I went to look at a REO house today. It seemed like a good deal at first, but here the analysis:
The asking price is $45K and I estimated the repairs at about $5K. The ARV is $65K and the holding time is estimated at 6 months. Marketing cost to resell is $4K and closing costs will be about $1K. This leaves a profit margin of only $10K, which is too narrow for me. I like having a spread closer to $25K.
Cash flow is also out of the question. There is a swimming pool in the back and this is the main drawback. Although the cost to repair the pool is under $500, the annual insurance is higher and the monthly power bill is higher. As a rental, the higher pool expenses will cut into the cash flow because renters will not want to take on these higher expenses.
I believe that the best option for this property would be to lease it for $925 with a purchase option for $70K. Even with this option, the profit is too low and the risk is too high for me. NEXT!!
