Last night while on zillow I started looking at all the homes that have been on the market for over 180 days and I tried to find commonalities between them and reasons for the long time on the market.
The homes were: SFR, 2/1-3/2, 5-50 yrs. old, and none were asking more than $150K.
Some things I noticed:
-A nice and new 2-story house in a neighborhood of 1-story houses, backed up to railroad track
-A nice and new home, backed up to a railroad track
-A beautiful and newly remodeled 3/1 that was surrounded by older, outdated 3/2’s, sitting on a corner lot in an awkward position, cost $15K-$20K more than other homes next to it
-A 2/1 surrounded by 3/1’s or 3/2’s, faced a busy street, backs up to bigger * newer homes
-A 3/1 under 1000 Sq. Ft.
-The older homes were asking 15%-20% more than the counties appraisal
-The newer homes were asking for the appraised amount, still not selling
-Generally, homes sell for more than the county appraisal, but I’ve found homes that sell way under to some that sell over. Very confusing :banghead
I plan on doing some more searching later today since I found my little exercise useful.
My questions:
When looking for rehab properties, what signs tell you that a house probably won’t sell very fast, regardless of rehab quality or price?
What situations do you avoid at all cost?
What are some things all of you notice about homes with excessive DOM?
What’s the longest any of you have had a home on the market and what did you do about it?
All comments, suggestions, and opinions are always welcome! :biggrin
You look for the worst house in a good neighborhood. This sounds simple… IT ISN’T.
There is absolutely no point in rehabbing a home that is surrounded by aging old clunkers that no one takes care of. You want the neighborhood IDIOT’S house. Every neighborhood has one, they let the lawn grow, never even think about painting the house, inside is outdated, ect.
My guess is your looking at homes that were purchased during the BOOM. At that time some people thought you could buy ANYTHING and make money on it. Times are completely different now. Why would anyone live next to railroad tracks with record numbers of UNSOLD homes on the market???
Buyers are MUCH more picky now because they CAN be. Even at blow out prices if there is something like active RR tracks in your back yard… YOUR SCREWED!!! NO ONE with the exception of a deaf, childless, 3 rd shift worker is going to look at that home.
I try to buy homes in neighborhoods built in the 1950’s and newer. At that point in history builders were banging out ranch houses in neighborhoods with 200 other ranch houses. It’s not too hard to comp areas like that. Once you get into 100 year old homes things can get complicated.
Keep it simple. Start out with a 3 bed 1 bath ranch, cape or other small home. YOU HAVE TO STEAL IT in our current market or YOU WILL BE ONE OF THOSE OWNERS WITH A 180 days on the market home. Under price your finished rehabs.
I’ve noticed boat loads of foreclosed homes on the market in my area. Banks are doing NOTHING to these homes but cleaning them out. That can be a HUGE advantage for you. The banks aren’t giving these homes away. By purchasing your houses for dirt, you can rehab them and STILL come in UNDER what those banks are asking for a foreclosed home that needs lot’s of updating and repair. Find those… and SELLING 'em won’t be a problem.
First, Zillow and the County will not give you accurate comps. If you’re looking at new homes, it’s as easy as dollars per square foot; a developer could tell you what residential property goes for in dollars per square foot.
If it’s an older home, you need to know what houses are selling for now, and what they have been selling for each month in the past year or two. The reason for this is if the median value of single family homes is falling 1% per month, and the average days on the market is 6 months, then if you want to sell a home, it makes sense to consider that you will at least need to mark it down 6% from fair market value now, instead of putting it up for sale at fair market value, and watching the home never sell for ask price.
The problem of a home that will not move is that it is overpriced. Unless this is a rural area with almost no demand, a home on the MLS for below market value should move. With each successive week, lower the price. You will notice more and more interest, and you will know when you have enough prospects to trigger a sale.
Believe it or not, I have seen areas where living next to a railroad did not substantially lower the price or the demand, but these are areas where growth is restricted for other reasons (anti development government, geographical barriers). Just make sure that you are comparing the same types of properties. If you are buying a 3/1 <1000 sq/ft home built in 1970, compare it to the sales price of 3/1 <1000 sq/ft home built in 1970. Compare apples to apples.
Environmental violations could sink you. Anyone in the chain of title can be fined by the Environmental Protection Agency for the cost of clean up. This could come back to bite you years after you sell a property. I would avoid old gas stations, areas next to industrial complexes, or areas next to air force bases. This would be a good reason to think twice about owning next to a railroad, especially a rail yard.
Sometimes you’ll have sellers who think that because their house is way below market value, it’s a good deal. It might not be. If the place has termites, dry rot or is basically ready for the wrecking ball, you need to consider that you may have a situation where you need to tear down large parts of the building, so a fair price for a house like this could very well be less than the price of raw land. Also if the building is a total tear down, be sure you know how much it costs to get permits because some places will make you pay school assessments or other expenses related to hooking up to city or county sewer service, water service…whatever. For example, you buy a house, tear it down, get permits to build a new building, then the planning department tells you that because it is a total rebuild, you need to pay $40,000 to hook up to city sewer.
Fdjake always has good advice for rehabbing. If you run into trouble with excessive days on the market, it will be because you paid too much and you are asking too much.
I’ve definitely noticed a large amount of foreclosures in my area(DFW, TX) and many, if not most, of them have little to zero equity so the banks are just putting them up for the remaining loan amount and the houses just aren’t worth that.
There is absolutely no point in rehabbing a home that is surrounded by aging old clunkers that no one takes care of. You want the neighborhood IDIOT'S house. Every neighborhood has one, they let the lawn grow, never even think about painting the house, inside is outdated, ect.
“Neighborhood idiot” is perfect!
One of the houses I looked at was the nicest on the block by far(immaculate landscaping, new paint in & out, new kitchen and bathrooms) but it was surrounded by junkers and real close to much newer construction. It’s kinda sad really :banghead
If it’s an older home, you need to know what houses are selling for now, and what they have been selling for each month in the past year or two. The reason for this is if the median value of single family homes is falling 1% per month, and the average days on the market is 6 months, then if you want to sell a home, it makes sense to consider that you will at least need to mark it down 6% from fair market value now, instead of putting it up for sale at fair market value, and watching the home never sell for ask price.
Good advice. One of my biggest fears in rehabbing is not being able to sell a house. I use HML’s and if it doesn’t sell then I have to try to cashout refi, or just refi, and in this credit market that will be tough for me since I have stated income.
Personally, I would rather lose some, maybe even all, of my profit to get rid of a house. Of course, it all depends on the situation.
Some general guidelines to help avoid excessive DOM:
look for the neighborhood idiots house
stay away from industrial complexes and railroads
ALWAYS compare apples to apples
be prepared to sell below FMV in order to make the house moooooove
rehab to fit the market(don’t rebuild Taj Mahal in the ghetto)
only buy houses that compare to other houses in the neighborhood
must purchase homes for a steal(make my money when I buy, not when I sell)lol
sell a nicely rehabbed house at the best price
don’t overestimate ARV, don’t “mis-underestimate” repairs-(Bushism for the day)
Thank you both for the informative responses! :beer