Analysis of the Third Kind

So recently, we came across a potential property on our Bank's REO list.  It was a set of 8 residential units (townhomes more or less) in 2 separate buildings that were next to each other (4 per building).  It was listed for $960k.  At this point a property of that price is out of the range of what we can pay down, so we'd obviously need to potentially bring in a partner or do something else creative.  But before we went down that route, the idea was to find out if it was a profitable deal or not.

So we got the financials for the past year and a half.  They only had them for the last year and a half because they foreclosed on it back in 2012 and it was in bad shape.  They rented for an average of $940/unit and 7 of the 8 were rented.  There was still a lot of deferred maintenance that had to be done in early 2014.  So I took the last 9 months of expenses and averaged them out to get my number.  I realize that's kind of dangerous, but had I included further back, I would have been offering $100k for the whole lot :)  I can always put a buffer on it anyway.

We put in the numbers as best we could get them and came up with what we thought would be a decent number.  The number itself isn't really wasn't important at the time (it was more of a ~$50k range anyway) as the first step was to figure out if we were in the ballgame.  If our analysis would have spit out $400k, we could stop there.  It wasn't a high number, but it wasn't a lowball either and we figured the bank had a good chance at accepting it.

Next, we had to hone the numbers before we could put together an official offer letter (much less a contract).  The main one being taxes.  We had gone online and looked at the county and city's tax estimator and came up with a number, but it didn't match what was paid in previous years (not even close).  It was a pretty big number and we weren't sure if the number was per unit, for each set of 4, or for the set of 8.  So we just asked the bank.  They came back with nearly $3k *PER* property.  And with that, the deal was dead.  We had about 3-4 hours of analysis into it.  Our goal was to figure out if an offer was possible inside of about 5 hours.  Obviously the contract period would have the real due diligence and a lot more time but we never got there.

Keep in mind, the bank was selling them as a lot of 8 only (not individually), but they were individual residential properties as the city was concerned.  Had it been an 8-unit complex and classified as commercial, it might be a different situation.  Unfortunately, I think the bank is going to be stuck with these properties for a long time as the best number we could come up with that would make it profitable to the level we would need would be in the $300k range and while the bank may be willing to part at a low price, they aren't stupid :)