Review of houses for sale sale::House for sale - What's Your ...
Review of houses for sale sale::House for sale - What's Your ...
By now, most of us have seen shows on TV about "flipping" houses. This means buying houses that are in some sort of distressed condition and fixing them up and selling them for a whole lot more. That sounds like a great way to make money, doesn't it? Actually it's not THAT easy. First, you should know the difference between a "short sale" and a foreclosure because if you're considering a career in "flipping houses," you'll see a lot of both. In a short sale, the owner of the home is probably still living in the house and is a regular person and not a bank or the government. The owner, however, is in the position where they owe more on the house than they can sell it for and for whatever reason, they need to sell it. They are now going to ask the bank for permission to take less than what they owe and get out from under the financial obligation, thus "selling short" of what they owe. Wow, aren't those bankers sweet and thoughtful? How generous of them. Well, don't count on them yet. How does this happen in the first place? How does someone buy a house and then owe more than they can sell it for? There are a number of things that can cause this issue. First, is the fact that in many (if not most) areas, real estate is no longer appreciating. The values have gone down. A person who bought their house 20 years ago bought in a much lower priced market and stands a good chance to make a profit. But someone who bought their house 5 years ago or 2 years ago may be "upside down" on their loan. They bought at one price and houses like theirs are selling for less now. Then there was the "creative financing" that evolved over the last few years. The entire mortgage industry has really revamped their procedures over the last couple of years but there was a wild time a few years before that when it was "anything goes" for some lenders. It seemed almost anyone could get a loan. We joked in my office that one lender we knew would give someone a loan if they were 1 week out of jail and 1 day out of bankruptcy. There were deals that were easy to get and not every buyer took their responsibility very seriously. Easy come, easy go, certainly applied in some of their minds. There were deals like the "interest only" loan. In that deal, the buyer paid only on the interest of the loan for the first few years. Then at the end of that time, they would begin paying also on the principal and they might have even had a "balloon payment" (one large payment) at the end of that period. Mostly, buyers didn't worry when they were presented with this option. It got them into a house they might not otherwise have been able to afford (in truth they could NOT afford it) and they were likely told "don't worry, when the 3 year period is up, you can refinance! You'll be making more money by then! You'll have gotten raises!" But the company they got their loan from is now out of business, wage freezes are everywhere and they're lucky if they still have a job, and the time is up and that mortgage company isn't there to refinance them and every other bank has a much higher standard for loans than they had a few years ago. The banks lost a lot of money and are super cautious now. And there's the poor buyer with NO equity whatsoever. Add in unemployment rates, and maybe they were counting on two incomes to pay the bills and are down to one or even none and they can't afford their house payments any more. Unlike "mom and dad's generation" some of the new buyers didn't think of all this as that big a deal. If things got tight, they were much more likely than the prior generation to simply walk away from the deal. Maybe they were employed in a service industry that counted on business that is no longer there, such as high-end restaurants, or tourist trade and they're earning less than they counted on. Now they need to sell short and get out from under this deal. That's where short sales come in. I am sorry to say that my experience with banks and short sales is very disappointing. I have seen many cases where a seller did everything the bank required, got a good offer from a buyer for their house and then was turned down by the bank. And to add insult to injury, in many of the cases I have seen, the situations eventually escalated, the sellers ended up losing the homes to foreclosure and six months or a year later, the bank ended up with substantially less than the offers they turned down. It is simply ridiculous but it happens every day. Remember, in this economy, the banks are overwhelmed with requests for short sales. Bankers don't seem to work overtime much and that means that your offer on a short sale may sit for weeks before the bank even considers it. Markets vary and many loans have been sold to large lenders in places like New York or California. Their markets may be radically different than your market and the bank employees who make the decision may simply be incapable of believing that your good offer is a value they should take. So they turn it down. This is the kind of situation that leads to foreclosures. When the short sale fails, eventually, after months of no payments, the bank comes in and forecloses. The house is sold at sheriff's auction and the bank sends someone to bid on it and usually buys it back. Then it depends on how fast the bank gets around to putting it on the market. If there were issues with the house, the bank is rarely going to fix them. They will probably send in a field appraiser to give them an idea of its value and they will probably "winterize" if there's a chance water could burst the pipes. They'll turn off all the utilities and lock the house up. Eventually, after 6 months or a year, they'll get around to listing it with a Realtor. Until recently, those Realtors didn't even earn a commission for doing this. All they got was the "glory" of having their signs in front of all these not-so-lovely homes and the hope that they could sell the house themselves. The Realtor who actually brought a buyer to the house got all the commission. So the banks' Realtors had no desire to help you or your Realtor with advice about the house and they often had so many of these listings, they didn't remember all of them anyway. That system has changed lately but we find those Realtors still aren't really used to answering questions and returning phone calls, even from eager buyers. When you're shopping for foreclosed homes and short sales, remember that a person who couldn't afford to make a house payment, probably couldn't afford to do a lot of maintenance. Things were neglected when they lived there. Some of these people are angry and will damage the house before they move out. Sometimes after they leave, people break in and do damage (stealing copper pipes, etc.). Add in the fact that simply put, houses do not "like" to be left empty. They do not do well. They get a musty smell and things that go wrong aren't always caught in time. The power may go out or be shut off and that may mean that the sump pump in the basement can't do its job. Then you have water in the basement and next comes mold. There are worse things even than that. Some houses are foreclosed because the former owners were running meth labs and are now in jail. As hard as it may be to believe, we see houses like that often and in almost every community. And we often aren't told that this is even an issue. Before you buy a short sale or foreclosed home, take a minute and call the local sheriff's office and find out if this home was a known meth lab. If it was, proceed with extreme caution and get an expert in to assess what needs to be done to make the house liveable again. Meth labs leave behind very dangerous conditions and you absolutely should have this taken care of by someone who knows how to make the house safe for you, your children and your pets. The walls and carpets are literally soaked in poison and it is critical that you know and that you have it fixed. But it looked so easy on TV: On the TV "house flipping" shows, you should bear in mind that some of those shows were taped 3 or 4 years ago when the real estate markets were better. Often they were taped in California where prices were sky high and kept going higher for a long time. That meant that someone who badly misjudged what it took to rehab their "flipped house" could still make a profit. You'd see these TV "flippers" make terrible mistakes and bad decisions that you certainly wouldn't make, and yet, at the end, the person would make a huge and almost unbelievable profit and of course, that sounds like something you'd like to do, too. Check with your Realtor and your county auditor. Is real estate appreciating in your area? The answer is probably not. Then explore what needs done to the house you are considering buying. Are you able to do electrical, plumbing, construction, demolition? Remember, every workman you have to hire cuts into your profit margin. The people who make money on these houses are very careful shoppers and then many are "jacks of all trades" who can do much of the work. Find out what the best case scenario is for the price once it's fixed up. If you're in a bad neighborhood, you may do a beautiful rehab but still not be able to sell. Get lots of advice, shop long and carefully. Five years ago, when my market was appreciating, my surveys indicated that there was money to be made on investing in rehabbing houses ONLY if you could do most of the work yourself. If you had to hire electricians, plumbers, painters, carpenters, crews of demo people, you would not make a profit. In that better market, you could only make money if you could do almost all the work yourself. Now my market (and most others) is depreciating and that means even less chance for profit. House flipping is a risky business. My advice is to really do your homework on every house you consider buying. Get a home inspection to find out what issues exist with the house. This will cost you about $300 up front but it could save you from making a mistake that costs you thousands. Get good advice from builders and rehabbers on what's involved cost- and time-wise on what needs to be done. Work up a good and reasonable budget before you buy. Price materials and make sure you can afford to buy what you need to do the job. Don't think so big that it costs too much to turn a profit. Then get that house rehabbed as fast as you possibly can and list it with a Realtor. This is not going to be the time for a "sale by owner" when you get your flip ready to sell. You want your money fast and that takes every tool in the book. Remember the market in most areas is already saturated. Consider staging your house to give your buyers an idea of how it will look when they live there. Good luck. If you do it right, you can make a profit. But you must do your homework! |
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Labels: House for Buy, Howsis, Husces, Short Sale House for Sale, Victorian Homes for Sale Maryland
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