1st foreclosure deal -- please help! - Posted by Dean

Posted by Tim Fierro (WA) on October 16, 2001 at 03:12:07:

My concern would be in this market with dot.com’s folding, recession fears, and the market losing a lot of steam in folk’s portfolios; Who out there can afford a $600k house right now?

If you know your market for these types of homes and know there are buyers out there for this price tag, then it sounds like a good profit.

1st foreclosure deal – please help! - Posted by Dean

Posted by Dean on October 15, 2001 at 21:30:19:

Hi. I have recently been contacted by a seller who is willing to deed me her property provided I give her $60k at closing (to buy a smaller place). The breakdown is as follows: 1st mortgage @ $353k, 2nd @ $95k, and finally has one commercial lien for $15k. (all balances include arrearages). Total debt is $463k, and property has a 2001 property tax assessment of $530k. has recent bank appraisal @ $545k, and realtors valuing it @ $600k. The profit potential looks good (debt = 463k + 60k seller’s = $523k total debt. If I could sell it (as a no qualifier?) for $600k, profit would be $77k (less expenses).
I mean it sounds good, however is this out of my league? LeGrand talks about buyer’s for every price range, however how to market this property to sell?; should there be greater profit potential to mitigate risk? (I would flip it through my corp!) any comments are greatly appreciated.


Re: 1st foreclosure deal – please help! - Posted by Ronald * Starr

Posted by Ronald * Starr on October 16, 2001 at 15:20:30:


Well, I guess I think differently than does Tim Fierro. The profit margin looks very low to me. When you buy properties as “bargain purchases,” I suggest that you not even consider those selling for less than about 20% to 25% below market value. The only exception is where you are putting in no cash or virtually no cash.

Here the profit margin looks real slim to me. Notice that you have three estimates of value here: tax assessor at $530K, Bank at $545K, real estate broker who is involved in the sale, I suppose, who thinks it will sell for $600K. I wouldn’t believe any of them, of course, but I’d recommend you put the least weight on the real estate broker’s opinion.

In my opinion, you need to get out and learn the market value on your own, before you put your money up. Now, you might tie up the property with a contract and then do your careful analysis. But no $ out of pocket until you know the market value from looking at at least three dozen other properties of somewhat similar size, age, and location. AT LEAST Three Dozen --Better would be 5 or 6 dozen, but there may not be enough of these type houses around to do that. You are talking a significant investment. You can not be buying when you do not know what you are buying, in terms of true market value. And from your post it sounds like you do not.

If you do buy, you might be able to structure a deal where you do not pay her all of her equity up front. Have the seller of her new place accept part cash now and some cash later, when you resell or refinance this property. Maybe a few months from now?

Good Investing and Good investigatingRon Starr*