Here's the deal:
If you really want to buy a foreclosure, and have the guts and the money, vision and heart, you can.
Plan to look and look and look to find the stuff that is good. Most of it is pretty horrifying, or overpriced. Or both.
And have a very strong credit score and a good mortgage broker.
Oh, and you need a good real estate agent. One willing to bring you through stinky and perhaps dangerous places. And then maybe get paid 2.5% of $9,000 for all of this work. Remember --we're paid on commission and 2.5% is a pretty typical payout to a buyer's agent. On $9,000, that's $225... and that's before my boss takes her cut. At those commissions, it's a hard thing for a realtor to do. We spend hours working on purchase agreements, hours searching for property, and worst of all, every hour we spend working on a deal that will pay $225 is every hour we are NOT working on bigger and better things.
Wednesday, November 26, 2008
But I really want to buy a house for pennies on the dollar!
Okay, fine. Let's find you a house for pennies on the dollar.
They are out there, they certainly are -- but again -- it's not what you think.
I once spent a couple hours talking a client OUT of buying a foreclosure for a rehab "project."
There are many, many homes out there that have been foreclosed and are available for low prices. Here are the current low prices in my nearby neighborhoods:
On the West Side:
403 Curtice Street E, $14,000
In Merriam Park:
1145 Selby Avenue, $43,900
In West 7th:
301 Goodrich, $28,500
In Midway:
1478 Sherburne, $29,900
In the area the MLS calls Crocus Hill:
332 Fisk #3S, $49,900
In Highland:
1774 Norfolk, $69,900
In Dayton's Bluff:
738 Bradley, $7,000
In Frogtown:
512 Edmund, $9,900
On the East Side:
1330 7th St E, $11,000
And you are probably thinking: Wow! I could put one of those babies on my credit card!
You sure could. And then you are looking at thousands and thousands of repair costs to make the home livable. Several of the above homes are slated to be torn down, they are just too far gone.
Just start thinking of the cost to rehab a house...
Roof: $5-$10k
All new wiring: $5-$15k
New pumbing: $10k
Exterior rot/siding repair: $5k
Regrading: $500 with a lot of shoveling
Plaster/drywall repair: $1k-$10k
Flooring:$5k
Paint: $1k-$15k
Kitchens: $10k-$30k
Baths: $5k-$25k
Low end:$48k
High end:$125k
And believe me, any house listed for under $50k is likely to need $125 worth of work.
I have seen many foreclosed houses. I will say the cheapest one I have ever personally seen was about $30,000. At that price, the houses are pretty bad. I can't imagine what they are like at less than that. I have seen more expensive homes than the ones above with extensive mold, with foundations that were collapsing so badly it was a little scary, with environmental hazards, with no plumbing or heating, with no plaster, drywall, or flooring, with smells so horrifying I remember them to this day.
These houses are NOT for the average person to buy and rehab. These homes will take hundreds of hours of repairs, and many of them are too far gone to be repaired. Many of them are not even worth $125,000 when they are remodeled, because of the nearby properties, even if they had the perfect HGTV makeover. Even if Ty from Extreme Home Makeover ripped the top off and added new Kenmore appliances.
Let's pull some highlights from some of the comments on these homes:
- This property is going to be demolished and after the demo this listing will be transferred to a vacant lot listing.
- Category 3 on VBR list. Fire damage throughout. Location near highways and shopping.
- Boarded property. Needs lots of plaster, paint and carpet needed. Needs doors in and out. Property is SOLD As Is. Buyer is responsible for any work orders or repairs for a boarded property.
So what's a category 3? It means the CITY IS PLANNING TO TEAR THE PLACE DOWN. Sometimes investors can post a bond to the city to save the home from demolition, but the costs to rehab a house with "fire damage throughout" usually is prohibitive.
With properties the City of St Paul has declared Category 2 or 3, those homes MUST be brought up to CURRENT code. Since these buildings are older, that may mean MASSIVE retrofitting and repairs.
And where is all of that money coming from -- to make these repairs? Some buyers of Category 2 or 3 property must have cash out of pocket to give to the city as a bond to prove intent to repair the property. There is very little financing out there in the mortgage world to do these kinds of projects.
So -- if you plan to buy one of these houses, go ahead. But I hope you have $100,000 in the bank that you plan to spend on the rehab.
They are out there, they certainly are -- but again -- it's not what you think.
I once spent a couple hours talking a client OUT of buying a foreclosure for a rehab "project."
There are many, many homes out there that have been foreclosed and are available for low prices. Here are the current low prices in my nearby neighborhoods:
On the West Side:
403 Curtice Street E, $14,000
In Merriam Park:
1145 Selby Avenue, $43,900
In West 7th:
301 Goodrich, $28,500
In Midway:
1478 Sherburne, $29,900
In the area the MLS calls Crocus Hill:
332 Fisk #3S, $49,900
In Highland:
1774 Norfolk, $69,900
In Dayton's Bluff:
738 Bradley, $7,000
In Frogtown:
512 Edmund, $9,900
On the East Side:
1330 7th St E, $11,000
And you are probably thinking: Wow! I could put one of those babies on my credit card!
You sure could. And then you are looking at thousands and thousands of repair costs to make the home livable. Several of the above homes are slated to be torn down, they are just too far gone.
Just start thinking of the cost to rehab a house...
Roof: $5-$10k
All new wiring: $5-$15k
New pumbing: $10k
Exterior rot/siding repair: $5k
Regrading: $500 with a lot of shoveling
Plaster/drywall repair: $1k-$10k
Flooring:$5k
Paint: $1k-$15k
Kitchens: $10k-$30k
Baths: $5k-$25k
Low end:$48k
High end:$125k
And believe me, any house listed for under $50k is likely to need $125 worth of work.
I have seen many foreclosed houses. I will say the cheapest one I have ever personally seen was about $30,000. At that price, the houses are pretty bad. I can't imagine what they are like at less than that. I have seen more expensive homes than the ones above with extensive mold, with foundations that were collapsing so badly it was a little scary, with environmental hazards, with no plumbing or heating, with no plaster, drywall, or flooring, with smells so horrifying I remember them to this day.
These houses are NOT for the average person to buy and rehab. These homes will take hundreds of hours of repairs, and many of them are too far gone to be repaired. Many of them are not even worth $125,000 when they are remodeled, because of the nearby properties, even if they had the perfect HGTV makeover. Even if Ty from Extreme Home Makeover ripped the top off and added new Kenmore appliances.
Let's pull some highlights from some of the comments on these homes:
- This property is going to be demolished and after the demo this listing will be transferred to a vacant lot listing.
- Category 3 on VBR list. Fire damage throughout. Location near highways and shopping.
- Boarded property. Needs lots of plaster, paint and carpet needed. Needs doors in and out. Property is SOLD As Is. Buyer is responsible for any work orders or repairs for a boarded property.
So what's a category 3? It means the CITY IS PLANNING TO TEAR THE PLACE DOWN. Sometimes investors can post a bond to the city to save the home from demolition, but the costs to rehab a house with "fire damage throughout" usually is prohibitive.
With properties the City of St Paul has declared Category 2 or 3, those homes MUST be brought up to CURRENT code. Since these buildings are older, that may mean MASSIVE retrofitting and repairs.
And where is all of that money coming from -- to make these repairs? Some buyers of Category 2 or 3 property must have cash out of pocket to give to the city as a bond to prove intent to repair the property. There is very little financing out there in the mortgage world to do these kinds of projects.
So -- if you plan to buy one of these houses, go ahead. But I hope you have $100,000 in the bank that you plan to spend on the rehab.
Can I really buy a home for pennies on the dollar? The Infomercial Promises
Well, not really pennies on the dollar. And it's not what you think it is.
I know some of you have seen these articles or infomercials telling people that they can buy foreclosures at the sherrif sale. That is true, but Minnesota has very different rules than other states, making it impractical. The current market also makes this undesirable.
Here's what the infomercials tell you to do:
1. Read the legal notices in the paper and choose a property from the foreclosure notices that you are interested in. And all of the addresses are in legal description, so be up on your legal descriptions. (Such as: Anna E Ramsey's Addition, Lot 10 Block 3. That's in the Lexington Hamline neighborhood.)
2. Then, go to the courthouse and pay the price at the sheriff sale.
Sounds so easy! But here are some problems:
- You need to pay cash. Pretty much then and there.
- It is very unlikely you have seen the interior of the property, as the owners still live there
- The price you will pay is some amount ABOVE the mortgage amount. Many people going into foreclosure today owe more than the house is worth. So you are paying WAY MORE than the house is worth.
- And the big kicker, if the previous items aren't enough: in Minnesota, after the sheriff sale, the owners have 6 more months to live in the property. That's right -- if you buy that property at the sheriff sale, you have just bought a property with tenants that will be living there for free for 6 months. And you cannot control what they will or will not do to the property.
So, good luck with that.
I know some of you have seen these articles or infomercials telling people that they can buy foreclosures at the sherrif sale. That is true, but Minnesota has very different rules than other states, making it impractical. The current market also makes this undesirable.
Here's what the infomercials tell you to do:
1. Read the legal notices in the paper and choose a property from the foreclosure notices that you are interested in. And all of the addresses are in legal description, so be up on your legal descriptions. (Such as: Anna E Ramsey's Addition, Lot 10 Block 3. That's in the Lexington Hamline neighborhood.)
2. Then, go to the courthouse and pay the price at the sheriff sale.
Sounds so easy! But here are some problems:
- You need to pay cash. Pretty much then and there.
- It is very unlikely you have seen the interior of the property, as the owners still live there
- The price you will pay is some amount ABOVE the mortgage amount. Many people going into foreclosure today owe more than the house is worth. So you are paying WAY MORE than the house is worth.
- And the big kicker, if the previous items aren't enough: in Minnesota, after the sheriff sale, the owners have 6 more months to live in the property. That's right -- if you buy that property at the sheriff sale, you have just bought a property with tenants that will be living there for free for 6 months. And you cannot control what they will or will not do to the property.
So, good luck with that.
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