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Selecting Bargain Homes for Real Estate Makeovers - 2009-10-25
According to statistics from the local MLS services, approximately 35 percent of home sales during the past year have involved either bank-owned post foreclosure properties or HUD foreclosure resales. And in the vast majority of those sales, the property is sold to the buyer on an "as-is" basis. Most of these homes needed a minimum of several thousand dollars in repairs, with new carpet and paint being just the beginning.

So who is buying these houses?

The answer is, in most cases, not the typical owner-occupant purchaser in pursuit of the American dream. Most of these houses are not in good enough condition to qualify for placement of a conventional home loan, and without that financial assist, most buyers are unable to purchase. In addition, few "retail" home buyers have the vision to see the diamond in the rough.

Instead, most retail buyers need a home they can move into and occupy immediately, and they don't want a repair project for a hobby.

Most are being bought by investors, who are pursuing one of two strategies:

* They are buying these "ugly ducklings" at wholesale prices, then rehabbing them to new home standards. Once complete, they offer them for sale at prices below what a typical buyer would expect to pay for a home with comparable features.

I saw an investor owned rehab in Stone Mountain last week that might as well have been brand new. It has 3 bedrooms, two full baths, a fireplace, garage, and a privacy-fenced back yard. Upgrades included new granite countertops, high end faucets and fixtures, and all new lighting throughout. In addition, the HVAC system is less than a year old, and the house is under a one-year warranty. All this for only $93,000.

The wholesaler related to me that because he had acquired the house from a lender for only $33,000, he was able to build in a reasonable profit for himself and still offer the home to an owner-occupant for a remarkable price. Couple that purchase with the first time home-buyer tax credit of $8,000, and someone can walk into a heck of a deal.

* Other investors are buying now and making only the minimum repairs needed to make the house safe and livable now. They avoid major system repairs when possible, hoping to rent for several years and watch the market recover. If that happens, their payday will be even more rewarding than that of the "buy & sell" investors.

Both strategies are viable, and both are helping to absorb the glut of bank-owned homes now clogging the metro Atlanta housing market. And whenever an eyesore is converted into a respectable residence, the entire neighborhood is given a boost.

Whichever strategy they choose, there are specific characteristics that these investors seek. Next week, we'll examine them.
 
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