Flipping a Bank REO (JPiper) - Posted by LHoffman

Posted by JPiper on January 20, 1999 at 14:43:40:

You’re going to need to put some type of financing method or payment in the contract…either cash, or a new loan.

Depending on which of these you use, the bank MIGHT want proof of funds (if cash) or a letter of preapproval (if a loan).

I would suggest you read the post regarding this by SCook further down the page if either of the above is a problem for you.


Flipping a Bank REO (JPiper) - Posted by LHoffman

Posted by LHoffman on January 19, 1999 at 20:37:44:

I have a question regarding a rehab property I am looking at. This property is a bank REO, and listed through a Realtor. The property is located in a decent area of town. The comps come out to be $130,000.00. The only problem is it doesn’t have too much wrong with it. I was under the impression by the Realtor that there was. Anyway, below is what I was thinking about offering for the property. The bank wants to be totally cashed out.

FVM: 130,000.00
New Kitchen: 3500.00
New Furnace/AC: 4000.00
Roof Leaks, Water
Damage to ceilings: 2500.00
Realtor’s Commission: 7800.00
Flip Profit (for me): 3500.00
1% Oops Fund: 1300.00
Brokers Fees, Closing
Costs: 9100.00
Holding Costs: 3800.00 (about 3 months)

Total Price: 94,500.00

Could you give me your opinion on this. What I want to do is tie it up, and flip it to another investor. I have 3 investors who are interested in the area. Do you think I covered all the bases???

Thanks LHoffman

Re: Flipping a Bank REO (JPiper) - Posted by JPiper

Posted by JPiper on January 19, 1999 at 21:34:11:

From a quick glance at your numbers it would appear that you have left out the profit for your buyer. Let?s assume for a minute that this profit is $20K.

It would appear if your numbers are correct that the repair cost is approximately $10K. Personally, I would not use 3 months for holding costs. My preference is for 6 months. Therefore, the holding costs might be something like $6000. There might be some upfront fees to obtain the loan for the new buyer. These could approach 10 points for hard money?..let?s use $8K. Selling costs are $9100 for a brokerage fee, and let?s say another $2K in other closing costs to be liberal. Then we?ve got your $3500 profit. The other real estate commission is paid by the bank, so is not an actual cost to you. Therefore total of all this is $58,600. This gives me a maximum offering price of about $71,500.

It?s possible that your buyer might take this deal on for less than $20K since the rehab is somewhat light. If this profit happened to be $10K as an example, you could go as high as $81,500K in your offer.

In fairness, I have some substantial carrying costs built into this?..hard money costs of 10 points and 14 % interest only payments. Again, use these costs with your discretion.

Your buyer may well be willing to pay more for this if HIS carrying costs are lower, or he estimates a turnaround quicker than 6 months, which would enable you to make more than $3500.

One other point. A bank may well not permit assignment?..so you may have to arrange a simultaneous close. Plan this accordingly.


Oh another question??? - Posted by LHoffman

Posted by LHoffman on January 19, 1999 at 20:57:49:

This Real Estate Agent asked me about financing. How I was going to be paying for this property. I don’t intend on paying for it. I want to flip it. How can I handle this topic??? What should I put down in this standard Realtors contract about financing? Should I leave it blank???

Thanks LHoffman

What are your thoughts - Posted by LHoffman

Posted by LHoffman on January 20, 1999 at 07:11:25:

… on the financing paragraph. Should I draw a line through it and replace it with all cash???

Oh thanks for your input!!!

Thanks LHoffman