Foreclosed homes can be a risky business. This is especially true for anyone that is not already aware of the potential pitfalls. In many cases the homes have not been updated or repaired when needed. In other cases there may be unfinished repairs or additions. These two situations are usually the result of a lack of funding, the same reason for most foreclosures. Still in other cases the house may be sabotaged by disgruntled owners being forced to sell their home. At times these vandals can be quite crafty and the problems they cause may not make themselves known for quite some time. Some examples of poor investments I have witnessed are:
– Entire rooms gutted to the wall studs and concrete floor.
– Hidden water, mold, and insect damage (yes, all three).
– Dead animals thrown in air ducts, attics, and crawlspaces.
– Pet urine that has been allowed to soak into carpet and wood.
– All of the wiring removed neatly and the receptacles put back in place unconnected.
The last example was the most creative I have seen. I was only the initial handyman called by the new owners but I know it wasn’t until they tried to have the electric turned on that they found this problem. They could not afford to fix it and I am sad to say that they never even got to move into the home. It sold at a loss of thousands of dollars.
Another horror story involves an Internet sale. The house was bought for $17,000. It needed no repair and it seemed like a dream come true to this first time investor. The problem was the house was in a bad part of the town. The investor hired a professional to inspect the house before the purchase, which was a good idea, but the inspector neglected to tell him of the location. The house sat on the market until the new owner reduced the sale price to $15,000 where it stayed for more than 2 years before I lost contact with the guy.
Since most people lack the experience to properly invest in this aspect of real estate it can be a potentially dismal disappointment when things don’t turn out quite the way they expect. Luckily there is an alternative to the traditional buying and selling, or “flipping”, of foreclosed homes that is especially suited to the interested novice.
It is possible to be involved in “flipping houses” without ever buying or selling a home. There is not a shortage of foreclosed homes. Likewise, there are a vast number of people and entities that are wanting to invest in such homes. My suggestion is to sell a service that connects the owners to the potential investors until a certain comfort level with the market is achieved.
This method of entrance into the market has many advantages and possesses very little risk. To start with, there is no need for a real estate license because someone else is doing the actual buying and selling. There is very little (as in maybe $20.00 or less) money needed to get started and the investment is returned ten fold or more on the very first deal (usually allot more as you set your own rate). It is a legitimate and very profitable way to learn more about “flipping houses” and the experience is gained without the risk of bad investment.
Once a decision is made to invest in foreclosed homes there are allot of things that need consideration. A way to finance the purchase is of course a necessity and proper licensing is required. Any potential purchase should be checked thoroughly for anything that could bring down the value or be costly to repair. A good idea is to make a list of things to watch out for, or better yet try and find a professional to make a list, and check each item on that list twice. A good list may look something like:
– roof – What type of roof is it? Is it in good repair? Does it leak at all? How old is it?
– ceilings – Do they sag or are there leak spots/water damage? Is there decent access to the attic/crawlspace above?
– walls – Do they need painted? Are they cracked or damaged? Is there paneling? If so, what is the condition of it and the wall behind?
– floors – What kind of floor does it have?
– concrete – Are there any noticeable cracks? If carpeted, can any sharp raises or dips be found?
– wood – Has the wood been maintained (waxed, etc…)? Are there any gouges, stains, or other types of scaring? Do any of the boards separate, split, or are they warped?
– carpet – Is it worn? Are there stains? Are there holes or rips? Are there any odors? Are there noticeable seems? Was it properly installed?
– receptacles – Do they work properly? Are the face plates damaged? Do the plates all match each other and the walls?
– windows – Using an open flame or smoke, do they leak air? Are any broken? Do they all have screens? Do they open and close easily?
– doors – Do they stick? Are the hinges loose? Are there excessive gaps above or below the door? Are the exterior doors equipped with a dead bolt or other types of secure locking mechanism? Are the door knobs broken or tricky?
– basement – Does it leak? Does it have a low ceiling? Are there any cracks in the walls? Are there mildew stains on the walls? Could it be remodeled into a livable area?
– attic – Is there adequate ventilation? Is there an easy access? Could it be remodeled into a livable area?
– plumbing – Do all facilities work properly? How old is the water heater? How old is the plumbing? Are there any leaks? How much was the last few months water bill? Does it have exterior faucets? How accessible are they?
– wiring – Is any wiring exposed? How old is the wiring? Does it use fuses or breakers and what is the condition of the box? How much was the last few months electric bill? Are there exterior receptacles? Are there lights at the exterior doors (porch lights)?
– appliances – Do the appliances stay? Is there a place for a washer and dryer, a dishwasher, a trash compactor, etc…? Does the house use gas or electric for stoves, heating, and water heater? Does it have central heat and air?
I have omitted a number of things but I only meant the list as a basic example.
There are other non-structural things that should be considered also. A thought should be given to location, schools, traffic, emergency services, day and night time noise levels, neighbors, accessibility to commerce, and a number of other things. Average property values in the area for similar type homes should also be considered. This knowledge is a good tool for calculating potential profit once the house is brought to standards.
The goal of “flipping houses” is to make money. The trick is finding houses that can turn a profit. A good investment will be priced way below average market value, need little to no repair or remodeling, and be located in a desirable area. A full knowledge of the house and its community will be the greatest advantage when trying to make money “flipping houses”.