My favorite fixer-upper house is a 2/1 or 3/1, 900 sq. ft house in a decent Class C or D neighborhood. So far, I have been able to buy these houses for $10 - $15K. I have now located my next 2/1 fixer-upper, however, this one is in a Class B neighborhood and this hood has a reputation for having a great school district,... which generally translates into 'higher rents'. What this means is that I will now have to offer more and eventually pay more for a 2/1 house just to get into a more desirable neighborhood.

I have started crunching the numbers on this deal and I thought I would share this information with you. Also, I am dealing with a RE broker who is representing the seller here (the broker and seller are personal friends too). The asking price here is $60,000.

This house is a fixer-upper and I have estimated the rehab to cost $20,000. On Monday, I offered the broker $25,000 cash to buy the house. Yesterday, the broker calls me and tells me something I was not aware of,...there is a mortgage on this house and my $25K offer is less than what is owed on the mortgage. Of course, my next question was, 'how much is owed on the mortgage?'. Sometime today, I will get an answer to this question and this could decide whether I stay with this deal or walk away from it!.

Now, if this house did not need any repairs, $60K would be a reasonable asking price for this house, considering the neighborhood. When I crunch numbers, I have to estimate the ARV (after repair value) and I have pegged the ARV here at $60,000.

Based on the numbers here, which is all I know for now, if the mortgage on this house turned out to be $40,000,...would you buy this house? After rehab, this house would rent for $850/month,...if that makes any difference.

Hi Roy, seems if the mortgage is much over your offer you will be paying near retail for the house after rehab.

If you invest 60K and get an $6,000 annual net return you are making 10% roi, not counting labor. That's not bad.

6x6,

Ken answered for me. I cant help with your question but I never make an offer without knowing as much of the circumstances as possible. I not only check real estate records, I also check criminal and civil records. Is there a divorce? Several drunk driving cases? There are actually some of those funky security trust type mortgage owners who hold loans for folks who are back in their payments (not enough yet for a foreclosure) or for those who pulled themselves out of foreclosures.

LTD,

I appreciate your input here. My first rehab estimate here was actually $15K and I did add my usual $5K to it just to CMA. This house has a 2x6 ft. 'hole' in the kitchen floor and you can see floor joist and get easy access to the crawl space too!! The broker told me the previous tenant did not report a water leak under the kitchen sink and after 8 years, 1/2 of the kitchen sub-floor just collapsed downward! This seems to be the biggest issue with this house, however, a new roof and HVAC system will probably be needed too.

6x6,

Ken,

I have yet to negotiate anything with this deal. Why? Because there is a RE broker who is standing between me and the seller and as most brokers do, they put up a wall and do not allow the seller and buyer to ever meet face to face. With Class C & D house sellers, I always got to negotiate directly with the sellers (and this is where the killer deals were created too) because there was never a broker/agent involved those deals. Besides, most Class C/D sellers always hated RE agents anyway.

Gevans,

Roy - LOL your hole story reminds me of a property we looked at some years ago when we did our first round of mobile flips.

This dump was for sale for around $16,000 on a street that looked and sounded like a pit bull training kennel. We did a walk through and my spouse was shocked, "There's a HOLE in the ceiling!"

"Yes," I said. "But don't worry, the water will drain out the hole in the FLOOR!" :D :D

LTD,

10 years ago, I bought my first (and only) single wide MH. The owners had at least 15 feral cats living there, peeing and pooping in every room. The urine stench was unbearable. I paid $5K for this cat kennel on wheels, gutted it, rehabbed it and finally got the stink out. This MH is worth $30K now but the cash flow on this place is so good (35% ROCI) that it would be foolish on my part to sell it.

Roy,

Yes, sometimes the agent blocks the deal.

Me? Ask for balance on martgage and also the monthly payment amount. Doe sit include taxes/ins escrow?

I bought one like this where I took over the payments and paid the agent commission over 90 days.

Most agents don't have a clue.

Brad20K,

Does taking over the payments mean you also get to take title to the property? I will not make monthly payments or even do a rehab unless I can get Title to the house.

I am not trying to trying to cut the broker out of this deal,..she will get her commission, assuming we ever get to the closing table.

Oh $hit,...broker just called and said,...'mortgage balance is $48,000 plus closing cost, plus brokers fee plus $20,000 in rehab. Total around $70,000.

People would buy this house if it was their first deal, or if they owned the house next door, or if they wanted to live there.

Ken,

This house, after $20K in rehab, would flip for about $75K.

There are houses across the street that would sell for $150K but those are modern 3/2/2's. No apples to apples here.

Ken,

The broker has given me the seller's phone number and I have spent the last 45 minutes on the phone with her!!! And she is highly motivated too!! That is the good news. The bad news is there are 2 mortgages on this house.

1st mortg for $41,660. The 2nd mortg. is $6,050 for a grand total of $47,710.

The best deal I could offer her was this: I will contribute $40K here and you and your husband will kick in the balance of $7,710.00 plus broker's fee. She agreed to this, however, since her husband was not there, he will have to agree to it as well.

6x6,

The woman I talked to has had many 'sleepless nights' worrying about what may happen next if this house does not get sold soon. She was thrilled just to be talking to me on the phone. She and her husband have made some bad financial decisions (ie. 2nd mortgage) concerning this house and they are desperate for some relief.

Ken - I am a 'buy and hold' type investor which means 'the numbers' have to work for me as a rental and not so much as a flip where the stakes are much higher. When I crunch the numbers for a rental, this deal works out to be a 15% return which I can live with. With rental houses, time is always on my side. However, with flips time is my #1 enemy. The reason I don't do flips is because I like to sleep at night. :)

This house screams subject to. You will have the cash flow, and the appreciation. The numbers are not that strong though so you have to pick it up subject to the existing financing.

Ray,

There are 2 mortgages on this house and the home owners here are upside down,...they owe $12K more than the house is worth. Their monthly payment on a trashed out vacant house is $600/month. How would a Subject To deal be beneficial here? I would only consider Subject To if there was any equity in the house.