Description: 2002y, 3/2.5, 1952sf
Type: HUD
List Price: $112,000
List Price/SF: $57.38
Comps: $66 (lo), $77 (hi), $69 (avg)
Accepted Offer Price: $103,525
Accepted Offer Price/SF: $53.04
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To be honest, I have never been inside. However, I did tour the outside of the property in February and peek inside. From what I could see inside, it was in excellent condition. Since it was a 1-story, I didn't have to "guess" at the condition on the second floor. Even though it appears to be in good condition, I still allocated $2,000 in repair costs in my offer price.
Average comps are at $69/sf, so this house could market retail for almost $135,000 - on average. I'm not sure yet if I'll sell retail or lease purchase it. Wholesale flipping is probably out of the question, because my profit would be almost nonexistent. If I sell retail (which is how I figured my offer price), I am looking at the following numbers:
Loan: 100% financed @8%
Earnest Deposit: $1,000
Closing Costs: $1,500 (worse case)
Total Financed: $103,525 - $1,000 = $102,525
Monthly Finance Costs: $752.29
Monthly Ins/Taxes/Utils/PMI/HOA Fees: $462.13
Total Monthly Hold Costs: $1,214.42
Proposed Sell Price: $129,000
Sell Costs (7%): $9,030
Minimum Months Held: 6
Minimum Holding Costs: $7,286.52
Even if I could get a retail buyer to offer me a price the day after I close, I would still figure 2 months of holding. I like to be conservative on a lot of my figures, and this is another one. Therefore, my monthly profit breaks down like this:
Hold 2 Months: $14.8k
Hold 3 Months: $13.7k
Hold 4 Months: $12.5k
Hold 5 Months: $11.4k
Hold 6 Months: $10.3k
Not mind-blowing by any stretch of the imagination, but this being my first property, I wouldn't mind $10k of income for about one hour total worth of work. Of course, if I pocket the $10k instead of rolling it over to another property, I'd have to pay 15%-25% in capital gains, making it a lot less.
I've also broken down figures if I decide to L/O the property. If I can do this and the T/B'er buys, I could see a profit of $26k-$33k, depending on how fast I can get a tenant in. If they don't buy, the profit is only $9k max.
but first things first ... I need to schedule an inspection to see what may be hidden from my vision. I think HUD gives the winning bidder 3-5 days to get an inspection and back out, if they find a problem. I have to verify this, though.
5 comments:
Yay! I'm along for the ride. You're on to step 3.
Thanks. I figure the rest is cake, but I could be wrong.
I just found out from my own research that a lien was slapped on the property by the HOA in Spe/2004 for $623. I'm not sure if I can get it reduced (or even eiliminated). Doesn't cost anything to try, though, and I may be pleasantly surprised.
If HUD got the property back through a foreclosure (which they probably did) and the HUD mortgage that foreclosed was recorded before September 2004 (when the HOA got the lien), then the HOA lien was eliminated at the foreclosure auction and you don't have to pay it. Your title company will find this out for you during the title search. You may want to mention it to them though, to be sure they check it out. Look for any federal or state tax liens - those are not wiped out by foreclosure.
Congrats! Sounds like a good deal! Your closing costs might be a bit low, considering you are getting a loan (unless it's a hard money loan), but I think you've got enough cushion in other places to be ok.
Oh, and you can't 1031 the profits into another property when flipping! You can only 1031 on rentals. However, if you intended to rent this place, and couldn't find a renter, then sold it instead, you could possibly 1031 it. But then you need to show proof you tried to rent it - newspaper ads, etc. I'm not a tax advisor, so consult one about this, but this is my understanding.
Either way though, good deal!
Thanks for the info, Shaun. All I found on the county clerk's web site was the original deed and the HOA lien. Nothing else. The $623 won't break the deal, but it would be nice to use it elsewhere if needed.
I got the $1,500 closing cost figure from my loan officer. And when he quoted that figure, he said that would be absolutely worse case. I left him a message to call me back ASAP.
I also got hold of a very good inspector. He charges $375 for a detailed inspection, including termite. A little high, but he comes very highly recommended. I'll try to negotiate the price down a bit by telling him I'll use him on properties I intend to close on. I still have to call the agent back to make sure the utilities are on when he inspects.
Hi BGinvestor. Thanks for the kind words.
Here are two things to consider when calculating the profit:
1. Your first payment will almost always be AT LEAST a month after closing. Therefore, the 1st month's holding costs should not include the lan payment. It's probably good to factor it in for added safety, but it may be overkill.
2. This is being nit-picky, but don't forget that with each loan payment, the principal is being reduced. Granted, the reduction is miniscule in the early stages, but it still happens (unless you get a interest-only loan).
So, the profit works out as such:
$129,000 (sell) - $9,030 (sell costs) - $1,214*3 (hold costs) + $752 (no loan payment first month) - $1,500 (closing costs) = $115,580
With two payments on the loan, the balance was reduced a whopping $139. I did forget to factor the $1k earnest money, though, which was a big oversight on my part. I got the earnest money check a month ago, and hadn't thought about being reimbursed (doh!). Thus ...
$115,580 - $1,000 (earnest) - $102,386 (loan balance) = $12,194
Hopefully, I can make the $1,000 difference in repairs. :-(
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