My first involvement in a real estate transaction was on a foreclosure property in Silver Spring. The property was in total decay, and needed everything improved and replaced- except for the bathrooms. What made it so attractive was the price. That was one of the few that would have been available over a decade ago. Now, everywhere you look there are foreclosure properties and everyone wants to see them- warts and all! Let’s explore some of the benefits and problems involved in REO transactions:
Price: The oldest trick in the real estate brokering game. Drop the price low enough, and people start to pay attention. This was the original motivator for looking at foreclosure property- getting a deal!
“Handyman Special”: This one showed up recently from property flippers looking to make a quick $5000 from market information inequalities (and not having to hold a broker license). There is some truth to this ad copy: it implies that the home is a better deal because it needs work, and the savings partially comes from “sweat equity.” Fix it yourself, sell it, and reap the profits!
“Fixer-upper”:Much more honest than the former statement, because most people don’t have the time or skill to fix all of the problems in the home. This means that a purchaser needs to know about the obvious problems as well as the not-so-obvious ones that could cause trouble down the road
“Immediate equity”: This means that a house is so far below market that, even after accounting for the cost of repairs, there is still room for additional equity.
Here’s the real deal: Unless a homes is being sold 20-30% less than all other homes, with no more than 15-20% of the savings going into repairs, then you aren’t getting a “deal” in any market. It’s important to understand where each market stands and how much work really is needed in order to realize a good deal.
Get the help you need before looking! It is imperative that you work with an agent, like myself, who anticipates all of the issues surrounding these properties. This way, you can get the direction and guidance necessary to turn a forlorn property into your new dream home. Rehab allows you to totally invest new life into a run-down property, and end up with a better final product than a normal sale- but that’s a discussion for another time!