El Centro, CA house for $25,000

El Centro House for $25,000

On Thursday afternoon I went to take a look at the house that would be auctioned
on Friday, January 25, 2008 @ 8:00am.  The opening bid for this home was listed
as $25,000, so I attended the onsite real estate auction for a house on S. Hope Street
in El Centro, CA.  The house was a single family rambler style from the late 50s judging
by the rock roof. 
                                 

The auction brochure listed the home as a 2/1, however there were three bedrooms,
a laundry room and a living room/kitchen combination.  The bathroom needed some work,
as did the flooring and wall paint.  The roof had a few black spots indicating weak spots
and more than likely needs replacing and the AC unit appeared to be a newer model.

The property is completely enclosed with a chain link fence on a standard sized corner 
of Heil and S Hope Street.   The yard is overgrown with weeds and lumps throughout both
the front and side.  There's a two-vehicle carport to one side of the house and a larger yard
to the north by the alleyway.

As I walked up the site, I heard some talking as if someone speaking through a mega-phone. 
The auctioneer was discussing the auction protocol.  I stood near the sidewalk and listened to
the rules as an auction assistant handed me a bidding number, registration form and stat sheet
for the property.  He quietly gave me directions and then proceeded back onto premises. 
As I looked around, I noticed about 5 other interested parties who all had the same items in their hands.  There were three auction assistants in addition to the auctioneer.

Shortly after explaining the auction rules and protocol, the auctioneer announced to the crowd,
"gentlemen, let's have us an auction..."

Before I knew it, the auction had started and the auctioneer opened the bid at $25,000 which
was quickly bid up to $50,000.  The bidders who were interested kept increasing their amounts
by about $5,000 as the auctioneer rambled off the new high bid.

The bidding seemed to slow down around the $70,000 mark as the auctioneer beckoned for interested parties to bid $75,000, but there were no takers.  The bidding stopped at $73,500 and he had a
high bidder.  The bidding process was over in less than 5 minutes.  Very fast paced.

The high bidder is required to show proof of 5% of the bid price after winning the bid and present a
cashiers check for the amount on the spot as well as sign the contract to purchase the home.   
As you can imagine, the seller, a bank, wants to close within 30 days. 

The rules of this particular auction states, "...all auctions are subject to court or seller approval within
7 business days from the date of the auction.  Buyers are not allowed possession until filing of the deed,
at which time the property should be re-keyed.  "Showing" requests from Buyers after the auction may
not be able to be accomodated..."

Assuming the sale was approved by the appropriate parties, was this particular purchase a good
deal for a flip (resale) or is this property better off as a rental? 

Let's review the numbers...

Auction Price.......$73,500.00                                                                                        
        
Repairs
Roof...................$3,500.00
Paint/patch.........$  750.00
Flooring..............$2,000.00
Bathroom............$  500.00
Appliances..........$   800.00
Yard Clean up......$   200.00
======================
Total Repairs......$7,750.00                        

Acquisition Cost...$80,750.00                        

Flip/Quick Sale assumptions                                           Rental assumptions                   
Sales price..........$135,000.00                             Refinance acquisition...$80,750.00
RE Commissions....$  4,050.00 @3%                      Refinance costs..........$ 3,500.00
Closing Costs.......$  1,500.00                              New Loan amount........$84,250.00
Buyers Costs.......$  4,050.00 @ 3%                      Non-owner 30 year fixed @ 6.500%
------------------------------------                    -----------------------------------
                                                                      MO PI Payment..........$  456.35
Net price............$125,400.00                              MO Taxes/Insurance...$  150.00
Less Acquisition...$ 80,750.00                               ---------------------------------- 
------------------------------------                     Total PITI................$   605.35
Net profit...........$  44,650.00                               Average rents...........$   750.00
ROI (return on investment)....55%                          Net cash-flow..........$   144.65

It appers as if this property would make a good investment either way based upon the
numbers analyzed.  If the repair costs are slightly more, assuming a 10% variance or
almost $10,000 in costs, the ROI is still over 50% and the loan payment for another $1,000
increase to the loan is an increase of approximately $5.00/mo.

What are your thoughts?  Was this purchase a good deal as a flip or a rental? 
Share your comments.

Note: Information is deemed to be reliable but cannot be guaranteed