Shoestring to Millions

Mark’s Experience- First Deal Due Diligence– Part V

Posted on: July 19, 2009

Mark has started his marketing campaign and has landed his first seller appointment for a property in Garfield, NJ (2 family property located in a blue collar neighborhood of the city). Before, heading to his appointment to meet with the seller to see how he can be of help, Mark is in the process of compiling his due diligence on the property. Mark as a part of setting up his appointment went through the list of preforeclosure interview questions  (as discussed in the last blog) to gander vital information on the property. Mark’s Notes on the Garfield Property read as follows:

  1. How long have you owned this property?-> The seller owned the property for 4 years as he bought the property in 2005.
  2. When did you buy this property? -> in 2005
  3. Is there a second mortgage on the property? Yes, he owes a $200,000 for his second mortgage
  4. How much do you owe the bank for each mortgage? Sam (owner of the Garfield Property) said he owed $600,000 on his first mortgage principal amount.
  5. How far behind are you on each mortgage? He said he is 6 months behind and he has received the Notice of Intention of Foreclosure. Not Sure, what that means, should ask my attorney.
  6. What is your monthly payment for the first mortgage and for the second mortgage? First Mortgage: $4,500 includes the taxes and Second Mortgage: $850
  7. What do you think your house is worth in today’s market once it is all fixed up? He could not give me a straight answer but he thinks it is worth $750,000 in today’s market.

Based on the information above it seems like Sam owes more than the value of this property.

TIP: Short Sale is defined as a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. Simplified it means that the debts and the mortgages owed on the property are more than the current market value of the property.

  1. How much money in repairs do you think the property needs? No repairs as when he bought the house it was a new construction.

Based off his notes indicated above, Mark has ascertained the following important pieces of information regarding the Garfield property:

Requested Information

Information Received

Mortgage 1st Mortgage: $600,000

2nd Mortgage: $200,000

Total Payments per month: $5,350

Delinquency Months Behind: 6 months

Notice of Intent to Foreclosure: Filed

Sheriff Sale:

Value Owner Value: $750,000

Realtor CMA: $545,000

Quick Sale: $490,000

Mark had also meet up with a Realtor named Jay from a local real estate company in the area who he promised the listing to for resale if Mark was able to structure a method of buying the property from the seller. Jay was able to pull together a comparative market analysis for the area for 2 families in the neighborhood and was able to ascertain that similar comparative homes within the last 6 months sold in the range of $525,000 to $580,000

TIP: When looking at a Comparative Market Analysis (referred in the business as a CMA) make certain that the comps are within 1 mile of the subject property and are similar in terms of lot size, bedroom, and bathroom counts. In addition, the comps must have sold within 3 to 6 months from the date of the comparative market analysis.

Mark is now armed with knowledge that he needs to have a fundamental understanding on the true financial situation of the property located in Garfield, NJ.  Mark wonders if he should find out how much the taxes are on the Garfield property, but he forgot to ask his realtor Jay for that information.  Mark sets out to meet the homeowner Sam tonight.

INSIDE TIP: Here is a free website that you can use in NJ for free tax record search.

From the above mentioned website, Mark was able to locate the pertinent tax information on the property as it provided him the following pieces of information:

Yearly Tax $8,000
Land Assessment Value $150,000
Building Assessment Value $400,000

The tax assessment value showed Mark that the City of Garfield viewed the value of the property to be at least $550,000

TIP: Tax Assessment values are updated accordingly to the town tax assessment update schedule and hence can be lagging in terms of the true of the property. So utilize the cities assessment value with a grain of salt as they maybe higher (in a declining market) or lower (in a up trending market) from the true market value of the property.

Mark has now completed all the due diligence he needed to complete before heading into the meeting with the homeowner for the property. See how Mark should approach the homeowner and what solutions can he as a real estate investor offer to the homeowner given the due diligence he has collected. Do not forget to catch next week’s blog.

MARKS NET WORTH as of July 19th , 2009:  $74,100

Equity in home: $60,000

Savings: $2,100

401K: $12,000

Written by Ankit Duggal

Investment Director:

RER is a boutique real estate investment company based in Clifton, NJ


2 Responses to "Mark’s Experience- First Deal Due Diligence– Part V"

Great tips and info. namely on tax assessments.

Great City Mortgage Literature Sources

Our foreclosure listin […]…

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  • 2: Great City Mortgage Literature Sources ... Our foreclosure listin [...]...
  • Dennis's mortgage market guide: Great tips and info. namely on tax assessments.
  • krishna: Hey thanks a lot for posing this topic. I was preparing a paper presentation about this topic and i got many points about a real estate investor.


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