House 2

I get an email from a company here in Arizona that buys foreclosures and resells them to investors. They had just purchased a single family home with 1,167 square feet, built in 1983. They are selling it for $106,000 and the FMV is $135,000. They included a picture of it in the email and it looked quite nice. I didn't get the email until last night, so it was too late to go look at the property. I did some basic research on the owner and found out the owner hadn't paid his mortgage since March, 2004. The property was to go to auction in August and that was cancelled because the guy filed for bankrupcy. The property ended up going to auction yesterday, Feb 2, 2005.

I did something that should probably never be done and definitely should never be done by new investors - I made an offer on the property without looking at it in person. I did this for a couple of reasons. First, I know one of the principals of this company - I used to work with him before he got into real estate and he was the one who got me my first rental house (also a foreclosure). I know he does his research and buys good properties. Second, this company operates on a first come, first served basis and their properties usually sell quickly. Most of their properties are sold about $20,000 below FMV and this one was $29,000 below FMV. They take bids initially via email with the first buyer getting the house. I read the email 1.5 hours after it was sent out. So given the high instant equity and the time between sending the email and my reading it, I decided to make an offer. (Which isn't really an "offer" in the typical REI sense. This company lists a sales prices and that's it - there's no negotiation.) Their office opens at 9 AM this morning, so I should hear if I got the property shortly after that.

This morning, before going to my day job, I took a drive to the property and checked it out. (It was vacant and on this company's master key, so I could get in.) It's always shocking to see the condition of a foreclosed house and this wasn't any different. There was random broken furniture left in the place. One side of the sliding glass door in the kitchen had been removed and a large china cabinet was moved in front of the opening to block it. It looked the like place had been vandalized because almost every light fixture in the place had been removed. The oven and refrigerator were still there, but the microwave over the oven was gone. The kitchen cabinets looked a bit beat up. The walls throughout the house looked like there was wallpaper on them and it had been peeled off. The doorways to the bedrooms had the doors removed and the doorframes taken off. The bathrooms, surprisingly, weren't too bad. The toilets need to be replaced, but the tubs looked good. Cabinets were ok in one, but so-so in the other. One room was a baby's room and there was still some animal wallpaper up. Of course, carpet throughout the place would have to be replaced. The garage looked like it was being used as an extra room in the house. There was no garage door opener and several sheets of drywall were leaning against a wall. Strangely, it looks like the door to the garage (for people, not cars) that leads to the outside was boarded up and fixtures for a washer and dryer were put in. Another doorway led into the house and that door was also removed. Weeds ruled the front and back yards, but there is a nice big tree in the front. Of course, all utilities were off and, since it was still early, it was dark and I was using a flashlight to check things out, so there might have been some things I missed. The neighborhood looks pretty nice.

There's a lot of work that needs to be done. At first glance, I was sure I made a mistake by making an offer. However, looking at things analytically and cataloging all that needs to be done, I think it's not too bad. I estimate about $10K - $15K to fix it up. After fixing and selling and paying commissions, I could make about $10,000 on the property. Assuming I was the first bidder, that is.