Foreclosure investment home, should I buy?

Mishra

I'm looking at a pretty interesting home right now and would like to know if I should seriously pursue the deal or don't consider it at all.

Appearance:

3 bedroom 2 full bath tri level with 1500 square feet and 300 square feet in the basement. Foreclosure property. The appraisal value of the home is 153,000 and it is listed for 105,000. The home is built in 1997 and is located in a new home area with 0 homes for sale in the court (house in a cul-de-sac). Brick and vinyl with a gas fireplace and 2 car garage.

The story:
I asked the neighbor of the home a few questions. He said that the home hasn't been lived in for the 5 years he has lived in his home. Crime is low (they keep their doors unlocked) and that his house is in very good condition and he has no problems with the neighborhood. Just had a bidder which broke out of the contract upon inspection.

The problems:
It looks like the house was broken into at one time. The back door is bent in and broken as if they rammed or kicked the door in. Because of the home sitting for so long, there are LOTS of water spots. (it has been raining a lot) Only 1 spot on the home actually has a wet spot on it and it is by the chimmey part of the house. The basement looks like it has been flooded with around 2 feet of water before (probably sump pump was never on because of vacancy) and has a powerful smell to it. The water damage of the house could have been due to someone never cleaning the gutters but lots of water spots in the home. Possible pipe bursting due to it being vacant for so long. The carpet has been ripped up, vinyl in the bathroom has been ripped up (inspectors) and the furnace doesn't work. I might have missed a couple of things.

The questions:
The house is very interesting due to the possible return on investment. Can I offer really low, meaning go in at 60-70k even though state appraisal lists it at 153k? Do you think this is a big risk or all the problems are probably due to it sitting for so long and its a good buy? Any other opinions or concerns?

Thanks in advanced!

BeaverC32

Are you sure the appraised value is $153k with all those problems you listed below?

Check out www.zillow.com and search for the property you are interested in; they give an estimated value of the property, when it was purchased (and for how much). It will also show values of surrounding properties.

If the bank is asking for 105k, I doubt they would accept an offer 30k less than that. Their goal in selling this property is to get back the $$$ they are owed, so the typical selling price will be the original loan amount minus whatever the original owner had already paid off.

I would get it inspected if you are really interested in it to determine how much the repairs would cost you.

snadam

avoid it like the PLAGUE!!! Well maybe not that bad. However, I recently purchased a home and we looked at a few foreclosed homes when searching because the price was right. We looked inside the houses for about 5 minutes and after all the viewed damage and God knows what else, we took off. People have a tendency to trash the place (ie break toilets, sinks, fixtures etc) if they know foreclosure is imminent. Id tell you some of the stuff I saw, but honestly, its too inappropriate to discuss here (and im a pretty outspoken person too!). Also, when a bank owns a house, they tend to be difficult to deal with when buying from them (this is from my Realtor). The fact that its way too much hassle and costly, I decided to go with a regular resale home.

Like beaver said, get an estimate for all the repairs you'll need to make, add it to the cost of the house, and then either get it appraised or look at similar homes in the area to see if the numbers add up. That would be a good starting point.


best of luck either way!

dtlokee

Yes avoid it like the plague. Any home that has the water issues you have listed is most likely going to have mold issues and that can cost more than asbestos abatement to get cleaned up. No one will buy it without a clean bill of health.

blargoe

If you are really seriously considering it, whoever currently is holding the house would let you bring in an inspector to give it a look over. You should be able to get a good thorough inspection for $250 - $400 (depending on area).

Mishra

The return of investment is so high though so its really hard to drop it. I would definitely have the water damage fixed and mold cleaned up in the house.

If I somehow bought it for 60K and pour 50K worth of repairs into it, then it would be a 110K house. With the 153k appraisal in a newer neighborhood (zillow doesn't show anything BTW) then I would have possibly made 43k off the house.

My biggest concern is how much is the repairs going to cost and does this house have a repeating water problems with it. It did have 2 feet of water in the basement at some point.

Another bidder got out of the contract once the inspector went through the house. I'm trying to get that inspection report before seeking my own, if I seek my own.

dtlokee

You know the market better than I do but you want to check into how many homes like it are on the market right now and what the asking price of them is and the total number of days they’ve been on the market. Use that as a guide to what you can sell the house for, and figure a bottom number that is 10-15% lower if you needed to **** it quickly. Consider your finances and how long you can carry the home and where you're going to get the 50k you are estimating it will cost for repairs (remember when it comes to home improvements the budget will typically increase, and the 90/90 rule of project scheduling-- the first 90% of the job takes the 90% of the time to complete, the remaining 10% take the other 90% of the time - that is it will take longest than you anticipate)

I own a number of investment properties and I was doing what you're looking to do back in 2002-2003. I have turned down many properties for different reason and mold/water damage is a big one (homes with aluminum wiring are another I won't touch). I am not dependant on contractors to do the majority of the work (I hold a builders license and was a licensed electrician at the time) so also take into account that sub contractors don't show up as planned.

You have much to think about with this property.

RTmarc

dtlokee wrote:

Yes avoid it like the plague. Any home that has the water issues you have listed is most likely going to have mold issues and that can cost more than asbestos abatement to get cleaned up. No one will buy it without a clean bill of health.

The water damage is what will cost him, not the mold. The only thing they use for mold is Clorox and a deodorizer which equates to nothing more than something like Oust.

I definitely agree with getting your own appraisal if you are serious about buying the place. If you are borderline, don't waste the money on it.

My pops has been building/designing (architect) houses for years and foreclosed homes will either cost or make you a ton. For some reason there is no in between. You are either going to lose your tail or make a boatload.

dtlokee

RTmarc wrote:

The water damage is what will cost him, not the mold. The only thing they use for mold is Clorox and a deodorizer which equates to nothing more than something like Oust.

The rules may vary from state to state but in NJ that won't fly, you'll need a professional to clean it up and provide a certificate of remediation. If you do shoddy work like that and take the shortcut method of cleaning it up and it passes a home inspection, and the mold comes back guess who is going to be held responsible? You are. It's called full disclosure and you need to inform the buyer of all known problems. And while water can cause thousands of dollars in damage, it is contained to the area where the water has infiltrated the structure, mold isn't. It will spread spores all over and new sources of moisture can cause the problem to return. Mold can get everywhere. Why do you think it is that most homeowner policies have a cap on mold damage but not water damage?

I had a house that had hidden fire damage and I sued the previous owners for not disclosing this fact and won the case.

Plantwiz

Do as you wish....


However, never buy real estate unless you have the cash to pay for it.
Buying foreclosures is fine, and best if you get at least 50% off the retail of the home (if it was in good condition and ready to move into....not too many foreclosed properties are ready to walk into and start living).
You will make your money on the 'buy' not on the sell, so the better price you land up front, your return potential is better.


Real estate like other investments isn't something to merely dabble in. Great money to be made, HUGE money to be lost if you don't know what you are doing.