Do you foresee any problems for me with this deal?

[deedeelynn]

I stumbled across this listing on realtor.com one night.  It's a house that's is owned by Chase Manhattan Bank, according to the public records.  It's being sold by a Realty office in my area.  It is vacant and apparently has been for a while.  It's been on the market for 40 some-odd-days now.  They do not have a sign in the front yard.  They are asking 138,900.  The ARV would be about 165-175K.  I would try to get it for 120K to 125K and put maybe 8 to 10K in it.  Does this sound like a deal any of you seasoned rehabbers would do?

I am wondering if getting financing through a HML is any different when you are dealing with a foreclosure property?  

Anything I should be on the lookout for here?  Any tips at all will help.  This is/will be my first rehab project.  I know typically people don't start with a foreclosure, but this house is too great to pass up.  I'd buy it to live in if I could......  :D

[tedjr]

Howdy Deedeelynn:

Here are a few problems I see. Your HML will only loan 70% of the ARV which at best would be $122,500. All posts I have ever read and deals I have done tell me that this number needs to include the rehab expenses and as many of the hard costs to buy the property as possible and even some of the carrying costs.

If you can get it for $120,000 you will need to pay the rehab costs out of pocket plus carrying costs of  $1400 per month.

If your market is pretty good and you can sell it fast and fix it fast and have the funds then it will probably be an OK deal. If you can double your money that would be great.

[deedeelynn]

Today I found out the price went down to 135K.  The realtor didn't think they would budge on the price since it's a bank.  What do you think?  He seemed to think we could get 180K ARV.  That's 75%, correct?  Or did I figure it wrong?  Won't some lenders do up to 75%?

He also said that we wouldn't be able to accept FHA buyers unless we had had the property for 6 months.  Correct?  If that is true, how would a buyer get around that?  I would hate to hold the property for 6 months.  

thanks for any replies and thoughts.

Dee

[tedjr]

Howdy Deedeelynn:

Yes you figured right. $135,000 is 70% of $180,000. It sounds like $180,000 may be too high especially if you want to sell fast. A lot of lenders will loan 75% even up to 100% but not hard money lenders. If you can find a banker that will loan you the money at 6% with very little closing costs then you may have a good deal.

Your Realtor is correct about the 6 months holding period and I believe it is for all FHA lenders as well as some conventional lenders. I am not sure about how it all works, I hope some lenders will add their thoughts here too.

REO sellers in our area are holding fast with their pricing as well and are getting it. With higher property value here in Austin I went North to Killeen to buy rentals and now the prices there have risen as well over the last 6 months.

Good luck with it