Posted by laure on October 31, 1998 at 03:56:44:
good advise !
HELP! Can This HUD Deal Be Saved? - Posted by Hugh James
Posted by Hugh James on October 30, 1998 at 15:24:16:
It looks like we’ve paid too much for a HUD foreclosure. It’s a single family split level ranch. Four bedrooms, 1.5 baths with a 1 car attached garage. All American family neighborhood, most seem to have kids. We paid $74K with $1,000 down as earnest money. Owners who were foreclosed on paid $76K for this property in 1992. Current, closed comps range from $79K to $93K all in the same neighborhood for the same type of house. (This is where we goofed – didn’t pull comps correctly.) We assume mechanicals are OK. Otherwise rehab is new kitchen cabinets, a sink with faucet and paint and carpet throughout. We think if we really have a sharp pencil we can do the whole thing for $5,000.00. So, can this deal be saved? Any ideas maybe for a flip or lease/option to a new tenant buyer? Or should we just forfeit the earnest money and consider it a lesson well learned? We’re just thinking there might be some way to save this deal for a new owner occupant. We’d be happy, at this point, just to break even. Any ideas, anyone?
Re: HELP! Can This HUD Deal Be Saved? - Posted by Dave T
Posted by Dave T on October 30, 1998 at 21:24:10:
What was your plan for the property when you submitted your offer? Why do you think you paid too much?
If you were planning to hold for rental income, why is that plan invalid now? You have a property that is at the bottom of today’s comps and over time will rise in value. Your rental income should pay all your expenses and leave you some positive cash flow each month. Compute the return on your investment. Take your monthly positive cash flow for four years and add the likely profit on the sale four years from now. Subtract your closing costs, rehab costs and capital gains taxes. If the result is at least equal to the amount you initially invested (down payment, closing costs, and rehab costs) you have an annualized return of at least 25% per year. Compute your own numbers. If the return on investment is a number you can live with, then why not hold for rental income now and sell later?
If you were planning to rehab and flip, then complete the rehap to 85K value and lease option. If you get $3000-5000 option money, and give rent credit for any rent you get above market. You may be able to sell for 85K. This should put you close to the breakeven point where you can recover all your rehab and most of your closing costs.
Re: HELP! Can This HUD Deal Be Saved? - Posted by Hugh James
Posted by Hugh James on November 01, 1998 at 20:01:08:
Thanks for the well thought out advice. I was in a little bit of a panic because my first plan was to do a quick fix-up and resell the house as fast as possible. Initially we had comps in the $110-125K range (how we got that is a long story). When I realized what we really had I started to think the only realistic thing to do was forfeit the thousand dollars and forget it. Thanks for the options. It’s most appreciated.