purchasing foreclosures

[drome8]

I am a private investor in NJ.

I am looking to purchase a foreclosure with cash to rehab in Ocean County. 

I have experience in construction so I am looking to rehab a project.

Where can I begin to look for a list of foreclosures on the market?

From reading the forums it looks like my best bet is to find something that's been on the market for 6 months or more.

Thank you

[drome8]

Ok.

I've found a few listings.  What type of return are you guys seeing or expecting on your foreclosure for rehab deals?

Sorry for basic questions.... you can ask me anything about construction and I will have the answer.... Putting the deals together is new to me.

[tomsmith143]

If you're looking to make a 15-20% profit on your monies then a home should only be bought for no more than 75% of your market's current fmv.

Reason being:

Example
ARV=100,000
Closing costs 5%=5,000 (you should expect to pay both closings in this market)
Holding Costs typically 5%=5000
Repair costs 5%=5000 (assuming 5%, but of course can be much more to bring to par)
Wholesale fee=5,000
Realtor fees 6%=6,000
Total costs=26,000
Purchase price=74,000 or 74% of 100,000.

You gotta use the mls or a similar sites where you can run actual comps. If you have appraised property in the past that should be a given the 65% rule is just a general rule for determining your profit.

[drome8]

Thanks for some of the info... Just a few questions

1)  What is wholesale fee?
2)  Estimating the repair value of the house is my expertise as I have done renovations on residential and commercial projects for over 10 years.   I have the subcontractor base and knowledge to accurately budget my expenses....  Beyond the main operational items required in a home, the only items that are subject to quality levels are your bathroom / kitchen finishes and flooring. 
3)  If I assign a budget to my repair costs, and utilize the estimate percentages for holding, closing, realtor fees, the only other variable is the ARV.  I guess i could pull comps and go with the low or middle value.   Then the rest is just backing into the low to mid price I should pay.

Now another question I have... How does the IRS / State tax you on the income at the end of the year?  Does it get grossed and then I'm taxed based on my bracket?

Thank you

[JakeRodgers]

Heads up drome- tom isn't giving your very realistic numbers. In todays market, any investor worth his while will tell you that you want to be at 70-75% LTV AFTER all the costs are calculated in, NOT before.

You should be buying at 50-60 cents on the dollar so that you're at no more than 70-75 cents on the dollar AFTER everything is said and done.

With the glut of properties for sale in most areas of the country, buying at 50-60% LTV is NOT unrealistic.

I've NEVER paid $5000 in closing costs for a home. I don't buy with a realtor, so cross that out, and what kind of carrying costs are $5K?! Maybe a hundred bucks for utilities here and there, MAYBE a payment or two to a lender while you rehab, couple hundred for insurance, but thats about it. You're already got a great jump on estimating rehab costs with your background, so keep reading/learning on here and you'll do just fine.

[drome8]

Thats for the info JakeRodgers...

Quick question.  I plan on purchasing with cash, no loan... so when you say LTV are you talking about price of the house to fair market value of the house when it's repaired?

Holding costs for me are just the insurance, electric, water, sewer, taxes, maybe a few bucks to the landscaper to cut the lawn.  I figure worst case I have to hold on to the house for 8 months should only cost me like $3,000.... Problem in NJ is property taxes... 

Realtor fee, i will pay to market the house when im almost done with rehabbing...  I don't pay anymore than 4% total on the fee. 

Am I going the wrong route by trying to back in to my highest bid amount?  I start with an estimate of repair costs, allow 3k holding costs, get some comps and back out the selling fee and then closing costs for me are just title and attorney's fee's as I'm purchasing via cash. 

For example after repairs a house is worth $225,000
holding costs $3,000
closing costs $2,000
$10,000 repair costs

realtor fee $9,000

so by using your formula I would take 75% of 225k (168,750 - costs $24,000 = $144750)   
I should not bid more than that amount correct?

[Ashon]

Here's what JakeRodgers is pointing you at:


House is Worth 200k
Bid at Auction 100k-120k (50-60%)
Projected Sale Amount 150k (75%)

All of your repairs and holding costs are coming out of that 25,15% that is left over.

Here's how I would do it:
75% Of comparable comps (So that we can Sell this sucker fast, and by another house!)
150k - the profit I want to make - ((closing costs + holding costs + repairs + Realtor) *1.15)

So 150k
-25K (How much I want to make)
-3k (Closing costs)
-2k (Holding Costs)
-10k (Repairs)
-9k (Realtor)
-2.4k (Cost over Runs)

So I wouldn't bid Anything over $98,600 
Which works out to 49%

When you are calculating your bid price on any property, you have to remember that you are an Investor, not a Spectator.  You need to already know how much money you are going to make on the property before you even touch it, if you don't then you are throwing a hail mary and hoping for a profit.  It's definitely not what I'd do!

[rachel]

Hi,

Try to get foreclosures for short period not for longer period.
Always take the foreclosures that meet your budget and requirement.

Thanks.



 

[JakeRodgers]

drome- ashon is generally correct in his analysis, and he laid down a pretty good example. as for taxes, they will really only a be an out-of-pocket expense if the job happens to fall over january, when youd have to pay the property taxes. otherwise, you wouldnt be putting any money into escrow (like you do on your normal residence) and you then give your buyer a credit on the HUD at closing.

as for your LTV question, if you are paying cash, just think of the cash into the project as a loan from yourself. so yes, the LoanToValue would be your total investment divided by the properties resale value.

[drome8]

thanks for all of the great info... I went house hunting this weekend, now I just need to crunch the numbers and decide which one I want to go forward with!!

[Ashon]

If you are purchasing a foreclosure for your first time, I suggest you take a friend or wife or someone else to the auction with you and tell them your maximum bid point.  Sometimes auctions can get emotional and unless you have another voice telling you to stop you could make an expensive mistake.

[drome8]

The foreclosures I looked at are already REO's so I just have to bid like I would via my RE agent.

[John909]

When buying properties, you need to stay calm during negotiation. Do not give in for the first few offers. Always negotiate for a better deal. One trick is to always state a price that you are willing to pay, which is way below market rate. Then slowly negotiate your way up. If you quote a price that is too close to market rate, you will lose ground during negotiation and probably paying more than you should.

[drome8]

My problem is the banks seem to take forever with their counters...

[JakeRodgers]

you should also be able to find good deals WITHOUT realtors or properties listed on MLS. this way you won't have to deal with the banks slow nature...or have to worry about messing with a realtor...