Wednesday, October 22, 2008

The Bank Owned Property Conundrum


To put it delicately, many of the bank owned properties need...

a little work.

However, there are wonderful deals to be found for the courageous Buyer. I currently have a home under contract around $130,000 UNDER comparable properties. Now, the home needs work, and some (but not all) of that built in equity will be eaten up by rehab costs. At the end of the day, my handy Buyer got a great deal on a home.

But, here is the conundrum...

It's very difficult to get financing for a property that is in bad condition. A tarped roof, broken windows, missing appliances, etc. will make getting a mortgage difficult. Your agent should be able to give you an idea if the property is "Mortgage-able" or not.

If the property is in such disrepair that you cannot get a traditional mortgage, you can pursue what's called a rehab mortgage. In this scenario, the mortgage company will loan you the purchase price + rehab costs, up to 80% of the estimated, post-rehab appraised value. These loans are pretty involved. You'll need a signed contract with a licensed contractor who can provide a resume and references to the bank. The bank will be involved in your rehab process, and may need to inspect the work prior to releasing the contractor's payment, etc. They may require permits be secured for the work, even prior to closing on the property.

You need to assess the viability of a regular mortgage vs. a rehab mortgage BEFORE placing an offer on the property. Due to the more complicated process in securing a rehab mortgage, you'll need to build in additional time to obtain the mortgage commitment and settlement.

Are you a courageous Buyer? If so, I'm your girl. I'll find you the deals AND the financing for them.

Tuesday, October 7, 2008

When Does it Make Sense to Fix a Home in an Estate Sale?

RVIN0267 Selling a beloved family home after the death of a parent may be one of the most emotional real estate transactions you will go through. On top of the obvious difficulty in dealing with the death of a parent, the family home is often in some disrepair and dated.

When working with estates, I counsel the family to take an honest look at the home. If the home has generally been maintained, and has been updated throughout the years with new mechanicals (heater, roof, etc) as needed, then it may make sense to do a light rehab. What's a light rehab? Paint and carpet. Perhaps a kitchen. Now you have an updated, well maintained home that should be a very sellable product (as long as you price it right).

If however, the home has been neglected, and many of the major components need repair or replacement, then it doesn't make sense to rehab the home. You would have to do a full-scale rehab at that point. It rarely makes sense for an estate to invest that significant amount of time, energy, and money. At that point, I suggest that it's better to sell the house "as-is" and let someone else invest the money, time, and energy to bring the home up to speed. It doesn't make sense to paint and carpet a home that is only going to undergo a major rehab, and you'll be throwing good money away.

How about if the home is marginal? Paint and carpet, neaten up the kitchen if possible, maybe with new flooring and countertop, and price it to sell.

Although difficult to do, you need to take an emotional step back from the home in order to see its true condition, then move forward from there in a way that makes sense: financially and emotionally.