It’s Foreclosure Saturday! We have a standing appointment every Saturday to meet with our Real Estate Broker and look at foreclosures. We believe the real estate market is poised to take off and we want to be on-board the rocket ship! Therefore, we are always looking. When you think of foreclosures, you probably think of properties in poor condition, and sometimes they are … In this case, we are viewing a 1 bedroom condominium that needs work. The common term for this property would be “fixer upper.” When we visit fixer uppers, we estimate how much work we have to do to get the property in condition to be rented.
The kitchen is in decent condition. On the surface, all it appears to need is a good cleaning.
The living room needs painting and carpet cleaning. The air conditioning unit appears very old, so it will probably need to be replaced. We estimate $3,000 to replace the air conditioning.
We notice the kitchen and living room have ceiling fans, which indicates that the air conditioning unit may need repair or replacement.
When we entered the bedroom, we noticed water spots on the ceiling. The water damage does not appear to be substantial, however it is an indication of a problem.
The bathroom was in decent condition. It needs a good cleaning. We did notice something that concerned us …
Evidence of a plumbing leak is above the bathtub. This leak, combined with the water spots on the bedroom ceiling, raise the red flag! We have had numerous experiences coordinating with condominium management to establish liability when plumbing leaks cause damage. Typically, if the offending pipe is in the “common area,” the condominium management takes responsibility and makes repairs. However, if the offending pipe is the responsibility of the upstairs unit owner, we would have to make contact with the unit owner and negotiate a settlement.
For beginner real estate investors, it is crucial to understand that repairs affect profits. When viewing foreclosures, we weigh the cost of repairs versus the potential profit. There is a higher risk associated with foreclosures. When real estate properties sit empty, the potential for leaks increases because no one is present to identify the leaks when they occur.
Estimate how much it will cost to make repairs, and subtract that amount from the list price. Since the real estate investor assumes the risk, knock off an additional 10% -20% from the asking price, depending on the condition of the property. Negotiations begin with the seller by making an offer. The first offer is a test to see where the sellers “low point” is. Once we receive a response from the seller, the negotiations escalate! In this case, a major bank owns the foreclosure, so there is no emotion involved on the seller’s part. We have learned that it’s best to deal with emotion-less sellers. When making low-ball offers, we don’t have to worry about insulting the seller. To learn more about negotiating real estate transactions, click here.
To see more of our foreclosures, watch our Chasing Foreclosures playlist on YouTube!
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The opinions expressed herein are solely those of the Author/WebMaster. Before taking any action, please consult your real estate, financial, and legal advisors.
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