Posted by Dave T on November 10, 1998 at 21:07:28:
What is the full market value of the property? It may be priced at 87K because that is all that it is worth with condition of the property already factored into the list price.
In my limited experience with REOs, the bank will already have done an appraisal, and will usually list the property for its appraised value. If the property is worth 87K and is in ready to occupy condition, then your best way to profit from this deal may be to buy the property with little to no money down, and operate it as a rental for a few years. Your positive cash flow will be a profitable income stream while the property is appreciating. If your rents cover all your expenses and still leave you a little positive cash flow after paying the mortgage, then your tenants are buying the property for you.
I you don’t like the idea of maintaining a rental property, then lease option the property to you tenant/buyer for five thousand more than you paid for it. Collect $2500 in option money and above market rent during the option period. Rent in excess of the going market would be given back to the tenant/buyer as a credit against the purchase at closing. During the option period, the tenant could be responsible for all minor repairs, thus releaseing you from a maintenance worry. At the end of the option period, if the tenant does not exercise the option, you keep the $2500 option money and all above market rents. If the tenant exercises the option, then you get a quick 5K profit from the deal.
Adapt this scenario for your own needs and set the amounts to recover all closing costs as well. I would wonder why the bank is so willing to give 100% financing for this property. It may be that the property is priced way below its true market value, but it may also be that the bank is anxious to get this non-performing asset off its books. Perhaps they are getting ready for an audit and converting a non-performing asset to a performing loan improves their financial posture. If this is the case, then you have a very motivated seller.