senses.

I agree, you'll want to get separate credit for your company to establish its credit history. I have had a non-REI corporation for years (not an LLC but pondering it currently) with separate bank account, EIN, retirement account, etc. When a biz credit card offer came in I verified it wasn't based on my SSN as I also did not want that line of credit to impact my personal credit score.

You may want to discuss the implications of this with your accountant. For example, sometimes they suggest you draw a salary from your LLC/company to improve the legitimacy of the entity.

I agree with the previous 2 posters, submit your offer in writing with earnest money to get a bank response. Try to limit the # of contingencies in the offer.

Cash offer with quick closing may help, and a hefty earnest check (maybe 10-15% of the amount) will show that you are serious.

Full disclosure Ingrid: I have yet to close my first REO deal (not for lack of trying) so my words are for encouragement more than expertise!

Good luck.

The 50% rule is a good one; I'm not familiar with the 2% rule. Keep in mind that my calculations don't really set aside a good rainy day fund for those occasional repairs/replacements that many of the experienced posters here talk about. I may get a home warranty to deal with a lot of that stuff, and I will likely be the Prop Mgr for a while until rents creep up enough to afford one, but if I can cover my costs (or come real close) the first few years then I expect rents to rise along with my equity and it will become a more solid investment.

In the spirit of full disclosure, I don't want you to think that you can pick up a bunch of deals that cash flow like this and sit pretty as a landlord; maybe 1 or 2 at most until the rents edge up, and even then only if rents increase faster than other costs. I'm really counting on buying it below market value and then getting some additional appreciation, what some would call "speculation," but I'm willing to do this based on factors such as location (intown Atlanta and near a major university and hospital, historically low county property taxes, good condition home, potential to add onto the home for forced appreciation).

Anyway, let's see how the bank responds to my offer...

Sure Matt, here are my calculations. Thoughts or questions?

purch price $148,000
repairs $3,000
down pay $29,600
closing costs $4,000
mortgage $118,400

Holding costs (PITI) $1,233 Total
monthly mortgage paymt $727 assume 6.25% rate on $118k
monthly maintenance $50
insurance (monthly) $83
Utilities (avg monthly) $10
taxes per month $333
property mgmt fee $-
termite bond $29
advertising fees $-
HOA fees $-

est'd taxes $4,000
taxes per month $333

opp'y cost -down paymt $92 [I assume a 3% non-compounded rate per month]
ttl per month cost $1,324

rent > this amt to not lose $ $1,324

fair market rent in area $1,500

VACANCY CONSIDERATION
annual costs $15,892
# months rented 11
projected monthly rent $1,475 491.67 per person at 3 occupants
amount income $16,225
profit (loss) $333

Total annual rent $16,225
Yield on cash outlays 44.3%
Yield on cash outlays + annual exp 30.9%

I just made an offer on a 3-1-1 REO SFH in a good location. In great interior condition, just needs to be washed/mopped and install a washer/dryer. Exterior I will fix some minor roof shingle issues and dye the parched lawn.

It auctioned in May and is listed on MLS for only about 2 months so I know the bank may not be hungry yet.

Offered $148k
Earnest money $2k

Listing price $223k
-but the foreclosed loan was only $185k; listing agent must have an inflated opinion of the property.

ARV $230k+

Bank (GMAC) requires closing with their attorney.

Contingencies/special requests:
- inspection (including termite)
- bank pays closing costs up to 2% of purchase price (wanted to request more but lenders are limiting this # for investment property loans)
- bank pays seller and buyer transfer taxes
- bank pays buyer's title insurance policy
- bank provides recent property survey
- [wanted to allocate most of purchase price to BUILDING vs. LAND for depreciation purposes but my realtor doesn't know how]

Must close Aug 7, 2008.

Giving them 2 days to respond.

At $148k purchase and expected rents of $1500/mo, this should cash flow a bit positive for me.

Any thoughts on this offer?

Will let you all know what happens.