Those run down homes in our city won't fix themselves.
If their current owners could fix them, they would. Obviously, they can't.
Most properties I buy for investment have been on the market for a very long time. If someone wanted to buy it to fix it up and live in it, they would have. Obviously, they either don't want to or can't. I'll come back to this point in a bit.
Buying and fixing those houses up so they are now in good repair, and then putting responsible people in those homes instead of having them fall apart vacant, is good for society.
Having a place for people to live who don't want to buy a home is good for society.
Now, let's talk about why people won't or can't buy a house that needs a fair bit of fixing up.
The won't is easy to understand. Gobs of Americans are too damn lazy to do the work necessary to repair a house on weekends and evenings after work. Some think it's "beneath them". I'm not going to lose sleep over either of these groups of folks.
Now let's discuss the "can't" buy a fixer-upper issue. Why can't they buy it?
Well, one reason is a down payment requirement for many mortgages. Hard for low income folks to save up a down payment and then save up EVEN MORE to handle some repairs.
One reason is mortgage lending guidelines that require costs to be below certain percentages of income. These guidelines often ignore the fact that the folks have RELIABLY been paying rent that's at an even higher percentage of income!
One reason is that mortgage lenders don't want to loan money on a house that's not in good repair, so low income folks need to pay for the entire house in cash.
One reason is that lenders who will loan money for houses in bad repair require the borrower to hire contractors instead of do lots of the work themselves. This drives up the cost. Plus these loans are a pain in the butt to arrange.
And, of course, owning a house means being able to afford to repair the roof or hvac when it inevitably dies. This is also hard for low income folks.
If you want more low income folks to own homes in low and medium cost areas, the solution is to design mortgages that solve these problems.
For example, in Australia, one can get a mortgage and prepay some of it. But, one can withdraw the prepayment at any time if you need it. Take that idea and give a mortgage for $X to purchase and $Y dollars as a draw for major repairs. Require no down payment if the borrower has a good rental payment history and a non-property destruction rental history and the monthly payment would be at or below the rent they are paying.
Make a clear delineation between "cosmetic repairs" and "things that must be done by a licensed professional for safety reasons". Make mortgages for fixer uppers just as fast and easy to get as a regular mortgage and allow the buyer to do all the non-license required tasks themselves. Allow lenders to charge a higher interest rate until the repairs are made and pass the local inspections (because they are at higher risk until then).
It costs just as much to service a $50,000 mortgage for 30 years as it does to service a $300,000 one. But the amount of interest on the smaller loans won't cover the cost of servicing the loan so lenders don't want to make the small loans. Allow lenders to charge a per month service fee so the servicing costs are covered regardless. That way, they can afford to issue the small loans and fixer uppers become more feasible.
And, of course, provide big tax breaks to builders to build "starter homes" so they make comparable profits to building bigger homes. That will increase the supply of newly built more affordable homes.
