Offers made on 4 Houses

I have been analyzing several properties from the lists I get each morning from my realtor over the past week. I have been procrastinating on submitting the offers out of (1) fear/anxiety and (2) because I have no financing in place. Regardless, I finally just made the offers and will see what comes.

There were 5 offers altogether, however, one of the offers was a HUD/VA home that required a prequalification letter. I may submit the offer today, if I can get the letter from the loan officer I spoke about in recent blogs. Here is how things transpired ...

I had already been analyzing the bejeebers out of four of the properties over the last few days. I devised several exit strategies for each, and did my best in determining resell value (ARV), repair costs, holding costs, etc. When I opened the list of properties from yesterday, I found one that was perfect. It had a list price of $63,000 and an ARV of about $95,000. I called my RE agent later and asked her the details, and she said it was a mess inside. It required a whole new kitchen, new flooring, the roof was in bad shapre, new HVAC, and new water heater. When I found all that out, I knew I had to submit an offer for this one property at least.

I decided, though, to just go ahead and submit an offer on all five of the properties. So, I sent my agent an email with the property informatoin, my offers on each, and some detailed info required for title work. She responded that she would send the contracts via email, and all I would ned to do is look over and sign them, and then send them back to her. At this point it was about 3pm, and I had come in early, so I left for home. I had to stop off at the grocery store to pick up a few things, but made it home about 3:45pm. When I got home, I thought maybe it would be better to just go by my agent's office and sign the paperwork there, so I did.

I called my agent, and told her I was on my way. Luckily, her office is only a few miles away, so it only took me about 15 mins. to get there. I met her, she went over the documents, and explained I would need a prequal letter for the HUD/VA home (which I didn't have). She asked if I had gotten hold of the loan officer she referred me to, and I explained I had tried over the last several days without any luck. She then called him right then and there! Unfortunately, she got his voicemail, also. So, that property is on hold for now until I can get a prequal letter. After signing the docs, she immediately faxed them to where they needed to go and I left with a feeling of both excitement and fear - but I made a big step.

Here are the particulars on the offers I made ...

Offer #1
Description: Private Seller, 1984, 3/2, 1278sf SFR. This is the property that needs the new kitchen, etc. I haven't even seen the property yet, but figured I would need to make an offer immediately, before other investors see the opportunity. It is located in an older part of town, but has potential to make profit as a rehab.

List Price: $63,000
ARV: $93,000
Repairs: $20,000
2004 Assessed: $102,616
Monthly Hold Costs: $685
Sell Costs: $7,440

MAO = (0.7)93,000 - 20,000 = $45,100

First Offer: $35,000

At the beginning, I will always try to offer $10k less than my MAO. This way I have room to bargain up to my MAO - plus, like so many gurus teach, I just may get it!

Before meeting with the RE agent, I decided to knock another $5k off the initial offer. I reran some repair figures, and still came out to about $20k, but I wanted to leave some additional "space" in case repair costs exceed what I think they will be (all gurus say to add another 20%, but I added 25%). The RE agent said it was just listed this morning, and she doesn't think it has any other offers yet. Nothing like getting a major rehab as my first property. :-|

Potential Profit: $30k-$35k

Offer #2
Description: REO, 1984, 4/2, 1434sf SFR. Located in the same neighborhood as the offer above. From my outside inspection, it looks like it has some rotting boards that need replaced, a new garage door (although it may still work), and some other cosmetic repairs. Although I hadn't seen the inside, I added an additional $7,500 for a water heater, and appliances - just in case, for a total of $10k in repairs.

List Price: $93,500
ARV: $106,000
Repairs: $10,000
2004 Assessed: $110,450
Monthly Hold Costs: $790
Sell Costs: $8,480

MAO = (0.7)106,000 - 10,000 = $64,200

First Offer: $54,000

Again, I readjusted my initial offer price down a few thousand to an even $50,000. The agent said she had shown the property to some prospective buyers in the past, and the inside doesn't need a whole lot of work. She also said it has a couple of offers outstanding that are higher than mine. But I told her to go ahead and submit my $50,000 offer anyway, just in case.

Potential Profit: $28k-$35k

Offer #3
Description: REO, 2002, 3/2, 1751sf SFR. Located in a newer subdivision in another town close by. I went to look at the property over the weekend, and seemed very clean inside and out.

List Price: $114,500
ARV: $130,000
Repairs: $2,000
2004 Assessed: $119,800
Monthly Hold Costs: $1,026
Sell Costs: $10,400

MAO = (0.7)130,000 - 2,000 = $89,000

First Offer: $79,000

Just like the previous offers, I lowered it a little more before submitting the offer. My initial offer is now $78,000.

Potential Profit: $26k-$36k

The agent said that there were 3 offers higher than mine already, and wanted to know if I wanted to raise my offer. I told her to go ahead with my offer. Since this is the first time I've made an offer on an REO, I don't want to get burned making an offer that will have me being in the red.

Offer #4
Description: REO, 2003, 3/2, 1387sf SFR. Located in the same general area as offer #3. I also saw this house over the weekend, and it seemed to be in pretty good shape (being a 2003, it should be).

List Price: $105,900
ARV: $108,000
Repairs: $2,000
2004 Assessed: $113,008
Monthly Hold Costs: $945
Sell Costs: $8,640

MAO = (0.7)108,000 - 2,000 = $73,600

First Offer: $68,000

Since this was a relatively newer home, I decided to fudge the numbers up on my initial offer. I first calculated my initial offer at $68,000, but decided at the last minute to knock another $1,000 off, making my offer $67,000. My agent said that it has been sitting for a week, and there were no offers yet - mine was the first one.

Potential Profit: $18k-$27k

Conclusion
While I would like to have one or two of these properties come through, I really don't expect any of my offers to be accepted. I think MAYBE one or two might counter, but even that's wishful thinking. My main point in doing these offers was to give me experience in the process. In just a short 12 hours, I learned a huge amount about the REO process, submitting offers through agents, analyzing and reanalyzing offers to fit my needs (no matter what others think), and so much more.

My only fear at this point is if 3 or 4 of the offers get accepted. I don't have the cash reserves to really handle buy/hold/sell costs for 3 or 4 of these properties. I guess if that happens, I'll just have to eat my earnest money deposit(s). Because if I can get just one property, I will still come out way ahead.