Investors : You Paid How Much For That?

By
Real Estate Agent with The Real Estate Corner

 

I want you to look at the house pictured on the left. Take a good look at it. This is 1950's brick ranch with three bedrooms, one bath, on .23 acres (corner lot) with a one car attached garage. Sales price?

$15,995.

No this is not located in Cleveland, Ohio. Some of the best deals you'll find in the Northern Ohio market aren't in Cleveland. They are actually in cities outside the immediate influence of Cleveland. Think lower property taxes with a higher monthly return on rents. Think fewer restrictions on property transfers and no point of sale inspections with hefty repair escrows locking up your cash. Think getting in and out of a property like this for under $30,000. Have I got your attention yet?

To get deals like this one, do not call just any Realtor. Call a Realtor who knows this market, knows how to negoitiate a deal, and can stay ahead of the market to give you a maximum return on your time and money.

I'm expecting your phone call.

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Location:
Ohio Lorain County
Groups:
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REO
Tags:
matthew p klein
matthew klein
lorain investment property
lorain foreclosures
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Rainer
321,503
Jack Mossman - The Nines Team at Keller Williams in Lodi
The Nines Team at Keller Williams in Lodi - Lodi, CA
The Nines Team in Lodi

Matthew:  Please let us know how this post plays out!  I really like the direct and still charming approach you took to the house, the community and the potential client.  Some of our politicians should consult with you on how to put together a positive campaign!  Great job and thanks!

Aug 10, 2010 04:02 PM #1
Rainmaker
248,047
Matt Grohe
RE/MAX Concepts - Des Moines, IA
Serving the metro since 2003

Matthew: Looks like a pretty good deal from the outside.

Aug 10, 2010 04:10 PM #2
Rainmaker
225,608
Tim Bradford
Cleveland, OH
NMLS 250013

Matthew,   Buyers may look at this as TOO GOOD TO BE TRUE.   We know there are many diamonds in the rough and an Owner occupied buyer could easily use FHA 203K rehab loan to purchase the property and get the money necessary to make the needed improvements to the property.   Hopefully an potential Buyer will see this and purchase it before an Investor purchases it, does the rehab and then resells it at a profit.   Best if the Owner Occupied buyer would buy this and avoid the Investor Rehaber

Aug 11, 2010 12:42 AM #3
Rainer
19,409
Matthew P. Klein
The Real Estate Corner - Cleveland, OH

Jack - I'll let you know how it plays out.

Matt - It was a pretty good deal on the inside as well.

Tim - I'm only speaking from personal experience but I think there are owner occs especially who are intimidated by certain types of repairs (basement walls being the most common one I've witnessed). I've represented investors throughout the life of my career (landlords and private contractors). The one thing I am constantly reminded of everytime we do a deal is that they "see" a property differently. Items and defects that may not be apparent to the first time purchaser but my clients are acutely aware of. Again, from my own experience, they are also acutely aware of costs and do not take a lot of time to put a project together. Similar to a builder in some aspects, I do believe that investors play an important role in neighborhood revitalizaion.

Aug 11, 2010 04:38 AM #4
Rainmaker
225,608
Tim Bradford
Cleveland, OH
NMLS 250013

Matt,   I hear what you are saying.   I am a big advocate of FHA 203K Rehabs because if an investor or rehaber buys the home they will put only what is need in the property to make it more saleable.  The property is then relisted or sold where they capture the profit.   When an Owner Occupied buyer is presented with the potential of the home,   They can capture the equity in the home.   I know a few general contractors that are trying to promote Owner Occupied purchases and Rehabs as a way for them to get business.  The objection I have been told is Realtors do not like a 203K sale because their commission is based on the sales price versus the rehabed cost.   Also, realtors like the second sale when the rehaber resells the property.    

Aug 11, 2010 02:14 PM #5
Rainer
19,409
Matthew P. Klein
The Real Estate Corner - Cleveland, OH

I know a few contractors as well who are promoting the same thing you are talking about. It isn't a bad idea. My objection to FHA financing though has nothing to do with the 203K at all. It has more to do with the higher costs of the loan itself and the downpayment being so minimal. It really doesn't matter if it is a 203K or not, the fees in general on a government backed loans are higher than a conventional. With a minimal down payment the likelihood of a deault goes up. That isn't good for the neighborhood or the purchaser.  

As far as the commissions go, I'll be forthright. That does not bother me. When you sell an REO property at $20,000 whether it's cash or financed the commissions are 95% of the time a flat rate. I've worked them from both sides. I will tell you that from the seller's side of things, I've yet to have one of my clients take something financed at less than $20,000. Not saying it doesn't happen  but I've not seen it. They have been cash deals everytime. 

In the past year we did two deals where the owner occupants purchased homes like the one above. They were cash deals. The chance of foreclosure by a lender is nil but, of course, there is no fee to a mortgage broker either. Given a choice, I'd recommend that 100% down payment used by Dave Ramsey or at the very leat a minimum 20% on a 15 yr fixed conventional loan. It takes a little more effort to get there but a little more effort never hurt anyone.

Aug 11, 2010 11:08 PM #6
Rainmaker
225,608
Tim Bradford
Cleveland, OH
NMLS 250013

Matt,  I too like the principle that Dave Ramsey preaches.   My view is that he preaches that consumers should be in charge of their finances instead of their finances being in charge of them.  Correct me if I am wrong, I believe he supports owning a home versus renting, provided it is done responsibly.   One point I disagree with Dave Ramsey is with the 15 Year Loan.  In general 15 Year loans have a rate of about .375% below a similar 30 loan.    On a $100,000 loan the interest cost is about $30.00 more per month.  (Disclaimer all numbers are Approx)    The total payment to pay off the loan in half the time (15 Years) is about $200 more.   For budgeting purposes I would suggest the typical buyer take the 30 year loan and then make extra principal payments each month, quarterly or annually to pay themselves out of debt.  

Next point, I do not know what lenders have Higher Costs for a Standard FHA Loans versus Conventional Loans.   The spreadsheet I use to give Closing Costs estimates are the same for FHA versus Conventional Loans.   FHA does a a 2.25% Upfront MIP Premium, that is financed.  It also has a monthly premium.  Many posts can be found on ActiveRain that show FHA in many cases with less than 10% down is the best game in town.   With respect to the Rate on the Loan, FHA and Conv rates are generally the same. 

With respect to Commissions/Income, I do support realtors use of a Flat Rate Commission on these transcations.    As a Lender, it is very difficult for me as a lender to find a lender willing to lend less than 40-50,000 for the purchase of a home.   With Low loans amounts we are limited to a Percentage of the Loan Amount in Closing Costs.   I wish regulators would see this and allow a reasonalble min amount to process the loan and provide an income to the lender.  

With respect to additional 203K Costs, there are added fees associated with these loans for inspections and the managing of the escrow account.   Also the rate is a little higher than a standard FHA loan.   Considering the additional equity a Owner Occupied buyer would expect by purchasing a distressed property I do not believe these costs are out of line in that they are inline with the additional work involved.

This reply is not intended to criticize you or Realtors in general.   It is to provide facts to individual looking at homes like the one shown.   Hopefully with the clarifications, they will recognize that you are willing to work with them.   

Aug 12, 2010 12:21 AM #7
Rainer
19,409
Matthew P. Klein
The Real Estate Corner - Cleveland, OH

Tim,

I hope you come back. Sorry it took so long for me to respond to your post. Dave doesn't recommend getting a mortgage on a home until you are completely out of debt. Until you're debt free, rent. At that point he recommends getting a 15 year fixed conventional with at least 20% down and paying it off as fast as possible (faster than 15 years). I've never heard him recommend any other loan. FHA rates from my understanding are a little higher than conventional rates and over the life of loan and that costs more. As you mentioned also, the MIP premium and the monthly premium, these fees do add up over the life of the loan.

I do have to stand firm on my belief that the more money you have into a home, the less likely we are to see a "foreclosure" rider as a part of a "For Sale" sign the next time it hits the market. The less effort we put into to something, the less we value it. I think you'll agree with me on that. If you've got nothing or very little invested, it's much easier to just walk away.

 

Aug 24, 2010 02:47 AM #8
Rainmaker
225,608
Tim Bradford
Cleveland, OH
NMLS 250013

Matt,   I do follow any blogs where I post.   In an ideal world, I would like 20% down and the 15 year loans.   Just not the case today.

Aug 24, 2010 04:15 AM #9
Rainer
7,078
Wayne Turner
Mars Hill Realty Group - Killeen, TX

Dave works for me. Without his advice I would still be in debt.  Now I just need to save $25K pluse and buy this home. Great post.

Wayne

Sep 12, 2010 06:37 AM #10
Rainer
81,012
Donald Tepper
Long and Foster - Fairfax, VA
DC area investor helping heirs of inherited homes

I agree it looks attractive. However, what's the strategy:

  1. Buy and hold?
  2. Rehab and resell?

In either case, it's important to know what the repair/maintenance costs are. If it's a buy-and-hold, it's also necessary to know what rentals are going for in the area. And if it's going to be resold, what are the comps?

Sep 15, 2010 09:06 AM #11
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