Author Topic: First time homebuyer buying a foreclosed / abandoned home. I need your advice  (Read 3715 times)

brit2122

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Hang in there with me, guys. I'm really excited about this, so I'm gonna get the whole situation out there for you. I'm really excited to get advice from like minded people and really appreciate your help.

So we've been renting for over 10 years. After our current psychotic landlord we finally decided we need to buy something. We were gifted $10,000. A true blessing!! We tried for a loan and were told our credit scores of 580 something were too low for a loan anywhere. (Don't lecture me. :) We've been very irresponsible in the past, but now that we're 30 we're actually ready to grow up.) But we were referred to one credit union who could help us. Turns out we had to have paid all of our bills on time for the last 12 months to qualify for one of their loans. Bummer. So we decided to buy a manufactured home and rent the land for a year until we can qualify for that loan. But then...... I found a foreclosed home on .25 acres for $9,900! Place is trashed. Abandoned. I'm talking walls need to be torn down and rebuilt. Floor boards will need to be replaced. Carpet, wallpaper, all needs to come down. Electric needs to be redone. Toilets need to be removed and replaced. There is crap all over the place. Now this is pretty fun work for us. We were stupid enough to do it for a landlord in a rental once.

 Ok, and the land..... BEAUTIFUL! Seems much bigger than the .25 acres that was advertised. There aren't any pictures of the land on the ad. But I'm getting ahead of myself. Before I saw the place I did some digging and found the listing agent. I was directed to the financial company that's selling it. The person on the phone sounded more like a customer service agent than a realtor. She asked me my name and told me to just walk in. (Doors are torn down, so no lockbox.) And she said to me twice: "Call me back and make an offer BASED ON THE CONDITION OF THE HOME." I found that interesting. She seemed to stress that.

So when we pulled in there was a sign on the gate that said price: Cash offer. Property values everywhere around the house are $110,000+. We live in a growing area. The structure is a manufactured home from 1960 with an addition. It's just oozing with character. Perfect sized office for me, etc. And the land is an absolute dream for both of us. It was last sold for $5,000 in 2004. It went up for sale on Jan 23. This is BY FAR the cheapest place for sale in the area. We could possibly acquire land only for around $10,000 but we wouldn't have anything to live in.

So, I need advice. Thanks for hanging in there with me. I'm really excited about this and might have rambled. We can own a place! Outright! The place is literally a shell and will take a lot of work. If we don't buy this place we'd buy a manufactured home and rent the land and resell it in a year when we can get a loan. The lot rent would be $200 - $250 / mo.

What would be a fair offer? My partner wants to try offering $279 (the yearly tax). Hey, she said make an offer based on the value of the house. Which is zero (actually, it's less than zero). Also, the company I called wasn't local. I don't even know if they know what the land actually looks like. I feel like they only really know about the abandoned shack. So, what's a fair offer? We're gonna need thousands to fix it up (we'll be saving $550 in rent every month, so that's gonna be pretty easy to afford.) What's the time line on moving into a foreclosed home? Closing time. Just looking for your general advice on my matter and where to go from here. A realtor won't really touch this with no commission. Thanks SO much!
« Last Edit: May 02, 2014, 01:05:35 PM by brit2122 »

Another Reader

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A fair price is the value of the lot less the cost of demolishing and removing the existing structure.  The bank wants to be rid of this because it is a headache - little value and lots of liability, so  start low. 

I would look for recent lot sales in the area.  Demo and removal are quite expensive - probably several thousand dollars.  You also need to find out if the mobile has been red tagged by the local jurisdiction or if they will allow you to rehab.

A title report and insurance are important.  Make sure you get those.

Lenders are notoriously slow moving and difficult to get to a quick close.  Ask the person that you spoke with, it's usually 4 to 6 weeks minimum.

This fine property probably comes with asbestos and other health hazards, so keep that in mind both in the offer and the rehab.

Good luck!

brit2122

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Another Reader, this is extremely helpful. How does one go about finding out if the home has been red tagged? When you say you would start low on the offer, how low can you go? Less than 50%?

waltworks

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Random thoughts:

-If it's a smoking deal and nobody else has bought it, there's probably a reason. Then again, it might be serendipity that you found this place when you did and it has flown under the radar for investors.

-First thing to do is pay your unpaid bills. You will want access to credit in the future and 580 credit scores and unpaid bills in the last 12 months is a huge, huge problem. The fact that you want to immediately spend your windfall is a little worrying. Address all your outstanding debts before thinking about buying this place.

-If the house is as trashed as you say, it is very likely that it's not repairable and you'd have to scrape/rebuild, which is a very expensive/time consuming process. Even if it's salvageable, you'll need to pull permits and have lots of work professionally (ie electrical) done. Some of the demo may require dealing with toxic substances ($$$). You'll need to pay property taxes and insurance, too. You might not save as much money as you think.

-If you are dealing with a bank (likely) expect to A) not have luck with lowball offers, and B) the process to take a while. Banks can sit on unrealized losses for a long time if they need to and I *doubt* offering $300 or whatever is going to fly. You can always try. Buying short sales or foreclosures can test your patience, as well, since often there are several parties involved who are owed money and have to sign off.

-There will be (some) closing costs if you do buy - title fees, utilities transfer fees, stupid paperwork fees, etc. On a $10k cash deal I'd be surprised if this was over $300 but you never know.

-W

rebel100

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Another Reader, this is extremely helpful. How does one go about finding out if the home has been red tagged? When you say you would start low on the offer, how low can you go? Less than 50%?
Call the city or county of jurisdiction and ask them what they know of the property and if there are any restrictions on the rehab.  I like Another Readers starting point of (lot value - demolition expenses), remember they can and likely will counter your initial offer, that's why he said start low.  Sounds like your on to a fun project...go chase it!

Another Reader

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Without knowing what buildable lots in the area go for, you can't make an educated offer.  You need to know the zoning and what can be built there.  If the mobile had all utilities, you may be ahead, because you don't have to bring them to the structure.  If the City or County is going to make you tear down and haul away the existing mobile and vacant, and ready to build lots are going for $5,000, your $300 offer might not be far out of line.

There is a lot you need to know to proceed.  Usually the bank will get a broker price opinion (BPO) before listing a property, but for something like this, the price set may not be reasonable unless the BPO was done by someone with knowledge of lot values in the area.  When you are talking to the bank representative, ask how they arrived at the asking price.

Generally, if you are going to make a low offer, you need to have support.  If comparable lot sales show the lot is worth $10,000, and you get an estimated cost to demolish and remove of $8,000, offer $2000 and submit the data.  But don't make any offer until you know what you can do with the property.


TrulyStashin

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Definitely check how the property is zoned.  If you need to tear-down and rebuild, the zoning will determine how many stories you can build, how far back from the lot lines the new house needs to be, what kind of accessory buildings you're allowed to have, and sometimes even things like size and shape of windows on the front elevation of the house.

Your locality should have a website with a "Planning" (or some similar name) department listed.  Go to that site and look for a "GIS" website link.  You should be able to put the address into the GIS system and pull up the current zoning, tax map, assessment, etc.  You can then pull your city's zoning code (also from the city's website -- don't use "Municode" for zoning as it is often not up to date) and find the zoning that applies to the property  (example "R-2" or "R-4"; anything other than "R" zoning could be troublesome).   

You can also call the planning department and talk to a staff person.  Give them the property's address and ask if you can come meet with them about it.  In my jurisdiction, planning staff are very helpful and can guide you in figuring out the situation and also help you decide what other city officials you need to work with.

S0VERE1GN

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Have a lawyer check the title and deal, and then go for it! I love projects of any shape and size so more power to you.

GrayGhost

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As has been mentioned, you definitely want to do your due diligence here. Even if you could theoretically rehab this place, even with the costs of getting hazardous materials removed and electrical and such done professionally, there's a possibility that your jurisdiction simply wants the place condemned.

Also, check for liens and things like that.

It's probably going to be a Hell of a lot of trouble for you, but if you have the patience and the abilities to deal with it, you can save a lot of money. Just do your due diligence and don't let yourself get surprised.

Argyle

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But you won't be saving $550 in rent every month until the place is habitable.  So for the first X months you'll be paying $550 in rent plus however much to get the place in shape.  And remember that it will take twice as much money and twice as long as you think.  So be prepared.

former player

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Agree the advice above.  It's your first property purchase and a dodgy proposition, so whatever else you do, don't skimp on professional legal advice to make sure you get good title with no liens hanging over it, and make sure the right planning authorisations are in place.  I'd have an expert look over the land (no sinkholes, I trust?) and buildings, too - if they can find problems which you can use to negotiate the price down with the bank, they will pay for themselves.

You don't say what your income is, how secure it is, and whether or not you have done a budget.  You and your partner need to sit down and work out income,  outgoings and debts.  If you have had trouble paying your bills, work out whether you will have any headroom after paying your living expenses and paying down your debts.  It is the amount of monthly headroom you have which will tell you whether or not you will be in a position to take this property on.  However cheap it is, and however frugally you do the renovations, you need more coming in than going out if you are to cover the costs of taking it on.

Once you own a property, you are tied to it and its taxes and maintenance issues unless and until you can sell it.  If there is the possibility that you might need to move to another area for work in order to maintain your income, or for the kids to go to school, or to look after elderly parents, etc., this property could end up as a liability rather than an opportunity. 

Also, it may not help your credit score to move to an address like this - sometimes credit score takes debts of previous occupants into account if you are not careful - and it is also possible that the previous occupant's bad debts may turn up on your doorstep.

I've set out a lot of caveats.  But if you do due diligence on the property, get it for a good price and will have enough spare cash to start putting it in order, it could be a great opportunity for you. Good luck.