Need input on this deal... - Posted by Mark (SDCA)

Posted by Mark (SDCA) on March 31, 1999 at 09:41:09:

Yes, SDCA does stand for San Diego but these houses are not here. Actually, they are in Las Vegas.
I don’t plan on buying all of them (thought I admit the thought did cross my mind grin). But some of them are simply too large (with correspondingly larger prices). They don’t fit the profile I want to work with. The market for them would be smaller than I like.
As for why I don’t sell conventionally… Why would people buy from me conventionally when they could buy from the bank with 100% financing? All of these ARE already listed with realtors.

I agree about the realtor, and I am trying to educate her as to where I am coming from. And I absolutely do agree that this is a great opportunity. (No problem = retail = no profit. Big problem = big profit = THIS). That is why I am pushing the realtor for more info on area comps and rents.
As for the pricing, I think it is reasonable. There are 3 floor plans (small, medium and large). Most of the houses are of the large size (2700 sq. ft.) and are priced around 175K. I am interested in the small size (1700 sq. ft.) for which the bank is asking 139,900. The only sales in this sub-division for that size are 148, 125 and 132K (but these may have been “sales” to the bank). That seems pretty reasonable for the area and size. (I am guessing that the bank averaged those 3 sales to come up with their 139 asking price). I was thinking of offering somewhere in the low 100s.
Thanks for the input,


Need input on this deal… - Posted by Mark (SDCA)

Posted by Mark (SDCA) on March 30, 1999 at 19:25:03:

Here is the story. Builder finished a small sub-division (about 15 homes). And for whatever reason, skipped out on the loan. The bank foreclosed. Currently, the bank owns about 12 of the 15 homes. Only 3 homes are occupied so the place looks like a ghost town. Bank is OFFERING 100% financing. (which makes me wonder what they would ACCEPT if I made an offer).
My realtor is waving all kinds of red flags and basically doesn’t think I should get involved. I acknowledge all these problems so I see opportunity. The realtor is basically concerned about the bank dumping all these homes on the market, them not selling, would anyone want to rent here etc.
My basic plan is to buy way low with the bank financing, rent it until the sub-division stabilizes and then sell with owner financing or LO.
Here are some issues that I see.

  1. Determining current FMV could be tricky. We can go by sales of similar homes in the area and what the few homes in here that have sold did sell for. I don’t have a ton of confidence in either of these methods given the “ghost town” presence that my realtor describes.

  2. When the bank REALLY starts dumping these homes, there is no telling where the bottom will be.

Here is one question. Would I be better off waiting to see a sale or two or would the window of opportunity have closed at that point? Any thoughts on determining a current FMV and what % of that I should offer? Any other input would be great. Thanks,


Re: Need input on this deal… - Posted by Raiko

Posted by Raiko on March 30, 1999 at 20:50:12:

Hey Mark, does SDCA stand for San Diego Calif. ?
If so it’s hard for me to believe that the builder couldn’t sell those homes as the market is pretty good here. I just finished framing a spec house and already have people wanting to buy it.
I guess the builder miscalculated his costs. If you can pick them up cheap enough why not just re-sell them conventionally? Sometimes its not necessary to get too creative and just a plain and simple buy low sell high strategy works best. Our build costs are about $75-85 a square foot for a mid-range house (including materials, labor, permits etc.). Add to that the estimated land costs (have your realtor check to see what that parcel sold for) and you can probably come up with a wholesale cost for those homes. I would say that most mid range homes have a 20-30% mark up from total build cost.
Obviously, though, the builder miscalculated something so be careful with the numbers.
As for FMV I would use the sales from that sub-division. They shouldn’t be too far from reality. Why haven’t the homes sold? There must be a reason. Usually price is the problem which you should be able to surmount by buying them cheaply Are you planning on buying just one or all of them?
Also, in this market 12 homes should sell fairly quickly so I wouldn’t worry too much about the “ghost town” affect. As for more creative methods, I’ll leave those to the experts on this board as that is not my forte’ (yet). Hope you do well.

Re: Need input on this deal… - Posted by Laure

Posted by Laure on March 31, 1999 at 06:16:36:

I would TRY to ignore most of what your realtor says. He/She has not been taught to think outside the box. Look at the town yourself. Is there a demand for real estate? How is employment? Is your town healthy? Is there a demand for rentals? Then concider, what do you have to lose? The bank needs rid of these, and you have a GREAT opportunity ! I would concider purchasing “them” in a separate entity to help protect yourself, and YES ! get the bank to finance them. Also, this is hardly a ghost town. What price are these homes set at?
Can average families afford them? or are they very high priced where most could not afford them?

Laure :slight_smile: