REO offer

[Afk11]

 Hi,
I hope someone can assist me with some calculations.
I have an REO property that I am interested in.
It is listed for $120000.It needs allot of work.
many things need to be redone,mainly:
Roof,driveway,garage, kitchen,bathroom and front and back decks to be fixed,some electrc updating...there is also a wet basement which worries me a bit.
I have calculated a total of $50000 for repairs.
The agent says that  repaired it can be sold for $165000.
After deducting repairs,holding fees,closing costs(including agent fee) and finally my profit (15% of ARV) it came down to $68000 ????
Why would the bank accept this offer ???? isn't it to low for them to even consider it?
Just a note... I will pay cash for this property.

Maybe I am way off with repair and closing costs numbers but I don't think so.many of the updating will be done ourselves.
am I doing something wrong?
Thank you in advance !!

Angela.

[gordo2417]

Angela,

If you run your numbers and the bank doesn't take it then so be it.  Your an investor first and not someone with an open check book.  A formula that is used is ARVx.70 minus repairs and sometimes people use closing costs as well.  So with this deal your looking at 165K x .70 equals 115,500 minus repairs equals 65,500.   Make an all cash offer and see what they say.  If they say no who cares.  There are a ton more out there.  Plus if they reconsider then they have your number.

Nate-WI

[TDInvest]

  I agree 100% with gordo, stick to your plan, make the offer & keep steppin'.  Sounds like you've done your homework, so make the offer your calculations came up with, and go find another deal while waiting for an answer.  Don't get caught up in "I wanna get my 1st deal however I can" then find yourself losing $$$ in the process.  Good Luck & Happy Investing!   8)

[Afk11]

Thank you for your replies I really appreciate your help!
I absolutely agree with you guys...Yes I am anxious to start but I
am planning to do it the right way.

As I mentioned in my message I am worried about the wet basement which means it needs waterproofing and maybe also proper drainage needs to be put into place.
My question is how do you deal in your calculation with questionable factors such as this..it can be a simple fix or be a devasting one.
I have incorporated this number in my list to fix but I can be way off.

Although investing involves allot It is an exciting process so far!

Again thank you for all the info.

Angela

[krish1]

Angela,
 I always try to plug in a high $ number for a limit in my
 inspection contingency on the contract.
 I will not take up the offer waiving inspection.
 You could do the same. Once the bank starts
 to negotiate, you can then pay up for inspection and also
 get contractors to come in and give you precise estimates.
 Doing so helps you generate your numbers with higher
 confidence.

 I also pitch that i will rehab and rent the place, thus making
 the bank see potential business opportunity to lend money
 since we have impeccable credit in the high 700s.
 
 It is also a good negotiating point that you don't want to
 default on your mortgage for this property. The bank will
 stand to lose a second time and you will be unable to fix
 and rent the place. Hence the inspection is needed. If they
 want a bigger fool to fall, then just walk away counting that
 you are blessed to avoid a trap.

 Good luck
 -Krish

[rayr]

Hi Angela,
I agree with Nate, figure the number you are happy with and go in with that; if the bank say's no, then move to the next one.  I recently purchased a property from a bank, current appraial of $120k, the bank accepted my offer of $59,500.00.  
As an investor, you don't HAVE TO purchase anything, on the other hand the bank really needs to get rid of the inventory.

"If you not embarrased, the offer wasn't low enough"  Many times super low ball offers will cause an investor to lose credibility with the bank.  I have had the best successful talking over the numbers with the banker, completing my explanation with my offer.  This tends to give credibility to the offer your making.  Just my two cents.

Go Get'em!
Ray Rochefort
Managing Member
Purpose Investments LLC

[only1minya]

ray,
pls tell me how you negotiat directly with the bank w/o going thru the listing agent.  my agent told me that the banks wont talk to me directly. she informs me that i must go thru an agent.  

my issue with this is that if the banks really need to get rid of these properties (and we all know they do), why do they reject so many offers and let a property sit for a year or so.  i have seen reo's in detroit that have been sitting empty for 2yrs. and the banks will lower the price for and if no one still doesnt buy it, they take it off the market for awhile, and switch agents. i dont believe that in detroit with all the foreclosures (there are a lot and a higher projection is coming) that no one is making offers as the banks would have you believe.  they just arent accepting them, at least not mine, at least not thru my agent.

[Afk11]

 Thank you for the great info.
I am glad that I found this site.


Angela.

[Afk11]

 

I have read some post and most mention this 70% ARV as a starting point to calculate an offer.that confused me ,so please forgive if I am going through this again but I want to make sure I got it right before making an offer on Monday


by doing that it leaves you with a 30% profit..isn't it a bit to much?
Look I don't mind a 30 % profit but I haven't been able to come up with calculations that make sense even with a 20% profit.

Taking the current property I am considering .
Here is my example.this property needs everything .
new roof,new windows,new kitchen ,new bath, wet basement,new water heater,new water tank, new garage, enclosed porch needs fixing ,floors need fixing ,landscaping.
I total $57000  for repairs (recalculated after new inspection)                                              
 
ARV is $115000                          
-repairs $57000
- costs  $18000    (holding and closing costs with real estae fee)

offer: 40000  ?  profit: $50000?

Unless I misunderstood and should substract only repairs from
the 70% ARV.
The calculation I have made instead I have substracted from ARV
repairs , holding and closing costs and my 18% profit ,got: $60,000
which I doubt that it will be even considered but I will send it anyway according to plans.

Also is my profit to much?
 
Thank you.

Angela.

[krish1]

Now, who is the hold up here?
Is it the bank or the listing agent, who tell the banks that the
property is worth more?

Now a days, when the listing agent comes back with a
multiple offer disclosure, i just ignore them. No credibility
at all. They just ask to submit the best and final offer and
the property still sits in the market weeks after this drama.

The interest rates need to go up for this market to change.

-Krish