The REO House in Charlotte – Canipe Drive – Part 3

It’s time for another update on my progress with the purchase of a bank-owned property in Charlotte, North Carolina.

For those that don’t remember, I was buying this home for $130,000 (previously listed at $170K) to rent out for approximately $1200/month.

For those that missed it, you can read Part 1 and Part 2 here.  I promised to pick up with a discussion of the due diligence that went into researching the property after it was under contract.

The main thing you want to find out about in the Due Diligence Phase is "what could go wrong after I buy this property?"  You want to uncover the skeletons in the closet BEFORFE you buy, so that if there’s anything bad about the property, it doesn’t surprise you in the form of a nasty bill/loss of profit after it’s too late to do anything about it.

We did the following due diligence:

1. Appraisal – the bank required and we wanted, a full-blown professional appraisal on the property.  The appraisal came in at $145,000 which had been the listing price of the home before we put it under contract.  It wasn’t as high as we had hoped, but considering the low contract price on the property, it wasn’t a big surprise that it came in this low. Cost: $450
2. Property Inspection – We also hired a professional inspector to come in and generate a floor to rafters inspection of the property.  Even though the house was newly built – 2001 – you never know what could be wrong with it, especially a foreclosure.  He documented all the major systems – roof, walls, foundation, electric systems, plumbing, heating, etc. to make sure it was all in working order and generated a list of items that he thought needed to be repaired to make the home more live-able and/or to keep it in good shape.  Cost: $300.
3. Property Comps for Sales and Rent.  We also had our realtor visit the property and take pictures to send us.  She also took pictures of the neighborhood so we could get a feel for the area around the house.  She ran comps to show us what other homes in the development were renting for and selling for.  Since the realtor obviously has a vested interest in telling us what we wanted to hear, we also ran her rent comps by our property manager to make sure they weren’t way off base.
4. We got a contractor to do a bid for all the work that needed to be done – everything on the Property Inspection and everything else he could find or think of, so we’d know how much the repairs would cost.
5. Finally, we had a title report done, and got title insurance.  This is pretty standard when you’re buying a property with new bank financing, but it is another form of due diligence.

The biggest thing that we didn’t do, that we should have done, was to visit the property.  We’d visited the CITY of Charlotte over Thanksgiving, but we hadn’t looked at this particular property then, as we didn’t have it under contract at the time and we were visiting other homes that we were also making offers on.  That will be a good TO DO item the next time we’re in town.

Stay tuned for the next installment where I talk about "FUN WITH THE CLOSING."

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Related posts:

1. Buying an REO to Rent in Charlotte, NC
2. Buying a Foreclosed Home (REO) From the Bank
3. Buying Foreclosures at the Auction
4. More "Best Ways" to Collect Rent
5. Apartment Investor Interview