Buying Distressed property (Foreclosure/Short Sale) has its hazards. Investors often have the perception that distressed properties are a steal. This can be far from the truth. When I deal with third party asset managers or Mortgage companies, I find the asking prices can be near market price. When buying a distressed property the condition is usually poor, resulting in further investment. The purchase price becomes critical, because of the cost of repairs, and the effort nessary to flip property.
I have seen some very attractive deals with properties residing in new subdivisions, with high levels of foreclosures. The bottom line is, most of the homes were for sale at 40 to 50 percent discount from original sales price. I suspect these units are close to the bottom, only because the per squre foot cost of construction, is near $150. I have seen some sales lower than the cost of construction.
When properties transition to the sale/disposal process, they assigned to the local asset manager/Realtor
- The first step is the BPO, (Broker Price Opinion) where the property is inspected, photographed, and a detailed report of condition is prepared with.
Interior inspection report for estimated repairs
Exterior inspection report for estimated repairs
Estimated Value AS-IS
Estimated Value AFTER IMPROVED
- Once the property report has been prepared, and a value is given for the AS-IS value and the AFTER IMPROVED value, the Bank/Asset manager will generally list the property for 10% above the "after improved" value with out making repairs.
- The Banks rely on the Realtor to act as the local asset manager, and they are responsible for all the costs of repair, winterising and clean out.
- Day 1 the property is listed in the MLS and the processes begins. Often Realtors become frustrated by the process, which includes time consuming bi-monthly reporting.
- For more information contact me at ericg6@cox.net
The process of identify a potential property for purchase, is far more complicated than a tradition home purchase, but the rewards can be quite fulfilling and profitable, for investors that are properly financed. I created a useful tool to speed up the processes of identifying potential investments. See a sample of one property below. Download
Flip Analysis Tool (created in MS excel)
Example
Although $20,000 is not a bad return for $118,000 invested, the reward did not justify the risk for this particular investor.
The subject property was located 6 miles from the beltway in a well established neighborhood, with good potential for resale.
Purpose of the Flip Analysis tool is to make informed decisions. When purchasing to flip, certain costs can be overlooked, this tool does an excellent job of quickly providing feed back before you crunch the numbers.
PAGE 3 OF THE Flip Analysis Tool
This is where you calculate the hard costs/soft costs like; Construction costs, mortgage payment carrying costs; the return on investment nubers, to see the viability of the project.
| Eric Guggenheimer Realtor 571-278-4924 |
| Construction Costs |
Project Evaluation |
| Sales Price |
$ 499,000.00 |
Hard Costs + Buy/Sell Costs |
$ 146,040.94 |
| Purchase Costs |
$ 91,923.56 |
Mortgage Payment Carry # of Months |
2 |
| Mortgage Payment |
$ 2,355.79 |
Mortgage Payment Carry |
$ 4,711.57 |
| Selling Costs |
$ 32,067.38 |
|
|
| TOTAL SOFT COSTS |
$ 123,990.94 |
Total Project Costs |
$ 150,752.51 |
| Interior Repairs |
|
Total Project Costs includes the purchase, construction costs, selling costs, and the mortgage carrying costs. |
| Paint |
$ 2,500.00 |
| Drywall/Doors |
$ 250.00 |
| Plumbing |
$ 125.00 |
| Electrical |
$ 150.00 |
Balance First Trust |
$ 328,000.00 |
| HVAC |
$ 150.00 |
|
|
| Flooring |
$ 6,000.00 |
Balance Second Trust |
$ - |
| Master Bath |
$ 1,500.00 |
|
|
| Hall Bath |
$ 500.00 |
Project Proceeds (Profit) |
$ 20,247.49 |
| Master Bed |
|
|
|
| Bed 1 |
|
|
|
| Bed 2 |
|
|
|
| Bed 3 |
|
Gross Proceeds |
$ 116,882.62 |
| Kitchen Cabinets |
$ 6,000.00 |
|
|
| Appliances |
$ 1,800.00 |
Out of pocket Cash investment |
$ 118,685.13 |
| Dining Rm. |
|
|
|
| Living Rm. |
|
Cash on Cash Return |
17.06% |
| Family Rm. |
|
|
|
| Clean Up |
$ 250.00 |
|
|
| Exterior Repairs |
|
Statistics |
| Paint |
|
|
|
| Siding |
|
Purchase Sell Ratio. |
82.16% |
| Doors |
|
Percent of purchase to after Improved value |
| Garage Door |
|
Improvements To Buy Ratio |
5.38% |
| Windows |
|
Percent of construction costs to purchase price |
| Roof |
$ - |
Profit To Sales Price Spread |
4.06% |
| Brick |
|
Profit as a percentage of sales price |
|
| Masonry/Concrete |
|
|
|
| Clean Up |
|
|
|
| Yard Work |
$ 275.00 |
|
|
| Gutters |
$ 450.00 |
|
|
| |
|
|
|
| |
|
|
|
| Contingency |
$ 2,100.00 |
|
|
| Estimated Repairs |
$ 22,050.00 |
|
|
PAGE 2 OF THE Flip Analysis Tool
The purpose of page two, is to calculate the costs of sale for "the after improved value". These costs of sale like; closing costs, realtor fees, settlement fees, all get carried forwaed to page 3, and are added to the total costs of the property flip.
| Estimated Sales Price |
| ESTIMATE OF CLOSING COST Effective 3/2006 Rough Estimate Only (Please note the Virginia legislator is considering raising the cost and may not be reflected in this spread sheet so please call to verify.) |
| Sales Price |
$499,000.00 |
|
|
| Balance of loans |
$328,000.00 |
|
|
| Interest Rate |
6.50% |
|
|
| Hazard Insurance Premium |
$800.00 |
|
|
| Yearly Property Taxes |
$4,500.00 |
|
|
| Selling Broker Fee |
3.00% |
|
|
| Listing Brokers Fee |
0.50% |
|
|
Prepared by:
Eric Guggenheimer
Cell: 571-278-4924
|
Interest |
|
|
| |
Interest (15 days) |
$1,776.67 |
$888.33 |
| |
Escrows |
|
|
| |
Property taxes |
6 months estimated |
$2,250.00 |
| |
Title Charges |
|
|
| |
Release Processing Fees |
$100-250 |
$200.00 |
| |
R-5 |
$25-65 |
$45.00 |
| |
Document Preparation Fee |
$150-300 |
$150.00 |
|
|
Notary Fees |
$20-50 |
$20.00 |
| |
Attorneys Fees |
See Notes |
|
| |
Government Recording |
|
|
| |
Recording Fees |
Estimated |
$31.00 |
| |
Grantor's Tax |
Estimated |
$499.00 |
| |
Additional Charges |
|
|
| |
Pest inspection |
$0-65 |
$45.00 |
| |
Miscellaneous Fees |
|
$474.05 |
| |
Selling Brokers Fee |
|
$14,970.00 |
| |
Listing Brokers Fee |
|
$2,495.00 |
| |
Estimated Closing Costs |
|
$22,067.38 |
| |
Seller paying buyer fees |
|
$10,000.00 |
|
|
Approximate Net |
|
$138,932.62 |
| |
Credit (see conditions) |
|
|
| |
Lender escrow refund |
|
$1,325.00 |
| |
|
|
|
| |
SELLER NET PROCEEDS |
|
$140,257.62 |
PAGE 1 OF THE Flip Analysis Tool
Page one is for the purchase costs of the "as-is property", prior to making any improvements. These costs are carried forward to page 3 for the final analsys.
| Acquisition/Purchase |
| Sales Price |
$410,000.00 |
|
|
| Loan To Value 1st. Trust (LTV) |
80.00% |
|
|
| Loan Amount 1st Trust |
$328,000.00 |
|
|
| Loan To Value Second Trust (LTV) |
0.00% |
|
|
| Second Trust Loan Amount |
$0.00 |
|
|
| Interest Rate |
6.50% |
|
|
| Hazard Insurance Premium |
$800.00 |
|
|
| Property Taxes |
$4,500.00 |
|
|
| HOA /Condo Monthly |
$0.00 |
|
|
| Lender Fees |
$800.00 |
|
|
| |
Lender Fees |
|
|
|
|
Loan Origination Fee |
0.0% |
$0.00 |
| |
Loan Discount |
0.0% |
$0.00 |
| |
Appraisal Fee |
$300-650 |
$350.00 |
| |
Credit Report |
$12-35 |
$15.00 |
| |
Tax Service Fee |
$35-125 |
$35.00 |
| |
Lender Fees |
$250-10,000 |
$800.00 |
| |
Advance Fees |
|
|
| |
Interest (15 days) |
$1,776.67 |
$888.33 |
|
|
Mortgage Insurance |
Call Your Lender |
|
| |
Reserves |
|
|
| |
Property taxes |
3 months estimated |
$1,125.00 |
| |
Hazard Insurance |
15 months estimated |
$1,000.00 |
| |
Title Charges |
|
|
| |
Settlement/Closing Fee |
$199-500 |
$250.00 |
| |
Abstract or Title Search |
$100-200 |
$100.00 |
| |
Title Exam |
$100-300 |
$150.00 |
|
|
Title Binder |
$100-300 |
$100.00 |
| |
Document Preparation Fee |
$0-300 |
$0.00 |
| |
Notary Fees |
$20-50 |
$20.00 |
| |
Attorneys Fees |
See Notes |
|
| |
Title Insurance |
See Notes Estimate |
$1,783.50 |
| |
Government Recording |
|
|
| |
Recording Fees |
Estimated |
$79.00 |
| |
City/County Stamp MORT |
Estimated |
$273.32 |
| |
State Tax Stamp MORT |
Estimated |
$820.00 |
| |
City/County Stamp DEED |
Estimated |
$350.06 |
| |
State Tax Stamp DEED |
Estimated |
$1,049.85 |
| |
Additional Charges |
|
|
| |
Survey |
$300-1000 |
$300.00 |
| |
Pest inspection |
$45-75 |
$45.00 |
| |
Fees |
|
$389.50 |
| |
Second Trust Charges |
$275-$2500 |
|
| |
TOTAL Closing Costs |
|
$9,923.56 |
| |
Down Payment |
(with out second trust) |
$82,000.00 |
| |
Second Trust |
|
$0.00 |
| |
Total Acquisition |
|
$91,923.56 |
This is only to be used as guide and I do not take responsibility for errors. Always check your work. |