2 Bed/2 Bath condo, Upper Marlboro, MD
This 2 bed/2 bath condo, built in the late 90s, was purchased for $79,700, in an all-cash deal, as the auction terms stated that occupancy status could not be verified.
Since the property’s occupancy status could not be verified, offers had to be made without actually entering the unit.
It is against state and federal laws to attempt to contact occupants while in foreclosure. This can be a risk, but with condos, I see the risk is less, as any potential problems in the unit would have a likely probability of being reported. Moreover, condos have less of a problem with evictions, as they tend to have smaller family units in the mix. I always contact the management company to see if they are willing to divulge anything. They only said that the account was at the attorney’s office for collection. This was good, as the attorney’s payoff letter would suffice in place of the estoppel letter for closing, and would provide me proof of what was actually owed in back common charges.
The property was listed on an online auction and was not on MLS. The terms stated that the seller would grant a special warranty deed, and that all liens known on the public record, including about $5,700 in back common charges would be paid for at closing by the seller. I would essentially get marketable title.
I was one of three bidders, and though I initially did not meet the reserve price, right before the auction ended I escalated my bids until I met the reserve. The auction ended at 10 pm, so there were no other active bidders at that time. Sometimes it pays to stay up late.
A look at some of the numbers I used for bidding
The 2 bed/2 bath comparables for this development, according to MLS, are as follows:
Bank REOs – 95,000-103,000
Standard – 100,000-125,000
The rents for 2 bed/2 bath units are 1,500-1,600/mo.
The risk paid off
The next day after settlement, armed with my signed deed and HUD-1 statement, I went to the condo’s management company and received encouraging news. According to their records they believed the unit was vacant for a year, when the person who was foreclosed upon returned his building key fobs and parking passes. I further spoke with the community manager and she stated that unless there is a squatter in the unit, it should be empty, as the previous owner was thorough and that he most likely cleaned out all his possessions. I also obtained the building key fobs, storage space keys, parking passes, and had the front door entrance reprogrammed with my information.
Once I was able to gain access into the main building I also contacted a locksmith, and for $135 he opened the unit’s front door.
As soon as I gained entry, I immediately realized that this turned out to be a very good deal. Only cosmetic items need to be addressed – paint the unit, replace the flooring, run recessed lighting, and update the kitchen with stainless steel appliances and granite countertop. Once I had the electric turned on I determined that the HVAC and water heater were fully operational, and that the stackable washer/dryer work fine. The amount of money I will need to rehab the unit should be no more than $7,500.
I think the property was auctioned off as “occupied,” because the bank was not able to obtain the keys to the unit’s front door. In addition, if they cannot locate and formally notify the occupant they can not legally enter the premises and evict. Thus, the bank never completed the eviction process, as is the case with many lower-priced properties, since it is not always worth their while. I could see that the lock was not played with.
Here are the income and rates of return calculations:
Rent – $1,550/mo
Common charge – 300/mo
Tax and insurance – 120/mo
Net rental income – $1,130/mo
Annual rental income – $13,560
Purchase price + rehab – $85,000
Capitalization Rate – 16.0%
This unit is fairly new and is located in a stable development. I now have a property that will generate up to a 16% annual income stream. There is no other way to make this rate of return on cash flow alone. Plus, I took a chance and added $25,000 in instant equity.