Real Estate Investing

As I flipped open my monthly ”The Real Estate Professional” magazine, I read about a foreclosed home in Detroit, Michigan selling - literally - for $1.  One dollar.  100 pennies.  10 dimes.  According to the magazine, the home is in one of the most distressed parts of Detroit.  After the homeowners were evicted,

“Thieves ripped off the siding, stole the fencing, ripped out the copper tubig and even got the furnace. The home was boarded up, but the boards were soon stolen to board up another porperty nearby.”

Once the property price, originally listed at $1,100, was dropped to $1, it sold in 19 days.

Then today I saw that a home in Saginaw, Michigan sold on eBay for $1.75.  The buyer who had not personally seen the home plans to pay the back taxes (a little more than $800) and try to resell it.

These are the deals people want to find in this sagging housing market.  While the “best” deals are directly related to where they are located, HUD also offers homes for $1.  I’ve been asking my community’s city officials to consider buying some of the homes in what has become the biggest subdivision in the state and turning them into studios - for example for pottery, music, art, dance.  It looks like this HUD program could work for this type of initiative.

HUD’s Dollar Homes initiative helps local governments to foster housing opportunities for low to moderate income families and address specific community needs by offering them the opportunity to purchase qualified HUD-owned homes for $1 each.

The folks over at Wisebread caution against some $1 homes because - with some - you’re only buying the home, not the land under it,

The catch is that if you buy the home you do not buy the land underneath it and you are required to move the home. It generally costs $10000 or more to move an entire home, but if you already have a plot of land it might not be such a bad deal. For those who do not have land, some homes might have antique finishings and raw materials that can be salvaged.

May the buyer beware.

Photo of a home purchased for $1 from here.

When I first heard the word “short sale” at the beginning of my real estate career, I mistakenly thought it meant the sale was going to be fast.  Actually a short sale means the lender will accept *less* for the home than what is owed in the current mortgage, so they’ll be short the loan payoff.

I listed one house as a short-sale and it was approved in advance of the home going on the market.  The seller had a heart transplant and his wife was a secretary.  He was unable to work, but stayed home to care for his two young daughters who in fact helped care for him a lot during his recovery.  When a low income family has to decide between feeding their children and paying for a serious medical condition or making a house payment, making a mortgage payment becomes the third choice.

In this case, when the contract was received we had to write a counter that stated the offer was accepted by the seller but the lender had to review and accept as well.  I had to submit a net sheet to the lender that outlined how much repairs would cost, termite inspection and treatment costs, seller closing fees, broker commissions, and any other expenses.  The net sheet, contract, and other supporting documentation was reviewed by the bank’s facilitator and then passed to the board for final decision.  Thankfully, the mortgage company was very cooperative during the process, which still took two months to play out. 

I was one of the lucky ones in my office who basically had a smooth short sale transaction.  Another agent submitted a contract for a short sale.  The bank has not taken action on the offer for THREE months.  The last I heard from the agent, who has since left my company to open her own office as a broker, her buyer was giving up and finding another property.

Given the glut of foreclosed homes on the market, I would expect banks to jump when they receive a fair offer on a home.  When they drag their collective feet, it has a negative impact on our local real estate markets.  The house is likely sitting empty - an open invitation for vandalism and abuse - which will bring the value down.

Another agent writing at Active Rain told about how he finally began calling the lender every hour asking for a decision.

Unfortunately, like many prior, the lender “misplaced” the faxes and emails I was sending. We also didn’t get to chat with the “negotiator” (I use negotiator loosely with this lender because of their inability to communicate very well,) until the end of April. The last time, prior to yesterday, I talked to the lender was May 2nd! I was supposed to get the approval that day or within a couple of days from then.

And John Occhi of Hemet, California wrote a wonderful piece after he attended a class on short sales.  He has a lot of class notes packed in his post (including a disclaimer that his notes could be written wrong, etc.).  Here’s one note I thought was interesting - especially the bold headline,

BANKS DO NOT INITIATE SHORT SALES. SELLERS & AGENTS DO:
The above Beneficiaries (aka “Bennies”) are always negotiated with by the seller, or assisted by the agent. Lien holders rarely agree to 6% listings. Commissions can range from 1-5%, depending a number of factors.

Meanwhile, if you think you might be interested in buying a short sale property, be aware that it may take a long long time.

Photo from here.

My brother built a mini-house near the back of my parents’ 10-acre homesite as a young adult.  He lived there for years with his dog Ginger (famous for her good nature and killer underbite).  When he married, his bride lived in the cabin with him until she had enough of the one-room domicile.  They now live in a nice older home, but that love shack still overlooks the Tradewater River snaking around the back of my parents property. 

His old living quarters remind me of something that may become a new trend while this economy recovers.  Sheds as homes.  I heard today that some of the poorer families in the Appalachian region already buy sheds and convert them to living quarters.  You can pick up a decent shed for between $1500 and $6784.93 (plus tax), depending on whether it’s a basic design or more flamboyant.

Except for instances of severe weather, I can understand where sheds would be a good alternative to home ownership.  If you have hit a rough patch in your life and don’t want to live under a bridge or in public housing, this affordable shelter could be great for someone with an instinct for surviving on little.  To go more plush and with a little more money, Texans have their Texas Tiny Houses.

Plumbing could ultimately be the biggest challenge, but it’s very common for electricity to be run to regular storage sheds today.  There would probably be county or city codes that would have to be met before power could be turned on (plumbing too), but a London, England newspaper encourages people to consider using sheds as home offices.  Also, look at this shed design that’s already been drawn as a home.  And again to England, we have this site that proves “Sheds can be anything.”

This could be a very interesting trend to watch.  If you see any sheds being used as a residence, please submit your photos to kathy DOT tyson AT comcast DOT net so we can feature them here.

Shed photos from Lowe’s.com.