Jan Skrentny

I spent the afternoon looking at “repoes” – bank-owned repossessed homes.

I have several clients who are interested in buying up good homes at very good prices. There is a formula to it: With 20% down the price has to be low enough so that when the house is rented – the rent will cover the mortgage, taxes and insurance. Ideally there should be a little left over to cover repairs.

The point? Say you get a three bedroom two bath for $130,000 (this is possible in the mountains). You put $26,000 down, finance $104,000.  It’s an investment property so the bank rate will be higher than on your home loan, so say 7 ¼%. On a 30 year fixed that is $716.00 a month. Taxes are 1.5% of the purchase price or $1,950/ year – $162.50 a month. Insurance varies but say $800/ year or $67 / month. Total cost: per month: $945.50.

A good house will rent for $1,000 to $1,250 up here.

Four years from now when the market is strong again the home will sell for over $200,000. Your $26,000 investment, after cost of sale (commissions and costs) will net you $52,000 – tripling your money.  Hard to beat at any bank.

The problem? Most repoes are not in good condition. They are troubled, I call it “home-abuse;” technically it is bad or no  deferred maintenance.

That’s why I spent the afternoon looking. Good repoes are hard to find. You have to look hard and act quickly when you find one.

But that’s how money’s made in a bad economy. One Repo at a time.

Comments RSS