Ugly Neighbor - how much to discount ARV (or stay away completely)?

Question

We are looking at a place in our farm that's appealing, but the neighbors aren't great. They aren't terrible (war zone or horders), but certainly not nice either (one neighbor has an old car sitting in the front yard).

Overall, the neighborhood is hit or miss. There is a huge mix of houses ranging from old and beat up 60s houses that can be had for $60K to brand new and reasonably high end houses that will run $250K+ (for bigger ones). On any given street, you may have a cluster of really nice places and then an old and worn one, or the opposite.

We have the ARV for the house in question as $170K. How much would you subtract for two ugly neighbors (one next door, the other across the street)? Or would you kill the deal because of this?

Thanks!

Account Closed · Answer

If it's not a homerun deal I'd stay away... A little over a year ago I had two potential buyers not even go inside a flip of mine because they didn't like the neighbors... A third put an offer in and drove by the property one night... They pulled their offer when they saw the neighbors fighting outside... Learn from my mistakes ....plenty of deals right now... Why get stuck??

Michael Quarles · Answer

First ugly neighbors create great price reductions for sellers.

Use it to your advantage.

The important question to ask the seller is if the ugly neighbors were there when they bought.  This helps understanding the buyer.

And never use your definition of this type of thing to determine value.  It only matters what buyers think.

I've bought many homes I would never live in.

I think it would serve you well to interview 3 recent buyers in the neighborhood to understand their buying mentality then look at 3 homes offered for sale.

If everything is equal there isn't a subtraction.  If not then ask the buyers how they would feel about the neighbors in question.

Rob Gillespie · Answer

Henrick,
I used to be involved with a home next to a pice of junk. I told my partner on it, we should put our rehab cost into the neighbors house and send him on vacaion when we show ours! LOL!

Honestly, If the deal is not super sexy, I would walk. Think of what you would want to live next to.

There are too many deals out there, NEXT! :mrgreen:

Justin S. · Answer

Henrik

It is a hard question to answer.  My favorite area's are the same way, very nice homes next to real crappy ones.  I try to stay away from them, but the market really decides it for me.  If I can find an equal deal with better neighbors, then I will walk away.

I also try to find solutions as well.  Cleaning up their yard, painting their house, etc.  A bad neighbor could cost you 10% of ARV, while painting their house and cleaning up their yard will only cost you a few grand.  I budget for it if necessary.  Bad neighbors are just like bordering a busy street, they are there forever!  It is a buyers market so be careful.

Good luck

Steve L. · Answer

It depends where and what the market was doing.  In the spring/summer of 2010 where I buy I would subtract 0.  As it was a temporary Sellers market.  Now I would probably subtract 7-8k.  I would start it at full normal ARV and lower the price every 2 weeks.

Michael Quarles · Answer

Dont run too far away from ugly.   There's a ton of money to be made there.

I remember the house I bought that was a double murder scene.  neighborhood was gang happy.

Flipped it for a plus 25k on a concurrent short sale.

Greg P. · Answer

Make sure you have good room there.  From my experience, 10-15k less than what is expected for resale.  Good luck.

Ali Shah · Answer

I have learned through hard lesson sin life that
Gold is NOT served on a Gold Platter rather than usually found in the dumpster where no one is looking for good.

Some ugliness can be turned in to a fortune but not all of it. You have to dig through Lots of dirt before you find an ounce of GOLD:)

Will Barnard · Answer

I like to buy the ugly home on the nice street. If there are other ugly homes on the same street, I often do not buy or I must get a rock solid homer of a deal. Of course, my areas are likely different than yours. From the description, sounds like it is not a middle to upperclass area, therefore buyers there may expect to have a few junkers and clunkers around.

Great feedback on ideas from others, I particularly like getting info on recent buyers and taling to neighbors. Information is a key factor giving you the ability to apply that info to your best interests. If a neighbor agree to have you clean up their yard or paint the fornt of their home, then do it and factor it in. Call the city to report junk cars parked illegally and get them towed away.

Knock on all doors on the street letting them know you work for the A&B neighborhood improvement company and if the homeowner suppies the paint, you will paint the front of the home for free (as an example). Or since you already have a dumpster cleaning up the subject property, offer to clean up and toss their junk too for free! There are many ways to help improve the area.

Henrik Frank · Answer

Thank you everyone for your helpful comments!

@Don - good point about going by the property at night - for whatever reason, that never occured to us, but it's on the list of things to check now.

@Rob and Bryan - I get what you're saying, but deals aren't abundant for us right now. We may have to jump on something less than ideal.

@Michael - one of the things that's difficult for us is exactly what you mention - we hold properties up against the standard of what we would want to live in. We need to stop doing that. I also like your idea about interviewing recent buyers.

@Steve - that is along the lines of what we were thinking. The home has a pool, which normally adds about $20K to our ARV and is big in the plus column, but we were thinking around $10K in subtraction for the bad neighbors.

The neighbors aren't horrible - they just aren't great either. The night scene may be the determining factor.

Thanks again to everyone,

\ Henrik

Ugly Neighbor - how much to discount ARV (or stay away completely)?

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