Deal? Not a deal? - Posted by Michael(KCMO)

Real Estate Investing
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Posted by Michael(KCMO) on March 10, 2006 at 19:59:03:

I’m thinking you’re exactly right. That’s the direction I was beginning to lean but since I had been looking at the house as my own personal residence I had began to fall in love w/ it. I was having a hard time walking away and needed the additional nudge to get my thinking back on track.

My present plan is to do exactly as Joe suggested above. Go back to the bank (Seller) and try to renegotiate a lower price. If they won’t go for that . . . I’m now emotionally prepared to walk away.

Thank you for your reply.

Regards,
Michael(KCMO)

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Deal? Not a deal? - Posted by Michael(KCMO)

Posted by Michael(KCMO) on March 09, 2006 at 06:18:48:

Hello all,

I have a house under contract that I thought was going to be a pretty good deal, but now I’m not so sure due to the appraisal coming back less that I had expected. I wanted to get your input and see what kind of criteria some of you more experienced investors go by.

HERE’S THE BREAKDOWN:

3/2 in a nice, middle class neighborhood in the Kansas City area.

About 1,100 square feet 1st floor (all one level except basement).

About 760 square foot basement including the one car garage.

Lot size is 100’ x 400’ deep - this is an extra large lot for the neighborhood with a huge fenced back yard. That’s part of the appeal, as I have a 4 y/o daughter and it would be great for her to run around in.

Purchase price is $59,500 from bank foreclosure w/ seller(bank) paying $1,000 of closing costs.

Needs a complete gut/rehab including all sheetrock, new kitchen/baths, new plumbing & wiring. Same on exterior - rip off several layers old siding & redo w/ vinyl. Basically, we’re reusing the shell and building a new house from there out.

ARV appraised value just came back at $118,000

I have yet to receive back a bid on the rehab, but initial indications are putting it around $45,000-$50,000.

Given those numbers, there would be approx $10,000 equity more or less.

Ok, if this were strictly an investment I could tell you already that it’s NOT a deal. However, my intention is to live in the home and am wondering how much of a factor that should play. Even if it were strictly an investment, what kind of minumum equity do you guys look for to make it worth your while when you’re doing something like this? Would you guys walk (I’m beginning to lean that direction), or do you think there’s a way to make it work? My initial thinking was that if the numbers would allow about $20,000 equity it would be well worth it for me - especially since I’m planning on living there.

All input and advice is greatly appreciated.

Regards,
Michael Stilfield
816-665-5408

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Re: Deal? Not a deal? - Posted by Joe

Posted by Joe on March 09, 2006 at 14:34:50:

Let the bank know that the repairs are a lot worse than you originally thought. Show them the estimates for $50k and have them bring the price down. Bring pictures, descriptions, break out the costs from the contractor. As long as the bank isn’t just trying to play hard ball (or they don’t have their own in-house rehab team), they won’t want to deal with all of the headache required to bring the house up to shape before they can sell. Drop the price down to say $41k, which doesn’t look too much less than $59k, and you have $18k of extra equity. If you’re actually shooting for $41k, you might need to start at $31k. Who knows, they might even just accept your new offer without countering … you’ll never know if you don’t ask.

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Re: Deal? Not a deal? - Posted by Kevin IL

Posted by Kevin IL on March 09, 2006 at 09:44:20:

Michael,

Not a deal. The potential $10k in equity could disappear very quickly during a gut rehab. I’m just not crazy about spending $40-50k to get back $10k. Ideally, I would want 20-40k equity.

I would think that if you keep looking you could find a personal residence that requires practically no work and could be had for $10k below market. This would save a lot of headaches for the same $ return.

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Re: Deal? Not a deal? - Posted by Michael(KCMO)

Posted by Michael(KCMO) on March 10, 2006 at 20:00:20:

Joe,

That’s exactly the route I’m going to take. If we can’t renegotiate a lower price, I’m now prepared to walk.

Thank you,
Michael(KCMO)