Is a 22k discount real money if the bank sells it to me occupied?

Question

I thought this was a hypothetical question until it landed in front of me. Bank-owned three bedroom, listed at a number I can make work vacant. The listing agent says the bank will not deliver possession, and there's a former owner still in it who has been there past the sale date. The as-is-occupied price is roughly 22k under what the same house would be listed at delivered empty, going by two comparable REOs the same asset manager sold last quarter.

So the 22k is supposed to compensate me for possession risk. What I can't size is what that risk actually costs. Timelines to regain possession vary a lot by state and by county, and this is exactly the kind of thing you need a local attorney for rather than a forum, so I've got a consult booked. But the cost isn't only the legal process. It's the carry while it runs, the condition of the interior when I finally get in, and the chance the occupant has a claim or a tenancy I don't know about.

The argument for taking it is that most investors won't, and that's precisely where the discount lives. The argument against is that an unknown-duration hold with an unknown interior at the end of it is not a 22k risk, it's an open-ended one, and a first purchase is a bad place to find the ceiling on that.

What's the room's rule here? And if you do buy occupied, does a negotiated move-out budget go in your numbers before you offer or after you own it?

jessreyes12 · Answer

A year ago I wouldn't have known to ask this: what happens if the person inside is paying rent to someone? I asked an agent that once and got a shrug. If there's a lease, even an informal one, you may be a landlord the day you close, and how that plays out depends entirely on state and local law, which is your attorney's job. So I'd want to know who's in there and on what basis before the 22k means anything.

On the budget question, in it before you offer. A number you only discover after closing isn't a discount, it's a bill.

jordan_ellis2 · Answer

Six months of looking, no deals, and occupied REOs are the single biggest reason my shortlist keeps shrinking. Every one I've priced has an unbounded tail and I couldn't get comfortable putting a number on it.

But quill, the 22k is measurable and your carry is measurable. Rough it: monthly carry times a worst-case timeline your attorney gives you, plus a move-out payment, plus a full interior contingency because you can't see it. If that total is under 22k with room left, the discount is real. If it eats the whole 22k at the midpoint, you're taking possession risk for free and that's the version I'd walk from.

Is a 22k discount real money if the bank sells it to me occupied?

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