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Lately, I have been working with buyers searching for foreclosure and rental properties. I'm writing about some of my findings on an ongoing basis.
These properties will only be the ones which fall outside the search criteria of my current clients or which they have elected to forego pursuing for their own reasons. Don't want to have clients and customers competing with each other.
And that still leaves great deals for the rest of us!!!
Buyers, Lets Go See This!!
Here's a short sale purchase opportunity:
7005 Hanging Cliff Pl., North Richland Hills
Price: $100,000
(MLS photo by listing agent Terry Smith)
Short sales involve the owners approaching their lender with the bad news that they can't make any more payments. They ask the lender to consider allowing them to sell the home short of what is owed. Hence the term short sale. (We're geniuses with the language here in real estate.)
Sometimes, the market value of the home has dropped, which creates the upside-down debt-to-asset value situation. This applies more severely to other parts of the country than to the Metroplex, although we have seen several examples here in many neighborhoods.
The property for our consideration this week is 7005 Hanging Cliff Pl., North Richland Hills (MLS 11091416), listed by RE/MAX Achievers agent Terry Smith on 10/13/2008. Below is the property description:
3/2/2
Built in 1981
1 living/1 dining 1 fireplace
1,754 sq.ft
0.215 acre lot
Covered patio
All electric
Terry Smith is a Certified Distressed Property Expert, which means she knows how to market short sale homes. You can see evidence of her professionalism by studying the listing history in the MLS. It features systematic price reductions on fairly regular intervals until the market responds with an offer - a textbook short sale approach. This home came back on the market on April 23.
In analyzing the opportunity, we must work within certain given constraints. One of those is down payment requirement for lease homes, ones where the buyer does not move in. Lenders refer to this as Non Owner Occupied (NOO), and statistically these loans are riskier than ones where the buyer moves in, homestead-style. Consequently, the hurdle is higher, and the mortgage investor demands more return for the additional risk. Currently, as of about four or five weeks ago, borrowers on NOO loans are required to put down 25% of the purchase price. The interest rate is a little higher, too, at about 5.75% on a 30-year mortgage for a well-qualified borrower.
Additional Givens:
Price: $100,000
Down Payment: $25,000
Loan Rate: 5.75%
Loan Term: 30 Years
Monthly Rental: $1,123 (avg. for the neighborhood)
Homeowners Insurance: $500
Yearly Taxes: $3,201 (based on higher value than $100K to be conservative)
Maintenance Cost: $275 (approx 25% of monthly rent payment)
The assumptions listed above yield free cash flow of about $1,231 for the first year, almost $100/mo.
The Tarrant Appraisal District values this property at $139,300, up from $122,600 in 2007.
You would normally expect to see a short sale priced a level which makes it the best deal in the neighborhood. This home is no exception. Terry has it priced at $57.01/sq ft, and the only competition (6900 Ridgetop Rd) is being marketed at $64.66.
Four homes have sold nearby in the last six months priced as follows: $58.55, $59.44, $80.51, $86.75. All factors being equal, 7005 Hanging Cliff is priced most competitively. I should probably mention here that factors are rarely equal because no two properties are identical.
The only way a buyer can really tell what a home is about is to go look at it.
So Lets Go!!
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STATUS CHANGE: This home is now SOLD. Wow. That only lasted 10 days on the market.
However, many more great opportunities are available.
Another Lease Home Opportunity!!
5200 Bonnie Wayne St., Haltom City
Price: $58,000
(MLS photo by listing agent Robert Schrickel)
5200 Bonnie Wayne St., Haltom City (MLS# 11188872) is a 3 BR/2 Bath property that fits many characteristics of a good rental home. It was listed by Hodge Realty agent Robert Schrickel on April 21.
This 1960 house is priced at $58,000, while the Tarrant Appraisal District assesses it at $106,800 (up from $103,500 in 2006 and 2007). Twenty homes have sold in this subdivision in the last six months, however only one has exceeded 2,000 sq. ft., like this house.
Robert describes it as having so much potential for the savvy investor. The garage conversion has a master bedroom upstairs and large living area below. That makes the master bedroom a whopping 23x18, per his measurement.
Heres a valuable feature: The foundation has been repaired (Dec. 2008) and includes a warranty! The previous owner indicated to the current owner that the roof was replaced in 2006 or 2007, information which appears on the Seller's Disclosure.
It also has what he describes as a bonus storage room in the back yard with washer/dryer connections.
Lets discuss this home as a rental purchase now. The listing agent indicates that the house could be divided into two living quarters to accommodate two rental units. In the past six months, the Browning Heights East subdivision has tallied three homes with new leases, as documented in the MLS:
$800 2/1/1 886 sq.ft 1952 29 days on market
$850 3/2/1 1,422 1955 0 days on market
$950 3/2/1 2,058 1960 68 days on market
Our subject property is 2,122 sq. ft. Although it lacks garage parking, it has a carport, and I still believe it could support a $950 monthly rental rate - especially with the two rental unit option.
Below are the givens:
Price: $58,000 (worst-case, full-price)
Down payment of 20 percent: $11,600
Loan Data: 30-Yr, 6.5%
Monthly Expenses: $238 (or 25% of the lease payment for repairs, maintenance, etc.)
Homeowners Ins.: $500
Taxes: $2,818 (per Tarrant Appraisal District)
Monthly Rental: $950
These data yield first-year free cash flow totaling $1,710. If rent could be increased by 3% per year, net cash flows in subsequent years would be: $1,868, $2,030, $2,196, $2,367.
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