Love Austin Homes Investing Blog

DEAL POSTED TO INVESTOR SITE:
Type of Home: : 3 bed, 2 bath,

After Repaired Value: : $140k

Repairs: : $15k

Asking Price: : $101K

Remarks: : I’m posting this for a broker that I spoke with that has a
deal that I’m not equipped to handle, so I thought I’d pass it on to
the group. Please keep me in mind if you are able to take it ;0)

Home has a slab foundation with major issues. Centex Foundation repair
estimate is $10,700.00. As a result of the foundation issues there is
some drywall repair needed inside (cracked walls). Call Jennifer for
more details. Home is in preforecloser, so time is of the essence.
Broker has negatiated a short sale with mortgage company. Price is
$101K which is FIRM

Potential profit of $20K + for a rehabber that can close quickly and
isn’t afraid of some foundation repair
Jenifer

ANSWER

Jennifer – I don’t mean to pick on you, but I do need to make a point about this and similar posting here -

A house with “major foundation issues” that will cost $10.7K to fix, but only needs another $4.3K of other repairs and renovations??? A “potential profit $20K +”???

If my math is correct =

A “potential profit $20K +” is based on allotting less than $4K toward:
· All purchase closing costs
· All resale sales closing costs
· Any and all resale realtor commissions
· Any and all loan or borrowing origination, initiation, procession, discount, whatever costs
· Zero holding costs – presumably by completing the major foundation repair and renovations in less than a day?
· Assumes that the entire renovation budget is $4.3K after foundation…
· Assumes home sells and closes and funds approximately one day after the single day it takes to buy and renovate the home, and do the major foundation repair.

Normally, one would estimate around 15% or more to pay for all of these things, which would leave approximately no profit for a rehabber…

I know I speak for many on this user group by saying “Please don’t sugar coat these deals to look like something they are not”. It’s not honest, and it just makes you look un-credible or unknowledgeable or untruthful.

I can fully appreciate that the deal is what it is. This is a home offered for $101K, with a $10.7K foundation problem, and it will probably require some additional repairs/renovations that need to be determined and budgeted by a buyer. It has an ARV of $140K. If somebody wants such a deal, great. To market it as a potential $20K + profit rehab deal is not accurate.

Phill

I wanted to get the opinion of some of the licensed realtors out
there. I have a situation where I submitted a full price offer on a
piece of property and they came back and rejected it. Not only was I
surprised, I asked if the reason was that they had another but higher
contract and they said no. The reason was that the seller decided
that since he was now getting offers he wanted to raise the price and
try to get more. This property has been on the market for almost a
year and a half.

Does anyone know of any type of recourse either on the seller or the
agent for what I think as possible fraud?

Thanks,
Tim

ANSWER

Tim,
I had a similar situation once where I found a property offered and listed for $250K that I knew from my experience was worth easily $350K. The property was just put on the market that morning, and I was the first to see it.

I made an immediate full-price $250K offer, cash, close immediately, zero contingencies, no option, as-in, no questions asked. It scared the crap out of the seller, and he immediately pulled the home off the market and re-listed it with a different realtor for something closer to $350K.

I asked my attorney if I had any recourse, and I was told that because I had honored every conceivable request of the seller, that I could sue to force him to accept my contract, but, that it would cost lots of money to litigate and could drag on for a long time, and might end up being settled, and given all that, he suggested I go on my way…

Phill (not a licensed realtor)

I have been working with a homeowner to try to stop a foreclosure
scheduled for next week. There is a second mortgage on the property
and I can’t seem to get past that loan holder. They say they don’t
discount loans and that I will have to submit a short sale package.
They have been incredibly difficult to work with up to this point so
I have nothing to make me believe they will move quickly on Monday
to make a decision before Tuesday. With that in mind, I started
looking for other alternatives.

A realtor friend suggested to me that the homeowner should list the
house this weekend and then call bank #1 (the one that is
foreclosing) on Monday and ask them to delay the auction 30-60 days
to give him the opportunity to sell and avoid the foreclosure on his
record. As soon as it is listed, I would, of course, make an
offer. If I ask him to do this, I am confident that he will, but I
have a few questions regarding how this will work before I approach
him.

1) If he lists the house, I am assuming bank #1 accepts or rejects
any offers as they are the one foreclosing. If bank #1 accepts an
offer for less than the total of the two mortgages, what happens to
the balance owed. Does the homeowner owe the remaining amount or
will the two banks divy up the proceeds from the sale and call it
paid.

2) If the homeowner lists the house, does that mean he is
responsible for realtor fees? Is that something the realtor and I
can work out or will the bank want to see the seller paying them?

I have spoken with the attorney at bank #1 and he has assured me it
is not too late to work out something with them. Unfortunately,
bank #2 is less willing to work with me. I am open to any and all
suggestions. At this point, the homeowner has complete faith in me
and I don’t want to jeapordize that trust. In addition, I really
would like to create a win:win situation.

Thanks in advance for any help.
Peggy

ANSWER

Peggy,
The homeowner or listing agent or even an investor (each with authorization) can always call the lien holder that is actually foreclosing and ask for an extension. By the time you get to the week of the auction (or day before, in this case), your odds drop pretty low, but it never hurts to ask. Obviously, if the lender sees an offer and/or listing agreement, it may help.

If the house sells for less than total amounts owed, yes, the homeowner is responsible for all short-comings including closing costs, commissions, etc. unless of course you negotiate a short sale, in which case you might want to turn this over to a short sale expert

Phill

Here’s a rundown of the property:

1.5 acres purchased in ‘01 for $20k

Mobile home for $80k

1200 sqft concrete slab garage/workshop constructed for $30k

Driveway and perimeter security fence with locking driveway gate added.

The seller has ~$140k in the property. Obviously, that does not translate into a realizable valuation. However, aquiring the property for just shy of $62k seems like a great deal.

The property requires approx. $5k in repairs which the seller has escrowed.

The market for trailer homes isn’t the best. However, if the tennant were to default, recouping the 62k should not be an issue given the property’s value and given that the escrowed funds will already have been spent for the rehabilitation of the property.

Does this still seem like an overly risky endeavor?
Dan

ANSWER

Dan,
I hate to discourage investors from investing, but I also hate to see investors lose $$.

I don’t know all of the specifics of your deal, and there may be strong extenuating circumstances, however, we did an analysis of every single mobile home, on 1-2 acres, SOLD in the entire 5-county MLS since August 1 ’05. Of the 47 that sold, only 5 sold for $65K or more, and each of those was described as in good, like new, or excellent condition. The average price was $29/ft, including land. The average list price for every 1-2 acre property currently available is, gulp, $51/ft. That means on average these things are discounted at sale an amazing 44% from average list.

I did not look up the land value on each of these to complete the analysis, but it’s clearly obvious that the mobile homes are not worth a lot, regardless of what people pay for them. And, they tend to become worth less and less over time. Your seller, for example, paid more for his new mobile home without land, that anyone has ever paid for any used mobile home including land, utilities, and all other outbuildings and improvements over at least the last 6 months.

Now, would I want to take a deal where I personally finance one of the 6 most expensive mobile homes in the 5-county area? Probably not. Could you be the guy to pull it off and make a lot of money? Maybe so. Whatever you decide to do, I do sincerely want you to do well.

Phill