Looking Out From the Garage

Without a doubt, EVERYONE is looking for a deal if they are in the real estate market.  Barely a day goes by that I don’t get a call asking me about foreclosures and short sales.

However, those aren’t always the best deals.  In fact, on foreclosures I have seen multiple properties go above list… and in some cases higher than they should have gone.  At the same time I have seen private party sales that went at great prices.  Short sales still seem unwilling to close in most cases.

Regardless, those that move boldly AND logically are the ones that will be the winners.

Take a look at this post from December 12, 2008.  While the average value in much of Gwinnett County has dropped 6% or so… people that bought last year when there was little activity in the foreclosure market were getting better deals than some buying today…

from LaneBailey.com

I recently took some buyers out looking at houses in an area with a lot of bankrupt subdivisions.  The houses were, in many cases, quite attractive and priced very competitively.

But there are a lot of considerations that buyers need to weigh before buying a home in a subdivision where the developer has gone out of business...

We'll start with the dangers...

• The amenities may not be complete... and they may NEVER be complete.  If you are buying a property because of the pool or tennis facilities, and those items aren't there, they might never be built.
• There is NO telling what might be built on the currently vacant lots... The bank that gets control of the lots wants to SELL them.  And they likely aren't going to quiz the buyer as to their plans for the neighborhood.  Your 5,000 square foot home could get a 2,500 square foot neighbor.
• Warranties may just fly out of the window... Defunct builders won't be around to honor warranties, and the bank that sells the property isn't going to warrant the builders work.  Also, since the builder may have had financial pressures while the were building the homes, the quality might be challenged.
• Important items like HOAs and CCRs might not have been assembled... This can be remediated by the residents... maybe.  The residents can form a Home Owners Association (HOA) and put together Community Covenants and Restrictions (CCR), but depending on the local laws, might require 100% of current residents to enact.
• The community might have a stigma... from having been bankrupt.  This could affect future resale value... especially if the community isn't built out completely.

But there can be a reward...

• Price... That is the real draw.  One might be able to buy in a community and type of house that could otherwise be unattainable.
• Opportunity for appreciation... If the neighborhood turns the corner and gets built out appropriately, the reward could be higher than average price appreciation.  Buying under-priced property and then selling at market is a good business decision.

Do the math!

While searching for a home, make sure that the home meets your needs... and the neighborhood meets your needs... AS IT IS.  Also, don't forget to weigh the risks.  What if smaller homes are built in the neighborhood?  What if there are no amenities?  What if the guy next door is able to build a tar-paper shed in the back yard?

For some buyers, these properties represent a GREAT value.  For others, they represent a big risk.  By honestly examining lifestyle and options, one can determine if a home in a bankrupt subdivision is a good value for them.

from LaneBailey.com

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.

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. 

These were of the third type... 

I saw the pictures... and they didn't fit the price.  Not that they were priced a little lower than I might expect, but low enough that I wanted to check to see if these were all mistakes.  There are around 4 of these that are literally priced hundreds of thousands below the other similar homes in the neighborhood.  But here is the catch... they aren't finished.  But, for the opportunity to buy a $400k+ home for $250k, one might have to put up a little sweat equity. The builder likely went belly up.

Obviously these aren't for everyone.  But for the right buyer, these could be a steal of a deal. 

I just got an email about 5 properties that are brand new and are part of a bank foreclosure sale.  One of the most dangerous parts of buying a foreclosed home is that they are often suffering from "deferred maintenance."  Since these are brand new, they shouldn't have as many possible issues. 

What most people would immediately jump to is that the homes are pretty heavily discounted. 

• Was $285,985, Now $219,900
• Was $279,900, Now $199,900
• Was $275,980, Now $219,900
• Was $277,780, Now $219,900
• Was $258,900, Now $209,900

So, there could be some good deals here. 

But, I think the better headline would be what is being offered. 

• No Closing Costs...
• And 100% Financing...

Of course, this would be for qualified buyers using the preferred lender. 

With the rates where they are now, this could be a great time to take advantage of a deal.  It isn't for everyone.  And of course there is the $8,000 tax credit for people that have not owned a home in the last three years.