I looked at a house yesterday. it was built in 1995. it is 1755 sqft, witha two car 600 sqft garage on it also. It has very nice size rooms, deck across front that wraps around to the side with a screened in porch with access to the Master Bedroom.

Downside... This is a foreclosure property. I can get the house for around $50,000. it is in a nice place, with nice houses around it. The deck needs to be replaced...Windows need to be replaced...has some water damage in one bedroom, but inspection of the roof shows that it is new...Needs two sets of french exterior doors replaced... I still haev to crawl under it to inspect for termites and mold and any rot that may be there..

I am looking at this house as an investment. I believe it will appraise in the low to mid 100's after repairs...

How should I go about getting the loan to purchase... Construction loan approved for roughly $80,000 and buy the house for 50 and then have 30 to do repairs and updates???? I need advice on this cause I have never done it before...

 

You came to the right place, I do this for a living.....for the past 20+ years.

Sounds like you may have found a good project.

1. Find out what homes are SELLING for in this area. There is a reason the previous owners could not sell it, but that is minor. People get foreclosed for all kinds of reasons. Do your homework. Talk to real estate agents, neighbors, etc.

2. Make a list of repairs and get prices. Total it up and add 50%. That is an estimate of the costs of repairs. Since you are new you are gonna miss stuff. That is what the 50% is for, and it is minimum.

3. Try repairing and painting first before you replace windows & doors. Just because paint is peeling doesn't mean they need replaced. What you are trying to do it get it in sellable condition, not restore it. The house is only 10 years old, I just can't believe you need to replace windows.

4. Everytime you think about a repair ask yourself this question. "Is the money I'm putting into this repair worth the return I will get?"

5. Don't work for free. You buy the house for $50K, put $30K into it, and sell it for $100K you make $20 right? Wrong. You have holding costs, utilities, profit, interest, taxes, etc. This business is way more about accounting that repairing a house. Do it right, set up a spread sheet on your computer and update it every day. People who don't do this go broke quick.

6. Remove the liability from yourself and have experts inspect for termites & mold.

7. Replace all foor coverings, and take a look at the kitchen counters. Kitchens are what sell homes. Replace the countertops with the latestest formica patterns and put a GOOD new kitchen sink & faucet. Here is where you want to spend a few bucks.

8. You need to decide how much work you are gonna do yourself. Don't try and do it all yourself. You think you are saving money, but remember every day that home sits vacant it costs you money, so if you ahve help and get it on the market faster you can acutally SAVE money. Painting is an area I farm out. For a $1.5K you can have the whole house painted inside & out in less than a week.

 

First step would be a complete inspection by a pro inspector....that will give you a solid basis for an estimate of repairs to take with you when you apply for the loan. The get estimates from liscenced contractors( even if you do the work yourself) the bank will want them.

Add at least 10% to the repair estimate to cover the "things' that come up during any remodel/rebuild. You can always return money not spent, but its hard to add to your budget after you atart.
research the houseing prices over the last year in the area and be certain your costs will be recoverable.

If it was built in 95, I would wonder what has happened that the deck and doors would need replaced already...... particularly the doors shouldn't be bad that fast...

 

the deck just looks like it was not done with pressure treated boards, and the owners just thought they would keep it painted and that would be allright...

the doors are an exterior metal type, tha appeared to be raw when bought, and painted with some crappy paint...They are rusting at the bottoms. Windows are cheap metal type. Kitchen will be completely re-done, as the design and the cabinetry sucks...Flooring will be redone to hardwood. I am thinking of taking down the vinyle siding and going Hardi....

I am a drafter/designer for a mobile/modular home company.. I can get materials for our company's bulk cost....

 

When my dad, grandpa and me built a room on to my house we had to get a home improvement loan. They would only give it to us if we had a "professional company" do the build. We made one. Did all the work ourselves and it turned out great. New deck is a must if the wood is bad. Rusted doors are no good I don't know if you could salvage them. We put wood French doors in our room and they swell and shrink with the weather and that is no fun. Good solid wood doors are better IMHO. Wood floors are easy to do. So is floor tile. Kitchen cabinets are also important. As stated above kitchens sell houses. So do bathrooms. As far as siding. I'm not a fan of vinyl siding. Is there brick under the siding? Sounds like whoever built the house was cheap. Double pained windows are good too as far as energy efficiency.

 

I work with a guy who does home improvements on the side, and he and I are gonna get out there next week. Mean time I will be working with my Bank to get financing setup. I think I will go with a construction loan approved for 80,000. Then put a bid up for $50 on the house. If bid accepted, pay $50 out of the 80, then that leaves me with 30 to do the work with.. i will go to lowes this weekend and research the cost of porch materials...

Houses in the same area that were smaller in sq ft but had basements, sold for $120,000 and $129,000.

Also, i will be living in this house while doing the work. at 80,000 my payment will be $500 with a 6.5% interest rate. My current rent is $489....

so far, it is a win win situation. not throwing moeny away renting, making value of the property go up and instant equity....

 

I'm not a lender, but I have been in the business for a few years now. I have never heard of a construction (construction/perm) loan for anything other than new construction. The deal is, you are going to have to prove to an Appraiser that the home is actually worth (X amount) more than what you are borrowing for it, or the bank is going to take issue with handing you 80K for what appears to be a house with a $50,000 market value (condition considering, of course)

I can tell you from my experience, buying a foreclosure is FAR from a "bad" thing, heck, in our market people darn near fist fight over them. My mother has bought and sold 4 of them in the past 6 years alone (2 of which she lived in while renovating). There is money to be made in the right market. Some she rented out over the years, other just flipped for profit. One thing is for sure, she has ALWAYS come out smelling like a rose, even on the one's that I just shook my head while we used a 3" trash pump to pump out the basement.
I'm not taking a few thousand bucks at a time here either, more like tens of thousands for each one. (I can provide examples with the MLS listings, public records and all, some in under 8 months including her living there while they worked on it).

It is my opinion that in most places an REO (bank owned, foreclosed property) has a somewhat limited audience, meaning 80-90% of people don't have the know how or guys to buy something grime and take the time and money to realize the investment. Most people want "turn key" houses, move right in, no replacing the floor coverings, no painting, etc.


When you say "bid", is this house being actively marketed by a Broker, HUD or what?

 

well, the house has more than a $50,000 market value, the foreclosing institution is mearely trying to break even on the investment.

Now, on the house loan, it really is no different than adding on to an existing house. But I see where you are going with this, and that is why I said I had to go and talk with the bank to see what my options are....

 

Thing is, if you are adding to an existing house there is an element of "built in" value, such as owners equity or the proof that said improvements are actual value added items.
(in other words) most people are re-fi'ing to add a family room, detached garage, remodel a kitchen. In most foreclosure situations the investor is basically just bringing the property up to a sort of "market standard". (as in working from a negative to build up to a even value.
This is the same principle used when they lend on vacant land. Last thing a banks want to get stuck holding the bag on is a Lot. They can drop a house in a much quicker time frame.
Is it a local bank who is holding the note, or Fannie Mae backed?

 

And, not trying to dump on you, but I have seen banks that realized they had some interest in a certian property counter offer over the existing asking price because of competeing offers.
Someone got wise at the bank and decided the brokers who did the BPO's (broker price opinion, aka: cheesy Appraisal) underpriced it.

Buyer ended up paying about 6K OVER the original asking price the bank put on it. Of course, they still got a smokin deal, make 58K in under a year on it (approx. $250K property)

 

well, as mentioned above, the house needs work. It was basicly a very nice house that has some corners cut, that just came back to bite the house....

reminds me of that show on TLC where people come in buy a house, remodel it, and turn around and sell it making some profit... I will be doing the same thing, I just will prolly live in mine till after I am married, adn then have a ball and chain that will want to put her two cents in...

This will be a financial investment for me, nothing more....

I will go to the local banks here and see what they say about the loan. I will report back here with the info I find....

 

I must say that I'm impressed with the advice that Geico gave you. Especially about removing the liability of termite and mold inspection. Theres not really much that I can add to what he said. As he stated spend most of your money in the kitchen and master bathroom. That's what sells. Curb appeal doesn't hurt either.

 

Update...

Real Estate took the houe back off the market. The institution that is holding the foreclosure agreed to put the house on the market for $64,000. They made that agreement with an agent. That is below the appraisal price. the agent is supposed to get approval from her boss before putting something on the market below appraisal. So the house was taken back down...

Now....I talked to my banker yesterday, and the loan type would be set up as a construction loan, so I would purchase the house with the funds interest only while I do the repairs. Once repairs are completed, the loan will then be moved over to a conventional 100% financing should I chose to do it that way. I will prolly make a 10-15% down payment though....

so.....The house will be put back on the market before long maybe with a new price, maybe not, but I am not holding my breath.

I have been over the house with a fine tooth comb, and checked prices...

The deck needs to be replaced...just needs decking, joist are fine, and needs hand rails.....$1000

It has vinyl and I want Hardi....cost came out to $2000 with me doing the work, cause I have done it before.....

Windows are cheap single pane metal ones....7 windows that are 36x72..I can get new double pain vinyl ones for $100 a piece $700...

New French doors...$400 a piece and I need 2... $800

Interior painting....$400

Hard wood flooring for kitchen and dining....$2000

Cabinets from where I work. Cherry finish...$3500

Marble Counter tops from where I work......$400

Stainless Steel Appliances from where I work...$1200

these repairs come up to $12,000...

I plan on offering $60,000 for the place. I figure that i will splurge somewhere and spend a few more bucks to make some things nicer like light fixtures and faucets and maybe the living room flooring...

I think given the above needs, plus my offer, i can close on a $80,000 loan...

roughly a $505 payment, not counting taxes and house insurance....

 

So they are at $64K now?

Some of your estimates seem low (the windows, doors and appliances) I hear you about getting the stuff from work, so I assume that what's going on there.

You can always offer/counter offer UP, never down.

 

Double Metal Garden Doors at Lowes are $362 a piece.. I need two...

Windows from work are $98 and change....

Stainless appliances from work...Smooth top stove $380, Fridge $500, dishwasher already in house....I have washer and dryer that goes in the garage..

Remember that I work for a modular home manufacturer, and get things at cost (and we buy in bulk).

i am adding a little money to each thing like suggested above to cover myself. That is why there is about $8000 fluff in there on things not costed in that i don't think need changing...