I recently received a comment/question sent to my email by a future customer who had read one of my blog posts on active rain. I wanted to post it here so others could get some insight into issues that need to be addressed when buying properties especially in urban areas. I asked the client to watch the posting for information that may be helpful to her.
Carla writes,
"Hello Mr. Stevens,
I saw your comments on Activerain.com. Here's a scenario for you, I would like to purchase this home at **** St. Detroit, MI 48224 - it has extensive fire damage. This is okay, as I would like to be able to renovate the home (upgraded wiring, plumbing....) the problem is I live on the west coast. I do plan to occupy the property once it is rehab'd.
The problem I have with most RE agents, they don't really want to give the information I need to make an informed decision, so I have repeatedly walked away from buying. I never get the answers to the following questions, 1) total cost to purchase property, such as special assessments through code violations if any, back taxes, what the actual taxes are, closing costs, title ins.... 2) where exactly the property is located, example, Indian Village...., 3) if the home is tagged for demolition, 4) if I purchase home that needs extensive repairs, since I am out of state, do I have to start rehabilitation of home as soon as title is transferred to me - or can I wait to start rehab, is there a time limit before code violations/citations are issued to me as new owner.
My question to you, is how much would it cost to insure this home during and after rehab? ***I would like to be present when rehab is being done.
Any and all help you could give is appreciated.
Thanks,
Carla"
My response,
"You have some great questions and it it good to see someone
approaching real estate in Detroit with some foresight and maturity.
Most investors see the sale price and they do not think about the
additional costs and hidden costs that come with a home needing rehab.
Is it OK if I re-post your question on active rain so others can be
made aware of potential problems when purchasing any real estate?
Finally, the answer to your question. How much are you buying the home
for and how much will you be spending on rehab? It sounds like a
contractor is doing the work, or are you doing the work?
Thanks for the email and I hope to hear from you soon.
Don Stevens"
I felt any feedback we could get could create a record of some great dialog and also help potential buyers become aware of the little things that need to be addressed when buying properties needing rehab.
Interesting. For a $500 listing, I'm surprised that an investor buyer hasn't snapped it up.
It would appear to be a "tear down".
If rehab is possible, a structural inspection is surely recommended prior to purchase.
I'd be looking at the "replacement costs" for area homes of similar size to get a handle on the cost for a rebuild. This isn't a rehab. This is a rebuild, if it is structually sound.
Not knowing the neighborhood, I couldn't speculate on costs, but it surely would have to be a "construction to perm" financing or FHA 203(k). The 203(k) is probably feasible. I suspect that the seller just wants the $500 and to sign the deed.
Have fun.
I constantly post this to out of town home buyers that don't know Detroit. Dont' do it. The City of Detroit has too many problems. Experienced hands on investors have a tough time making it. In experienced and long distance investors is a recipe for disaster. Just my opinion. You might as well give the money to charity because it is a wasted investment here.
I have to be a little more specific why not to buy in Detroit
My advice buy in a city that the homes will increase in value quicker.
Russ's comments are very sobering and different parts of Cleveland are experiencing the same thing. In fact, a land bank has been established by the city so homes can be either torn down and converted into green space, etc., or other uses.
This is a great post. Thank you so much for the information. You might say it's "tweet!"
Donald,
I'm with Lenn, this sounds like a rebuild, not a rehab. Extensive fire damage could mean a lot of things. Sounds like the buyer needs to get estimates from contractors during an inspection period.
I don't want to sound harsh but it sounds like your client needs to hire a consultant of some type rather than relying on an agent to answer his questions.
An agent 1. Isn't necessarily going to have the expertise (maybe this is so common in Detroit that they would - I don't know) and 2. If they do have the expertise, they can't afford to spend the time gathering information for the amount of money they'd make on a sale like this (assuming we're talking about a less than $5k transaction). Everybody's got to make a living.
If s/he's really serious about this, hiring a consultant would be money well spent.
Interesting perspective since many out of town purchasers becoem entranced by the "ritz and glitz" of the $5000 listing. Buyers need to keep in mind that they're $5000 for a reason and most of them are unknown until after escrow closes.
From what I've seen....the probability of an investment like this is incredibly high risk. Sure there is potential for making money but it is much more likely to turn sour....
My advise for the buyer....Find something with less risk and a better possibility for a Return on Investment.
-Phil Graves-
utahbuyeragent.com
That sounds like a recipe for disaster, I do not think that would be a wise purchase for someone so far away.
Is this lady paying cash? Because I don't see a loan happening on an investment property with extensive fire damage.
No bank will touch that.
I'm loving Carla! She's taking quite a leap to purchase, fix and MOVE INTO a property like this in a struggling city like Detroit. Sounds like she wants to be a part of the solution!
It sounds like she's doing her due diligence. my recommendation would be to get her in touch with knowledgeable, local contractors, lenders, city officials, title companies, etc. who can guide her through the process and review any and all associated costs.
I am trying to get a four plex rehab'd and rented and we were ripped off by our contractor and now have a four plex that is -40k in work and a missing contractor. Property is just sitting and I need some help to figure out what to do. Anyone have any insight?
Heather, can I repost your question on Active Rain. New posts get a lot of activity and advice. Thanks.