According to a Wall Street Journal article published today, a wave of foreclosures is starting to drive down prices as banks put more properties on the market. In some areas, foreclosure-related sales account for 40% of all sales. Well a few weeks ago Mike and I did our own sort of investigative reporting–we went house hunting. In later articles we’ll show you some pictures of the dumps we looked at, but for today, suffice it to say that there were some deals out there, but no steals.
When Mike and I started investing together in 2005, we were able to buy homes (including rehab costs) for about 80% of value. Today, in the same area with plenty of foreclosures, it’s about the same. If you really hunt down a great deal, you might be closer to 70% of value, but the banks aren’t giving these properties away. And when you do find a great deal, there’s almost always a lot of work to do. Take for example one peach of property we looked at that I’ll call Dead Man’s Den or DMD for short.
DMD is a four bedroom two bath cape with a detached super-sized garage on about .2 acres in middle-class America. I call it Dead Man’s Den because there was a painted outline of a body on the family room carpet (no, I’m not joking). Every surface in this house was soiled, trashed, written on, punched through or missing. The smell was difficult to identify, but let’s just say we were breathing through our mouths. The kitchen and baths need gutted to the studs. And the detached garage had fire damage. Whether it could be saved or not was unclear.
The bank was asking $48,000 for DMD (note, I don’t think the bank referred to the property as Dead Man’s Den, but I’m not sure). We guessed repairs would cost at least $30,000, but with the garage, it could go a lot higher. In addition, there were undoubtedly busted water pipes through out the house in unknown locations. So we’ll put the total cost at somewhere between $80,000 and $90,000, and that’s after a major, time consuming rehab. And the value of the home fixed up is about $110,000. So there you have a deal, but certainly not a steal.
We offered $40,000 and were out bid by one or more offers at the asking price. I don’t regret not winning the bid, other than it sure would have been fun to blog about a rental property we could legitimately call Dead Man’s Den. I’ll leave you with this chart showing the 10 metropolitan area with the most foreclosures:
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Here in Michigan there are a TON of foreclosures and there are a few deals here and there but nothing to do backflips over.