Cheap foreclosed homes: what am I missing?

Question

Hello all,

I'm trying to jump in and learn just like Josh & Brandon encourage on every podcast. I apologize for asking what's probably been asked before, but searching didn't help me nail down what I'm looking for. I'm only getting started in RE investing with a ton to learn.

When I look at various realtor or MLS listings in my area, there seem to be a number of foreclosed homes in the $30,000 range in the neighborhoods where I'm looking in southeast Michigan (not Detroit). I imagine they will all need some work, but that seems awfully inexpensive for a single family residence? The neighborhoods seem ok and clean. What am I missing?

It would certainly be easier for me to get into a $30,000 house and put in $20,000 of repairs vs trying to finance a $170,000 home. I know that it's not that simple and I know I must be missing something, or else everyone would be doing it. So what am I missing?

If this has been discussed before, I'd appreciate a link to the threads I can sink my teeth into.

Thank you, Mark

Gerald Harris · Answer

Welcome to Bigger Pockets Mark

Here is a New Investor link i created a while back to get you going in real estate investing

http://www.biggerpockets.com/forums/93/topics/1362...

Also, when doing research in your area for foreclosures, make sure you do your own homework

1.  Drive the area

2.  Talk to Brokers and Agents and get their take on the area

3.  Talk to seasoned investors who invest in the area of interest

4.  Make sure you know what the property will rent for

5.  What jobs are in the area?

Cheaper is not always better.

6.  Join your local real estate investment club.  They will have lots of knowledge about investing and location.

Here is a meet up in your location.   Join up with them

http://www.meetup.com/MegaEveningEvent-com/

Have a good 1

Bob E. · Answer

Check Rent-o-meter to see what area rents are, that will help you figure out what one of these is worth.

Alvin Neal · Answer

@Mark R.

Welcome,  What cities are you referring to?  If the foreclosures in those areas are at that pic point the comps in the area might not be that much higher. Send me a message and I'll try to assist you with locating some properties that will fit your criteria.

Account Closed · Answer

@Mark R.

What you may be missing is the crime stats, cost of rehab and the after repair value (ARV).

Problem w/ many of these cheap foreclosures in Detroit (and every other area like it) is the total cost of rehab shocks investors. Usually, that shock occurs once you already own it and your brain is telling you to keep dropping money into a sunken cost.

Pretty soon, you realize you need a furnace/HVAC system, new plumbing, new paint, refinished floors/new carpet, etc., etc. Thus, you're out another 10k+ unless you're doing it yourself or you've got a lead contractor who really knows where the bargains are.

And let's not forget the final detail... your ARV better be above the amount of $$ you've sank into it, otherwise you've just paid a hefty amount of $$ to work for free (or worse).

To make matters worse, every crook w/in a 10 block radius will see you're fixing up the property, and likewise when you list the property on the MLS or Craigslist, and will make note to "visit" your newly rehab'd property to relieve you of the newly installed furnace, copper lines, and anything else of value they can sell.

Conclusion... do these cheap properties present a bargain? Absolutely. But they are the best example of a double edged sword I can find in the real estate market right now.

Don't mean to scare you off, just the market as I've experienced it thus far.

Account Closed · Answer

@Mark R.

I would spend time researching the market thoroughly, so you completely understand the basic metrics, etc.

Good luck!

Andrew

Brant Richardson · Answer

Mark,

You don not appear to be very confident in knowledge of your area when you say

"The neighborhoods seem ok and clean".  Have you been living there for a while?  you need to know if the neighborhood is good or not.  In small towns there can absolutely be 30k deals that come up and really are "that easy".  You are probably talking about a home which is 100 years old and will need maintenance even after a rehab.  If there are tenants available these can be great buy and hold properties.  You need to know your market... know whether there is a tenant base and whether it is a decent neighborhood.  Most likely those 170k properties in the area will be cash flow negative, stay away from them.

Shawn Daniel · Answer

From what I've seen a majority of the time, you are right @Joe Butcher  There have been a few in which the price listed was the actual list price, but more ofter the prior.

Mark R. · Answer

Missing the boat. Got it! :) ha ha.

Thank you all for your replies. I had a feeling that the rehab costs would most likely suck any profit out of it. I will continue to do my research though. I chickened out of this whole thing about ten or so years ago. I'm determined not to chicken out this time.

Research, research research!

Thank you all for your time and responses.

-Mark

Kendall Chamberlain · Answer

The boat.

:)

I reccomend 3 things.

1) Learn a little.

2) Do it!

3) Keep learning.

# 2 is what gets most people.

Joe Butcher · Answer

Someone correct me if I'm wrong but aren't some of the foreclosure listings auctions?

They could be starting at 30K.

Cheap foreclosed homes: what am I missing?

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