Buying my first foreclosure... (bank owned, foreclosures, rental)

[oneasterisk]

Hi everyone,

I've been a lurker on the forums for a while and decided to finally register. I'm going to use this thread to chronicle my experience buying a foreclosure. I'm a little late 'cause it's been a few months since I started this process.

First some background. I've lived in the NOVA area since 1989, mainly in PWC. I'm 28 in the IT industry for about 10yrs now. I currently co-own a house with my brother. Well the bank technically owns it, but we make payments on it. We've been in that house since 4th quarter 2004 and we don't have a problem with the mortgage payments (80/20 so we have two mortgages). We split everything down the middle including utilities. We both put in the same amount to a shared checking account and all bills are paid from that account. Most months there is a surplus and we use that surplus to pay for upgrades or repairs (we just replaced 3 sliding glass doors and had some windows done a few years ago).

A few months ago I decided to purchase a second home. My plan is to renovate it and rent out a room or two for a while. Then I eventually plan to rent out the whole house and move back with my brother. I'm going that route instead of purchasing a new house where my brother and I move while renting out the current house. The reason is I'm doing this venture solo financially. My brother is not in a position where he can go "halfsies" with the projected costs. I don't want to lose financial interest in my current home so I don't want to get bought out by my brother.

I'm working with $50k for a down payment AND rehab costs. I'm looking for houses up to $175k. If the house is near my limit, then I want less repair work. If it's closer to $100k, then I can afford to put more into repair. So with that amount of downpayment I'm hoping to get a PITI payment of about $1000 a month. I'm figuring utilities will be about $300 or so. I've done some budget calculations and with my salary, minus my obligation on my current house, it is doable with even about $500+ a month of savings. My calculations also do not factor in any rental income I may get if I rent out addional the bedrooms. I just paid my car off and don't have any credit card bills (I use my CC all the time, I just pay off the balance every month) so no other drains.

So long as I can keep my job it sounds like I can pull it off. I'm in the IT field and have been at my current job for more than a year. My last job I was there for 7yrs. I've already been offered to be switched to a gov't job, but I turned it down because it would mean having to work in DC. There isn't anything wrong with working in DC, it's just I don't want to because my current job location doesn't have a long commute and I don't have to pay public transport.

I focused on foreclosures because I read that shortsales took too much time to close. I've seen dozens of houses with my buyer agent (I used him to buy my current home, and he's helped my parents with their properties in the past so I'm comfortable with him). I've put 2 offers on houses I've seen. 1st offer I was outbidded on and recently learned from my agent that it sold for $40k over the listing price. 2nd house, I made an offer 12% over the listing price and was still outbid.

The 3rd offer I made was accepted by the bank. This home is listed for $175k, and I offered $162.5k and $4650 Seller Subsidy. This house is a bank owned home and was on the market for about a year. Of course the day I make an offer on it, there is also another offer made on it. The bank went with my offer because it had a sooner closing cost, apparently the offers were identical on the price and subsidy. I am scheduled to close on the 20th.

There was a small bump in the offer process. Initially I wrote a personal check for the earnest money ($1500). Bank would not ratify the contract though because they wanted it in certified funds. My realtor was amazed that'd they would nitpick that, but we thought maybe they had been burned in the past. We later learned that they had a buyer before that was unable to get financing at the last minute. So anyways, I get them the cashier check for the earnest money and they sat on the contract for about two weeks. Finally on the 2/13 they signed the contract. I also locked in a rate of 5% with 1/4 point with my lender the same day.

Well my lender says he doesn't think they can get the financing done by the 20th because he still needs to get an appraisal/underwriting done. I've already been preapproved and went to lenders office to sign some other paperwork so it's not the financing that is holding me up. When we wrote the offer about a month ago, we figured the 2/20th would be fine, but we didn't think the bank was going to take 3 weeks to ratify the contract. The lender didn't want to order an appraisal until we had a contract, and we didn't order a home inspection until then either. The bank wrote an addendum that we must close by 2/25 or face a penalty of $40 a day that we are late. My lender thinks we can close by 2/27 and I've asked my agent to talk with the bank to see if they can waive thier "late fee". Considering it was them dragging their feet, it is the least they could do. I don't want to pay their late fee on principal alone, I can afford to but I "ain't gonna" if you know what I mean.

Well the appraisal has been ordered, but we don't know when that's going to happen. Lender says they are backed up because of all the refis that were put in, but that home purchases get priority. My realtor is waiting till bank de-winterize the property so we can get a home inspector in there. Hopefully the house bones are in decent shape.

I already know by just the initial walk through that I'm going to have to put some money into the house. I have 10k allocated for repairs. Most of the repairs are going to be in the den/basement area. The flooring will need to be replaced. It is currenlty linoleum tile that can't be repaired. There is some holes in the ceiling in there, though I couldn't see any water damage or reason why there would be a hole. Some holes in the wall in there too. I'm thinking it was just the previous occupants being malicious. I think I can repair dry wall on my own and my brother-in-law did drywall for home depot for a few years so I'm sure I can get him to help. The flooring I was thinking of putting in tile, but carpet is an option though I prefer tile for it's longevity. I'll have to see the cost comparison. Carpet in main level and bedroom areas look decent, maybe just a cleaning. Wood in dining room looks like it needs to be refinished. Kitchen looks fine, though appliances are sort of old but not noticeably damaged. No clue if they function as the power was not on. Bathrooms looked outdated, but nothing seemed damaged. Water wasn't on so I couldn't test anything. Outside, part of the wood deck seemed to be off it's foundation. You could put weight in the corner and feel it buckle slightly so maybe it's just off it's support. The wood also looks like it needs to be pressure washed and sealed, or maybe just the top boards replaced. The basement walkout/up railing needs to be repaired. It was there, but it wasn't mounted. A good power washing would help the vinyl siding and the bushes are overgrown. Windows looked older but in good shape (no seals broken or frosty windows). Roof looked fine outside, but there was some slight stain on the ceiling of the living room. It had rained really hard the week before we got in there, and the area didn't look damp. We figured it was prior damage and just hadn't been repainted, but I guess we'll see in the attic during the home inspection.

Here is what I plan to do myself:
* Clean carpet in main level and bedrooms
* Tile downstairs (I've never tiled, but it can't be too hard I hope)
* Fix drywall holes (I've never dry walled, but it can't be too hard I hope)
* Repaint interior
* Refinish wood floor in dining room (Very small area so it shouldn't be expensive or difficult)
* Fix deck. Hopefully the deck just came off the post underneath and needs to be nailed back. I won't know until I pull off a few top planks...
* Attach railing on basement walkup
* Powerwash vinyl siding and deck and reseal
* If after powerwashing deck, I may have to replace the wood if it's too far gone

The house is only 1600sq/ft so that gives some perspective. I hope to be able to do all that fixing for $10k. Do you think it's doable for that amount? I'm hoping the roof doesn't need major repair, the heat pump and A/C unit are fine and I don't have to purchase all new kitchen appliances.

So that's my story so far. Sorry it's so longwinded and I'll update as things come along. Can anyone offer any tips or suggestions? Do you think I'm going about it the "right way"? Or what do you think I'm doing incorrectly?

[sssb2000]

obviously it depends on the material (quality vs. econ) but the list you mentioned should be very doable with your 10k budget :-)

Best of luck.

Make sure you remember not to be "too cheap" when selecting materials.....don't try to save a buck now at the expense of not making the results looking great! the little extra money you spend today could pay off big when you're selling in the future :-)

[Novamom06]

My first question is, do you have a realtor? I think a savvy realtor with experience in foreclosures would be a huge help to you in your situation.

[sssb2000]

Originally Posted by Novamom06

My first question is, do you have a realtor? I think a savvy realtor with experience in foreclosures would be a huge help to you in your situation.

Typically, i personally would be totally against going with an agent. if you're half competant and have 'some' free time, you can find a good deal by yourself from various sites and "POTENTIALLY" save at least 3% or more if the seller also has no agent. (personal opinion based on personal experience. think before you attack! :-)

BUT, given the fact that this is a forclosure, and that your purchase price is very low, i think Novamom may have a good point :-) let your agent do all the work.

but ONEASTERISK, from the tone of your original post, you sound like a guy who wouldn't mind saving a few additional bucks! ;-)

[dalexan242]

I find it a bit surprising that someone who has never done drywall or tile (both pretty basic home improvement projects) would take on the challenge of completely renovating a house, but more power to you. Home Depot has a great book called something like "how to do all your home projects" for something like $20. I did home improvement under a general contractor (my father) during all of my school breaks during college and law school, but even with that experience I usually find that my projects cost about 25% more than expected and take 2-3 times as long as the home depot book suggests for a beginner. There's always unexpected stuff that comes up-- like when you're doing a simple limestone backsplash and it turns out that the wires for the electrical switches you removed are frayed and split nightmares...

With most home improvement projects, there's no substitute for having the right tools and the right tools are sometimes expensive. I also lurk constantly at DoItYourself.com Community Forums - Home Improvement & Home Repair Questions & Answers, there are a bunch of people who are willing to help out with all kinds of projects. Good luck.

[oneasterisk]

I'm definitely not going to skimp in the places that require it. That's why I want to go tile over carpet in the basement. A nice tile is going to cost more than carpet, but should also last longer.

I have a buyer's agent that I'm working with. I used him to buy my current home. He's also bought and sold homes for my parents over the years so I know he's got a good track record. The only way I'd be able to see the inside of these houses is with a realtor working for/with me. I'd hate to have to schedule viewings with 10 different listing agents so I could see 10 different homes. To find these homes I'd look online using redfin, franklymls and other various sites. I'd compile a list and then drive to the locations on my own. I'd scope out the properties by myself and if the exterior and what I could see of the insides through windows/doors was worth it, I'd schedule with my realtor to go see them. The realtor doesn't cost me a dime, so I don't see why I shouldn't have one working on my side.

Yes I've never done tile or drywall but I don't mind working with my hands and I'm pretty intelligent guy. I work on my own vehicles including maintaining/riding a 20+ yr old motorcycle. I've also replaced a faucet in my current home, and fixed two leaking toilets. My hands get dirty all the time, just never done tile or patched drywall. I actually have a Home Depot book called Home Improvement 1-2-3 and it's helped on some things and given me insight on how certain things work. Thanks for the doityourself link

And I'm sure I'm not alone in wanting to save a few bucks any time of the day, certainly twice on Sunday.

If I go over budget on the repairs, I have about $15k that I can dip into. I'd rather not dip into it as it's my emergency fund for the year though.

Thanks for the tips and insights. I totally know that I definitely don't know it all so I welcome any and all criticism. Say what you will about me, but don't call my bike ugly

[sssb2000]

Originally Posted by oneasterisk

The realtor doesn't cost me a dime, so I don't see why I shouldn't have one working on my side.

if you need a realtor to get into these properties, then fine. i can't argue with that. but, regarding your statement above......it's True that 'your' agent doesn't cost 'you' anything (however, almost always, they have a 250 dollar charge for the buyer too...which you can waive if you're persistant and simply refuse to pay it when/if you're signing a contract with your agent).....

where was i? oh yeah.......it's tru that your agent doesn't cost you anything....but i was able to knock 3% off of the purchase price of my home simply because i didn't have an agent and the seller didn't have an agent...so instead of paying 'my non-existant' agent 3%, he paid ME the 3%.

that's all i'm suggesting.

[oneasterisk]

Yeah that's probably fine for a normal sale. Since this is a foreclosure though, I'd rather have my realtor and the listing agent take care of all the BS. From what I hear from my realtor, there is a ton of BS to deal with because it's a bank owned home. The bank was nit picky enough to refuse my personal check of $1500 earnest money and required a cashiers check instead. The last home I bought a personal check was fine and the few people I've spoken to about it also said that their personal checks were good enough when buying their homes.

When you bought your house without your own realtor, what was the process? It's definitely an interesting concept and if this deal is successful I may do something like that in the future.

[Novamom06]

For those looking at foreclosures, a question - does anyone know why these properties are so badly damaged? Was it retaliation toward the banks? Or just the kind of people who owned them - ie, didn't take care of their homes or perhaps rented them out? I can't figure out how so many people in an area would decide to destroy property. It boggles my mind.

[novahousehunter]

Originally Posted by Novamom06

For those looking at foreclosures, a question - does anyone know why these properties are so badly damaged? Was it retaliation toward the banks? Or just the kind of people who owned them - ie, didn't take care of their homes or perhaps rented them out? I can't figure out how so many people in an area would decide to destroy property. It boggles my mind.

I have been wondering the same. I think some of each. People do rip out the appliances, write on the walls, etc b/c they don't care and are on their way out. And a lot are rented out, I think often by a lot of people, as an effort on the part of the owner to keep the house and keep up on the mortgage.

Also, I think a lot of the houses in this area are just really cheaply constructed (contractor-grade everything). These 1980s townhouses have seen a lot of abuse over their years and were not built to last. The same with those being built now--they are not going to look sharp in 20 years.