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
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.

1 comment:

fire damage said...

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