So how does an REO property investor evaluate buying an investment property?
As an example, an REO property in poor condition is listed for sale for $199,000. If the property were in good condition, it would be worth $230,000; however it needs approximately $31,000 in repairs. What is its as-is value today?
As a Realtor®, we have a fairly good idea what it’s not worth “ it’s not worth $199,000. Most, likely, an investor would not purchase a property for $199,000, repair it at a cost of $30,000, and sell it for a profit of $1,000. Plus there are other costs to be considered, such as holding and commission costs.
We have the repair cost and the anticipated sale price once repaired. In order to price this property using our formula, we would need the holding costs, the costs of sale, and the profit demand. Let’s say the holding and sale costs are $9,000 and the profit demand is $25,000. Using our formula:
- Anticipated sale price: $230,000
- Less repair cost: – $31,000
- Less holding/sale costs: – $16,000
- Less profit demand: – $46,000
- REO Value as-is $137,000
No wonder the property hasn’t sold at its offering list price of $199,000! Even after a Comparative Market Analysis (CMA) is performed. Most agents not safisticated enough or familiar with pre-foreclosures and Bank REO’s can wind-up abandoning their customer and giving the listing back unsold. Or the bank client winds up giving the property to a management company.
Are you planning on selling? We are your Realtor® here to help instead of sitting with a property for a long time. We provide quick and positive results. Contact us today for a free consultation.