Is That Foreclosure the Deal of the Century, or the Trap of the Decade
I'm guessing that by now the secret is out when it comes to many markets being over run by foreclosures and short sales. Here in Columbia, SC, we've been pretty lucky compared to the national average, but we do none the less have our fair share of bank owned properties.
Due to the popularity of foreclosures in conversation, commercials, and get rich quick infomercials, most would be home buyers start their search in this direction. They only thing they know is that a guy in a nice suit on T.V. or the news said that the best deal they can get is in the foreclosure market and that's where their headed. After that great deal.
But there's a few things that guy in suit is a little reluctant to explain. For the most part, at least here in Columbia, foreclosed properties are not usually in the best shape. Actually it's rare to find one that you don't feel like you need to take a bath after viewing. I may be exaggerating a little, but you get the picture, they are by no means perfect, move in ready homes.
Usually there is a lot of cosmetic work that needs to be done, and at least in the homes I've shown, the appliances are gone. So, you really need to think about the amount of money you will need to spend in order to make the home livable.
Typical Work to be Done on a Foreclosed Home
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Appliances - Let's say you go really cheap and get a great deal on a set of appliances. There are display centers and so on out there that do have great sales. So let's say you spend $1,500.00 on a Stove, dishwasher, microwave, and refrigerator. Let's face it, you know you will spend more because no one gets the cheapest thing in stock.
- Carpet and flooring - Let's say it's just an average sized home around 1,300 square feet and has just carpet throughout the bedrooms, living room, and hallway. If you get the rock bottom price from a flooring company around town, you may pull that off for $1,500. Again, you will likely spend more, but let's be conservative on our pricing. If the home has hardwood floors, it will likely cost more than that to strip and refinish the floors. Not to mention that there will likely be damaged portions of the floor that will need to be replaced all together before the refinishing is done, that costs money as well.
- Outside repairs - Let's say that the home has a deck or a porch on the back. Usually these need to be completely redone on foreclosures that I have seen in the Columbia market. Maybe the bottom portion in alright and you only have to resurface the deck, well that still costs money too. For this one we will say that you find a contractor who is willing to come out, rip up the old deck and replace it for $3,500. A lot of this will depend on the size of the deck, the price of lumber at the time, and who does the work for you. There also usually some work to be done to the siding of the homes. Some are simple vinyl repairs and others are Masonite. Masonite is no longer made, so if you buy a home that has this type of siding and the siding is damaged, you can't repair the damaged siding. You have to just replace the siding or deal with a strip of vinyl somewhere on the outside of your Masonite home. At the very least with a Masonite home, you will need the outside painted. So, for siding repairs and/or paint, let's say you toss in another $3,000.
- Roof and Windows - If you're lucky, the only thing you will need to do is replace the shingles with some new asphalt shingles and there will be no water damage to the plywood underneath. So for this one we are going to say that you get new shingles put on the roof for $3,000. Again, this will depend on the size of the home, the type shingles, and who does the work, you will likely spend more than my estimate. Also, there are usually a few windows that have managed to find their self broken in REO properties. We're going to say that you get off light and only have to replace two and you get it done for $600.00.
- Plumbing and Internal Water Damage - Usually the toilets and some of the sub-flooring in bathrooms is not in such great shape. There could have been water leaks from the toilet or from the sink and this causes water damage to the floor and the vanity cabinet in the bathrooms. So let's say you replace two toilets and one vanity cabinet. Materials plus labor, you might get out of this one for around $1,200.00.
Now, believe it or not I can continue on with this list on issues like interior paint, damaged cabinets in the kitchen, and missing light fixtures. But since we are already over $14,000 in repairs I think I have some what gotten my point across. There is a lot of work to be done to the majority of these homes before you can move in and most people buying a new home do not have an extra $15,000 to $20,000 laying around to spend on repairs.
Plus, if you don't pay close attention to where you buy the foreclosure, by the time you buy it and make the repairs, you may have more invested than it's actually worth in this market. That all depends on the purchase price, repair price, and the value of the homes in the community. Just because you spend a ton on a house, doesn't mean it's worth a ton when you're through. It still has to appraise and appreciate in the eyes of the market.
The fact of the matter is that not all foreclosures are great deals. Sometimes you would be better off buying a resale in the same community or these days with all the deals from builders, taking a close look at what you money would buy in a new home. Just something to think about.
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