Investment Property Woes

[johnny010]

Okay, so I found a property that I wanted to purchase, do some repairs to, and spin for a profit.

The property/house sold in 2003 for $102,000 in great shape. The new owners tore the house up, and eventually defaulted on their loan.

I see the house has been on the market for 170 days (fairly long time in Texas), and their asking price had dropped from 96 down to 84K.

Since it was a foreclosure, the bank had a local seller doing all the leg work. They asked for all bids to be submitted by 5pm two weeks ago. My bid of $85,501 was submitted by the deadline. The following week, because there were 'multiple' offers, we got a fax from the sellers agent, advising because they were in a multiple bid situation, eveyone would now have the chance to 'up' his/her bid.

I thought long and hard about what to do. I know you're not supposed to bid against yourself, but I decided to up my offer to $88,501.

Waiting....today, after about a week since upping my offer, we got another fax that says the bank reviewed all of the offers, and unfortunately decided not to accept any of the offers, and the property is now up for open bids on xyz website.

As you guessed, I'm pretty ticked, and it has cost me time and money, for the bank to pull something like this.

Anyone have an opinion?

 

[flaminio]

Anyone have an opinion?

Count your blessings. You probably would have ended up losing money on the house anyway. Be glad that you got off cheap.

 

[lrsudog]

Yes. You may have been lucky. Some expense is to be expected in researching and acquiring an investment property, and if all you are out is time, then you will probably make it all up by the delay in entering a descending market as a buyer.

Lots of houses out there. The right one will come along without you having to bid against phantom competition. If the bids on this particular house are not blind, you might even get a better deal on it than your $88.5K offer.

 

[zahntech]

The property belongs to the bank...they can decline or accept any offer they want.

Unless they signed a contract with you and all the other bidders saying they would accept one of the bids...which they would never do.

I would look at it this way...you decide your going to sell your NSX and you post an ad on Prime saying you are going to have a silent auction for it and people needed to send you thier bids....then you recieve the bids and the best one was 17k...would you still sell it to them just because they bid?..Hell no you wouldn't ..you would say "hey you guys are a bunch of lowballers take your crappy bids and go home":wink:


Just wait till they get no buyers and they accept your offer of 75k in 2 months.:smile:

 

[johnny010]

I see.

The house needs about $5K in work, and I can do it all myself. Anyway, I'm not familiar with how banks handle their foreclosure business, and after going through this process, I'm unimpressed. They did set a LP of $84,000.

Now if that was on Ebay, the bidding would have begun at that $ amt, but here, I suspect there were offers both below and above.

What I don't understand is why after 150 days or so, the price was lowered form 96k to 84k, and placed into a blind bidding situation. One would think that if they wanted more than, say my bid amount, they would have started bidding at some amount closer to what I bid. If I want $10 for something, and am willing to take no less than $6, then I start the bid at $6. I wrongly assumed the LOWEST they were willing to take was $84K, and that any bid above that would be a winner, regardless if it was mine or not.

Thanks for all the input.

 

[steveny]

First off take everything you know about how all other things in the universe work and throw it in the trash. Start fresh with the workings of real-estate. Be prepared to scratch your head and say, hmmm...this works exactly opposite of any other transaction I have ever been involved in. Once you get that down you should be fine.

Also.... I think you dodged a bullet IMO. If the house recently sold for 102k 3 years ago and now needs 5k in work, might as well add on another 5k for all the "might as wells" that WILL come up when the work is being done. So, add the first 5k only for the purposes of only using your example, plus the 88k offer, 5k in closing costs on the buy side, ~2k on the selling side,~2k=carrying costs... for a total of

5k=repairs
5k=closing to buy
2k=closing to sell
2k=carrying costs
88k=buy price

So without running into any problems you have 100k tied up into a house that is not worth much more. I didn't even mention the realtors commission. Figure that in at what ever your agent is charging you. I am not sure how much appreciation happens in your area since 2003 but not much in my area. Lets say the house is worth 115k, so you make 15k. I can tell you for sure 15k is not a lot of money compared to the amount of stress you will go through to make it.

There is no way I would take this kind of risk. If I were going to buy a house in a similar scenario I would not pay more than 60k for it, probably closer to 50k.

 

[Ski_Banker]

Steve's dead on. If the 2003 buyer can't make mortgage payments on a 100k place, who do you expect to rent it to? Someone that is equally, or even less creditworthy.

You're going to see a TON of "hot distressed property auctions" in the next couple of years, because just like people wanting to "buy on the dips" in the stock market - lots of people are on the sidelines waiting to jump back into crap that is advertised as distressed. Except that this ain't a temporary dip.

U.S. stock market is up 10% since November, BTW. And still a 10x better value than fixed income or most real estate.

 

[GOTTSPD]

For those of us on the left and right coasts, let me just ask...

You can buy a house for approx. $90K???? Holy crap. They are building townhouses near me that sell for $800K. You can get an older single family for maybe as low as in the high 400's if its a fixer upper. Most 2-3000 sq. ft. single families go for $600K and up to many millions. Townhouses from $400K to $1.5M (those 1.5M townhouses are fantastic though).

Anyway, that's just remarkable that you could buy a house for $90k or so.

Back on point, a few of the responses here may have been a bit off point by saying you've dodged a bullet. No one has asked, and you have not said, what's the intent of the investment? Hold it and hope for appreciation? Pos. cash flow? Hold it and be happy if there's neutral cash flow and though it's not appreciating, you are building equity because someone else is paying the mortgage? If the latter, than so what if you are even on the purchase price vs. the FMV. SteveNY's advice is good, but it's more focused on creating quick equity. Doesn't sound like the housing market down there in your part of TX is really hopping, so you may not be able to see quick growth and as we all know, bargains that are worthwhile are few and far between.

I'm just beginning my search for a commercial condo here in MD, so I can relate to the search.

 

[schuey1010]

For those of us on the left and right coasts, let me just ask...

You can buy a house for approx. $90K???? Holy crap.

That is what I was thinking as well. Are you for real? Unfortunately here in LA, I don't think I could buy a "house" big enough to store my NSX. Good luck to you, I have no investment advice for you though.

 

[steveny]

No one has asked, and you have not said, what's the intent of the investment?

Okay, so I found a property that I wanted to purchase, do some repairs to, and spin for a profit.

....

 

[zahntech]

Yeah in this area you can buy a fixer garage for 90k but the house is gonna cost you another 350

 

[GOTTSPD]

....

hee hee... sorry Steve. Missed that. Okay, Steve's right. No margin. Be glad it didn't work.:redface:

 

[steveny]

That is what I was thinking as well. Are you for real? Unfortunately here in LA, I don't think I could buy a "house" big enough to store my NSX. Good luck to you, I have no investment advice for you though.

I have posted about this topic quite a few times on Prime. Here where I live 800k will buy you a 8k-10k square foot house with a five car garage...or a really nice 5-6k sqft house on the shore of the lake. 90k houses are everywhere here. Two things missing in this area, nice weather in the winter and there is a lack of traffic congestion., If you can make it through the winters you can live pretty well here. Problem here is the property taxes. If you have an 800k house plan on spending 30-40k a year on taxes. This is also the reason why there are so many 90k houses here too, AND the fact that those 90k house will not quadruple in value in 4 years like RE did in California. So don't think this area is the next gold mine for RE because property values will never increase here like that. Now the rental market is a whole different story, expect to pay 70k for a house that brings in ~1700 a month in rent

 

[LJSB]

If you have an 800k house plan on spending 30-40k a year on taxes.

Not around where I live. In Dutchess County it's less than half that in taxes for houses that size.

800k houses that are around 7K sq foot have around 10-15k a year in taxes in the best areas.

 

[01blacks4]

"expect to pay 70k for a house that brings in ~1700 a month in rent"

not all of them do though, and you cant forget about the property taxes by you .....

they are ALOT higher than most of the areas with higher compounding values.

 

[01blacks4]

Not around where I live. In Dutchess County it's less than half that in taxes for houses that size.

800k houses that are around 7K sq foot have around 10-15k a year in taxes in the best areas.

HAHAHA...
tax on my house
3500 sf, $1.5m....$3k a year.....i guess the monthly could work out the same........but ya cant capture appriciation on the tax

 

[steveny]

"expect to pay 70k for a house that brings in ~1700 a month in rent"

not all of them do though, and you cant forget about the property taxes by you .....

they are ALOT higher than most of the areas with higher compounding values.

Yep, 70k house=~4k a year in tax.

Not all of them do the good to great deals have to be scouted out for sure.:wink:

 

[steveny]

HAHAHA...
tax on my house
3500 sf, $1.5m....$3k a year.....i guess the monthly could work out the same........but ya cant capture appriciation on the tax

The appriciation is taxed here and that is what stagnates the market here and keeps the prices down.

 

[johnny010]

Since I used to do this work, I know that the repairs wouldn't exceed $5k.

Anyway, I knew it was a small margin, buy I have to start somewhere. I figured if in great condition, I could turn it for $110K.

The downside to this is the process, which I was not aware of.

**
Also, the main reason I moved back to Texas is because of the home prices.

See the picture of what you can buy for more than $88.5K and less than $96, with 1,887 sq feet and on a 8,852 sq foot lot... if you suffer through the headaches....

 

[Ryanmcd2]

From what I have seen the banks get all the good deals, if it's not a good deal they sell it to someone who will not make much or lose a little trying to be the next Trump.

 

[steveny]

From what I have seen the banks get all the good deals, if it's not a good deal they sell it to someone who will not make much or lose a little trying to be the next Trump.

It's gonna get worse too. New laws coming about buying property that is headed for forclosure. No more buying before the bank gets it.

 

[clr1024]

expect to pay 70k for a house that brings in ~1700 a month in rent

Why would someone pay $1700 a month for a house thats worth 70K when you can get a mortgage thats ~ $500 + TI?

I mean if you are an investor thats a dream but I just don't understand why people would do it.

Here in Florida the gaps, mortgage to rent are the opposite because I thought about doing this here a few years ago, but ever since the boom a house that sells for $300K will probably only rent for $1400 - $1500 so it doesn't make sense to do it as you will be taking a loss on the mortgage to rent on a month to month basis. I also don't see the market booming again like it did a couple of years ago.

 

[DrVolkl]

Yeah in this area you can buy a fixer garage for 90k but the house is gonna cost you another 350

Where? lol

We just sold our 1520sq ft home for $450k. I won't tell you how much the new one cost.
:redface:

 

[01blacks4]

Why would someone pay $1700 a month for a house thats worth 70K when you can get a mortgage thats ~ $500 + TI?

I mean if you are an investor thats a dream but I just don't understand why people would do it.

Here in Florida the gaps, mortgage to rent are the opposite because I thought about doing this here a few years ago, but ever since the boom a house that sells for $300K will probably only rent for $1400 - $1500 so it doesn't make sense to do it as you will be taking a loss on the mortgage to rent on a month to month basis. I also don't see the market booming again like it did a couple of years ago.

its worse here....my $400K-$500K homes rent for 1200-1500. my 1.5M would rent for $3500....*GULP*

the reason noone "buys" the $70K home is because no credit, shaky job, low income to debt and they DO NOT offer the same loan products in those parts of the country. the coasts and high growth areas get much better, more flexible loan options.....

 

[lrsudog]

We bought our present house as a foreclosure, and it was a significant PIA. Even though we had financing locked in and approved (I essentially could have called the bank to tell them to send the check), we still had to jump through several hoops that I did not have in my other real estate purchases.

I probably would not do it again.


FWIW, almost everyone that I know who rents a house pays rent far greater than what their mortgage payment would be if they just bought it. Maybe it's just the difficulty of saving up a 20% down on an $800K property that keeps them renting.