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Tag Archives: financial crisis

Can a $29,000 Home be overpriced?

Thursday, 04 June 2009 23:44
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DSCN2941
Image by lane.bailey via Flickr

I wandered out to look at some investment properties this afternoon…  One of the properties was priced at $29,000… in a neighborhood of $100,000+ homes.  In fact, this very home had sold for over $110,000 in the last couple of years.

Could it be overpriced at $29,000?

Yep.

The funny thing is that the wholesaler says it needs like $12,000 in repairs…   Maybe if you pick up all of your materials from the curb after they are tossed out of nice homes…  I would put the budget at closer to $40,000.  and that is assuming that the mechanicals and structure are ok, and that isn’t a safe assumption.

Here is a list:

  • Gutters
  • Roof repairs
  • Front door and casing
  • Enough of the siding to make it worth replacing all of it
  • Ditto for the windows
  • All of the flooring.  That which is still there is nasty
  • And every wall and ceiling needs paint
  • Rebuild the rear deck
  • About 20 sheets of drywall
  • All of the appliances
  • EVERYTHING in the kitchen… like the cabinets and counters
  • Landscaping
  • Un-convert the garage from its bonus room conversion

I would peg the property at a value more in line with $15,000.  An investor will need to realize a healthy profit AND have enough room for hidden defects.

  • Mold abatement
  • HVAC replacement
  • Structural repairs
  • Foundation repairs

I’m not saying that those are probabilities…  just that they are possible.

An end-use buyer would face similar issues,  AND they will need to be able to finance it without FHA support, since it probably wouldn’t qualify.  It also would have trouble with many renovation programs… so cash might be in order for renovations.

But for the right buyer it could be a great deal.

I did run across another property that looks like a much better deal…

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Looking for a real estate deal?

Wednesday, 06 May 2009 15:32
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Of course you are… everyone is.  Maybe not everyone, but there are a lot of people that are looking for good deals in real estate in Gwinnett County, GA, during a buyer’s market… which is basically what we are in right now.

While looking for something semi-related, I ran across some interesting and possibly good deals out there for the right buyer.  These are basically unfinished, brand-new homes.  The builder apparently didn’t make it, and the bank has these things on their hands.

The ones I concentrated on are all finished on the exterior… except for landscaping and final doors… and a couple need replacement windows.  Possibly some other exterior repair on some as well…

The interiors are a different matter.  At the very least all of them need flooring, cabinetry, paint, fixtures and appliances.  Some also need HVAC, electrical and plumbing finish work and drywall repair. In each case, I would expect to see $75k or so to get these done and ready to live in.

Since the builder is no longer viable, I would assume that these are without any sort of warranty.  And just to be clear, these are NOT move-in ready.  In fact, as a very inexperienced construction estimator, I would guess that it would take 60 days to get into one of these after getting the work started.

On the flip side, the prices for some of the larger homes are around $250k.  Keep in mind that the ARV (After Renovation Value) of the homes should be in the $400k to $500k range.  So, one could expect that in a couple of years their $350k investment ($250k house + $75k renovation + $25k in stuff that always comes up) could yield $50k or more in profit.

That isn’t to say there aren’t challenges… the subdivision is not very built out and I don’t think the amenities are in.  The HOA doesn’t exist.

Another interesting point… all of the homes I went in had very tall garages.  With the right changes to the garage doors, I think that lifts could be installed in at least one spot of each garage.  One of the plans also had an unfinished bonus room over the garage… Interesting!

And my buddy Ken Cook at Novation is working up some special financing plans for these properties.
I noticed that several of the homes had gone under contract in the last few days…. don’t wait too long.

Talk About a Deal…

Thursday, 30 April 2009 23:19
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Construction of the Techwood Homes project, ci...
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While running a quick search for a friend, I ran across a few interesting listings…

There are a few deals out there that stop me in my tracks for a minute.  Some catch my attention because they are priced well below the competition… and they don’t need more work that the deal is worth.  Others grab me because their condition is amazing, and they are still priced competitively.  Finally, there a few that reach out because they are unusual… in a good way.

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Can I tell my sellers it is a good idea to offer seller financing?

Saturday, 25 April 2009 21:44
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Looking at the legislative landscape, I see a new danger on the horizon.  In addition to the existant dangers of financing a mortgage for a buyer such as their credit-worthiness and ability to repay, there is another risk which could soon be inserted into the pool…

Cram-Downs

If you aren’t already familiar with the term, take a moment to read the definition…  From the perspective of a lender, it is a scary scenario.  In effect, a bankruptcy judge could force down the balance of a loan based on their view of the value of the property.

Regardless of whether the seller is in the first or second position, they could face financial danger in this situation.  While helping out the buyer and hoping to make a little extra money on the sale of their home, they could find their investment principal… in effect, having the base value of the loan reduced.

Congress is looking at allowing cram-downs in residential mortgages again.  It is the second time this year that the subject has come up.  Currently they are saying that the new rules would only apply to loans before January, 2009, and that there would be other safe-guards in place to protect the investments of the lenders.  And remember, the lenders aren’t actually the banks and mortgage brokers.  The lenders are investors… and that means that they range from school teachers (through their pensions) to corporate portfolios… and anyone else that has money in the MBS (Mortgage Backed Security) market.

For a look at how cram-down provisions affect mortgages, one only needs to look as far as the commercial mortgage market and compare it to residential.  In effect, rates are higher, down payment requirements are higher, reserve amounts are higher and credit is tighter.  Before the lenders are willing to part with their money, they need to be more sure that they will be paid back, because a judge could reduce the value of their investment if the borrower has a problem.

And getting a higher interest rate for the increased risk might not help… the same judge could reduce the interest rate prior to lowering the principal balance.

So, I am telling my sellers that they need to be MUCH more aware of the risks, and that those risks could increase if Congress gets too populist.

from GwinnettGarageGuy.com

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A (very) Quick Rundown of Some Current Buyer Programs

Tuesday, 07 April 2009 16:30
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Just in the last few days I have highlighted a couple of Buyer Programs that are currently available.  I have also hit a couple of others in the last few weeks… there are a lot of programs out there to spur buyer attention!

Dollars !
Creative Commons License photo credit: pfala

If you are a buyer, especially one that doesn’t have to sell a house in order to buy, you can find all sorts of great options to help with the purchase.  Let’s hit some…

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