Making Much Of A Depressed Housing Market
This is part two to my article on leveraging all-time lows in the housing market all over the country. Here I’ll talk about some do’s and don’ts of buying off the bottom of the market. (See part one, where I discussed the broad housing market, threw out a couple of ideas for financing, and gave some tips on goals).
Do – be ready for some work. Cheap is almost free, but not quite. The reason it is a deal is because nobody else wanted to do the work. Make sure you either have the time and motivation to do the work yourself, or have built into your budget the cost to pay someone else to spend the time needed to make this house a home.
Do – get help. A realtor will be a valuable asset, and as a buyer, the services are usually free. Often the seller has negotiated a percent, 6% is standard, to go to the selling agent. In that contract the selling agent usually agrees to a split if there is a buyer’s agent. A realtor can help you thoroughly canvas the market in your area, and often has first notice on new houses coming on the market. Inspectors can also be helpful—if pricy. Nevertheless, a home inspector can help you identify possible trouble before you commit to purchasing. Always be sure to negotiate into the purchase contract an inspection period. Finally, as far as inspectors go, only hire an inspector after you have looked at a home and are ready to move forward—don’t spend time and money on an inspection that you could have avoided by doing a little sleuthing yourself.
Do – your research. Even if this isn’t going to be your primary residence, research the neighborhood. Go by the house at night. Ask neighbors about how they feel about the area. Research the history of the home you are interested in. You can find public tax records, septic records, well records, right of way records and the deed recorded at the county court-house.
Do – have a plan. What is your plan for this house? A home for yourself? An investment? Have a timeline and a budget. Be sure to over budget at least 10% in both time and money. If you don’t spend it and finish early, great!
Do – go where others don’t go. Be ready to see some vine-covered ruins and cobweb shrouded vacancies. Fearlessly plunge forward and investigate. Could the ruins be renovated? Could the cobwebs be cleaned? Could weeds be pulled? What would a bucket of paint do?
Do – look for potential in what others pass by. This relates to the last point. Pull back the vines and brush away cobwebs and look for the potential underneath. One potential often overlooked is the neighborhood. Is it a nice neighborhood with nice homes? Look at housing prices around you and buy the lowest price on the block—that way when you renovate and refinish your home can come up to meet the price of homes around you.
Do – look at a lot of houses. Even if the first home you see is ‘the one,’ take the time to look at other homes. If you are prone to jumping in too quickly, make yourself a quota of sorts—make yourself see a certain number of homes before you commit to buy.
Don’t – get ‘buyer’s fever’—you will see some homes that look like a good deal; don’t get so excited that you don’t take the time to do the above steps. Take the time to do your research and get help, do the ground work, and save yourself some heartache (and backache!) later.
Don’t – go for heavy structural or foundational damage—at least not without some serious thought and planning. Structural unsoundness or foundational damage are good signs of a bit of money to be invested before your home is move in ready.
Don’t – be afraid of spiders. What this means is you will probably see trash, dust, mold, and a lot of spiders. Look through the mess to see the potential underneath. What can be cleaned? Painted? What has to be replaced? Look at the home through a new lens: one that shows the unique potential underneath the cobwebs.
Don’t – look at the house through rose-colored glasses. Have a potential budget, estimate how much it would cost to remodel—any house could be a mansion if you throw enough money at it; avoid that exercise. Be realistic about what you would or would not do to the house. Have short and long-term goals. On the last two foreclosures I bought I spent about $2,500 and $2000 respectively in remodeling costs.
Don’t – hire inspectors for every home you look at. If you don’t have the experience have dependable friends or acquaintances that have experience in construction or home inspection come with you to prospects that look serious, but be sure you have done a look first.
Don’t – be afraid to ask questions. The realtor you engaged is a resource—ask them questions about the property, title insurance, tax records, (as mentioned, much of this is available to you at your local county courthouse). One owner? Multiple owners? Liens?
So, you’ve found a house, you’ve done your research, you’ve inspected, you feel ready for the next step. What now? Next article I’ll discuss negotiation and closing process, what to expect, what to look for and how to leverage the weight of the market on the particular property you are looking at.
Meanwhile, what's your story? Something to add? Please leave a comment below!