3rd Biggest Story of 2011: Buy a Foreclosure, Renovate, and Resell for Big $$$
I get at least one e-mail a week from people with tips on properties that were bought from the bank, have been “renovated” (with various different definitions of this word), and are now being resold.
This is different from a “flip” which means that there was nothing done to the property from one sale to the next.
Just a few days ago, someone posted that the house at 3447 N. Paulina in Lakeview that we chattered about in October 2010 which sold for just $275,000 (it was on a standard lot but was being sold as a rehab or for the land value) is being rehabbed with new siding and windows.
See our October 2010 chatter here.
Here was its sale history:
3447 N. Paulina: 3 bedrooms, 1.5 baths, 1320 square feet, 2 car garage
- Sold sometime before 1991
- Originally listed in March 2008
- Withdrawn
- Was listed in July 2010 as “as-is” and a “builder’s/rehabber’s dream” for $349,000
- Sold in September 2010 for $275,000
- Taxes of $712 (no- not a typo)
- No central air
- Bedroom #1: 11×20
- Bedroom #2: 10×14
- Bedroom #3: 8×11
This is what it looked like before.
Will it come back on the market shortly? Or is the buyer actually rehabbing it to live in?
We’ll have to wait and see but I’ll be watching to see if it comes back on the market in time for spring selling season.
Will the technique of buying a foreclosure on the cheap, putting some money into the renovation, and selling for a big gain be the only way to make money in real estate in 2011?
Those who have the ability to pay cash, will have their choice of many distressed properties on the cheap. Those who require a mortgage will be unable to get financing for these distressed properties.
I applaud the renovators for doing a good job.
First of all, they buy the distressed properties on the cheap, which drives down pricing in the area.
Next, they usually do a fairly decent job of renovating and updating neighborhood eyesore crapshacks and turn them into livable housing units. Quality varies and some are nothing more than putting lipstick on pigs, but other times, they do a quality job, like the link below.
Moreover, because the renovators have a lower cost basis, they can sell the property at or lower than market price (like our declining market is now); which again, keeps a lid on what plain old vanilla resells think they’re going get.
Finally, they help increase the available number of move-in properties available at reasonable prices. In a lot areas there’s nothing but junk available right now and often times the renovators are the only sellers bringing fresh, updated move-in condition housing to the market.
Flippers on the other hand, they’ve mostly been sidelined. Many don’t have the cash to buy today and flip tomorrow for a small profit.
http://www.redfin.com/IL/Chicago/4640-W-Waveland-Ave-60641/home/13457711
I’m sure you can imagine what this property looked like pre-renovation.
Yes the bedroom situation is a bit odd, (2 on the 2nd, 1 on the first and 1 in the basement) – but this is a standard bungalow. Regardless, it looks nice.
With this newest wave of ‘foreclosed & renovated’ properties entering the market, you can also expect to find many, MANY unscrupulous investors who think they will be able to fool (usually first time buyers) into thinking their new home had been totally gut rehabbed before it was put on market for their purchase. The extent of their work will be the most basic cosmetic work with no ‘under the drywall’ improvements being performed. The improvements/upgrades these mostly neglected/delapidated homes would require usually are hidden and are not visible to an untrained eye. Sure the color of your walls are what you always dreamed of having, but the leaky water pipes causing deadly mold never entered your dreams! The unlivable condition most foreclosed homes are in, would mean this new approach to home ownership could end up being a bigger disaster than the original RE meltdown.
If one is looking for properties in this category, PLEASE perform the due dilligence required of you to assure yourself and your family that all issues were addressed and all needed repairs were made in a high quality way with high quality products being used.
Better yet, while you are saving the money to buy yourself a foreclosed property, record all home improvement TV shows you can fit into your DVR, buy every book related to home improvement ideas, talk to many general contractors and industry related individuals. Seek out others who have been through this process and find out as much information as possible BEFORE moving forward.
While many issues can be resolved by a DIYer, it takes a good amount of knowledge to be able to do so…some of it taking years of trial and error to perfect these needed skills.
Or enter this new phase of RE dealings the way I would had I not accumulated 30 years of home construction experience…avoid all foreclosures and short sales and leave them to the con artists who will obviously be a HUGE part of this scheme and buy new or a home that has been thoroughly inspected by a reputable home inspector…Yes, there are some out there!
Seriously if I were entering the market seeking to buy my first home, there is NO way I would even consider these dumps.
Proceed with caution.
HD: Wow, I really like that renovation of the bungalow (also good photos).
Great advise. Thanks.
“If one is looking for properties in this category, PLEASE perform the due dilligence required of you to assure yourself and your family that all issues were addressed and all needed repairs were made in a high quality way with high quality products being used.”
how exactly is one supposed to see through the walls to see if they updated the electrical and plumbing?
also, isn’t all the new construction where most of the short cuts where taken?
Obtain an inspection from a highly recommended inspector AFTER doing as much background investigation as you can. Ask the seller for copies of receipts/work orders/permits…anything they have to show the work really was performed.
If the seller/renovator is a reputable one, they will not at all hestiate to share this vital information with you. As a matter of fact they will have it ready at a moment’s notice. With each new buyer I speak with I have and offer to show these documents and if a the offer seems to be a serious one, I INSIST they look through them.
No, not all new construction has defects nor have short cuts been taken on all of them. If you are interested in buying in new construction projects, demand to see proof of their past projects. Nothing to hide? They should be offering to do so.
This assumes that the seller/renovator/contractor speaks decent English, hasn’t hired illegal aliens, and is willing to even be minimally polite. Good luck getting this info from the types that do this kind of work in Chicago. They’ll just wait for another (yuppie) buyer.
“Ask the seller for copies of receipts/work orders/permits…anything they have to show the work really was performed.
If the seller/renovator is a reputable one, they will not at all hestiate to share this vital information with you. As a matter of fact they will have it ready at a moment’s notice. “
What’s the matter with yuppies?
Any yuppies is such an outdated term. Who uses that term anyway? You’re showing your age.
“Dan on December 27th, 2010 at 11:00 am
This assumes that the seller/renovator/contractor speaks decent English, hasn’t hired illegal aliens, and is willing to even be minimally polite. Good luck getting this info from the types that do this kind of work in Chicago. They’ll just wait for another (yuppie) buyer.”
Well, Dan, I think you’re bascially restating westloop’s point – if they won’t or can’t supply the info than you probably want to pass.
Also, danny has a good point – those with cash to snatch the dumps and the right skills and ethics to rehab correctly will do fine.
after renting a place next to a property that was undergoing a pickup truck special “gut rehab”, watching them get a stop work order from the city for not having permits, watching the property become an abandoned rat infested trap for nearly a year before they finished, has made me never, ever wanting to buy a “gut rehab” no matter what. Unless it was done by professionals and was very well done
A goodinspector doesnotneed to see through walls to detect shoddy work. He can look at the electrical box and exposed pipes in basement and get an idea of quality. The real question is: are people actually willing to pay for quality work on the unsexy plumbing electrical hvac roof etc.
Some before pics of the Waveland rehabbed home…. Hope it’s OK to post this link.
http://www.urbanrealestate.com/property/4640-W-Waveland-CHICAGO-IL-60641-WN7QXBTR2DE5E.html
Could someone who knows kindly tell me, if someone was doing a true gut-rehab, what would cost the most to replace with completely new: drywall & floors, plumbing, HVAC, electrical, roof. Could someone who knows rank these from most costly to least costly? Thanks.
When we lived in DC we observed many of the row house rehabs on Capitol Hill in the 1970s involved ripping out everything in the building leaving nothing but a brick shell. The house was then rebuilt. You were getting essentially a new house. The issue was that these rehabs were occurring in what then, but not now, off neighborhoods. The introduction of the Metro subway system made many of these “off” areas prime real estate.
IMO, my #3 (or Sabrina’s #4) story should be the neighborhood old-timers putting up their homes for sale and heading off to enjoy their golden years in the Sun Belt (due to increasing taxes, perhaps premature retirement from work, etc), thus adding to the supply overhang.
Up to 2007, these homes were snatched up quickly and rehabbed or demolished. Now they’re lingering on the market as long as new/newer construction.
If you do an MLS search you can see these homes on the market/coming onto the market.
“Will the technique of buying a foreclosure on the cheap, putting some money into the renovation, and selling for a big gain be the only way to make money in real estate in 2011?”
No.
You could also run a real estate blog to make money in 2011.
Here is a house, 4146 N Damen that underwent a gut rehab and is now under contract .
Here is the before images:
http://www.redfin.com/IL/Chicago/Undisclosed-address-60618/home/13391654/mred-07374300
Here are the ‘after’ images:
http://www.redfin.com/IL/Chicago/4146-N-Damen-Ave-60618/home/13391654
I saw the house-looks like they did a pretty nice job. It is not that big, but at least is had ok bones.
The Paulina house under discussion looks like it was cheaply built and small to begin with. If you can’t find a good place or the space to have 3beds 2 baths up then I don’t think it is worth rehabbing.
Nice find on the pictures of the 4640 pre-renovation. Amazing job they did, at least from the pictures. It sold really quickly so other people probably thought so too.
I like the 4146 n damen house. It looks like they added on a bit in the back and then finished out the basement. and opened it up. I like the idea of the open basement that makes the house flow. Only thng you have to worry about is flooding which sucks. But I applude the rehabbers for fixing an eyesore and making a livable, basically new construction home with original facade and at 650k (probably closer to $600 when it closes) that’s the price of a SFH in a higher end neighborhood. 5 years ago that would have been a tear down and they would have built $1,000,000 crapshack or an out of three flat. Thank god they arent building new contruction anymore.
Ok Now thinking about land value:
http://www.redfin.com/IL/Chicago/1828-W-Cuyler-Ave-60613/home/13390096
Sold 3/2010 for 276k. I drove by a few weeks ago and saw that plot of land was in the midst of new construction. Trust me , they were not building a little cottage.
Interesting because the crappy house just to the East is also for sale. Realtor implies it is a tear down too and it has fallen out of contract and is now priced at$179k. Oh looks like it is back under contract. Best deal for a plot of land in North Center.
Link to 1824 W Cuyler house:
http://www.redfin.com/IL/Chicago/1824-W-Cuyler-Ave-60613/home/13388867
Wonder if it will close for over ask?
“Link to 1824 W Cuyler house”
Thanks for posting these links. It will be interesting to see what the land is going for in those parts. It’s pretty close to the El there though. What school district is it in? I think that’s the key thing.
Land was selling for $450k to $500k for a standard lot in the Blaine district just 2 to 3 years ago. Now it’s down to about $300k to $350k. Outside of Blaine- it’s got to be much less (unless it’s in Bell.)
Coonley-Very desirable, good school. I’m surprised the listing agent did not have enough sense to mention it in the listing. I agree the proximity to El drives down the price, but still-WOW good price.
“I like the 4146 n damen house. It looks like they added on a bit in the back ”
Nope–look again, the add-on was there before, they just relocated the door and built the deck. The deck is kind of a bummer b/c it exactly level with the neighbor’s window.
I wonder how much plumbing electrical *replacement* they did. Esp. the plumbing.
“Link to 1824 W Cuyler house:”
At that price, the developer of the 1828 house better buy it. Just the option to have a double lot could make the new con house much, much more appealing.
1828 might be a developer. I don’t know why, but I had a feeling that someone might be building their own house on the land.
“I don’t know why, but I had a feeling that someone might be building their own house on the land.”
Then it’d be a no brainer to buy it as the home owner, imo. Would make construction easier, too.
Anon check your mail…
Ok remember the two flat on the corner of Cullom and Lincoln? 2141 W Cullom sold for 201k in August:
http://www.redfin.com/IL/Chicago/2141-W-Cullom-Ave-60618/home/13391662/mred-07400735
OOps original sale was January 2010
And sold again for 455k in July: http://www.redfin.com/IL/Chicago/2141-W-Cullom-Ave-60618/home/13391662/mred-07512542
This is a true pick-up truck rehab.
Price reflects that it is landlocked with no parking! half a million to be behind the jewel parking lot!
“Anon check your mail…”
Nothing there Dahlia.
“This is a true pick-up truck rehab.”
That’s about the max one of those places can sell for, based on possible rental value. I wonder how much electric work they actually did? Just slap on new panels to the old circuits?
July? that was like a century ago in this real estate market.
anon I just resent.
http://www.redfin.com/IL/Chicago/4055-N-Kenneth-Ave-60641/home/13481787
1996: $150,000 purchase price – $140k mortgage
>> 2006: $550,000 mortgage – same owners as 1996 purchase
>> 2010: Listed for the first time today as an REO for $119,900.
I have no idea of the condition of the interior, and there is no interior pics….but that’s 78% off the 2006 appraisal/mortgage price.
And the ‘deals’ keep getting better and better.
Keep in mind the property was deeded to the bank on 10/30/2009 and it was just listed for sale for the first time as an REO today….
Interesting property HD. Yeah- I checked out it’s history. It’s taken the bank a year to even list it. I wonder what the last winter/spring/summer and fall did to the interior? Yikes.
So they bought it in 1994 for $150k and had mortgages in 2006 of $550k before losing the house. Who said there wasn’t a bubble in Chicago? Insanity.
Anyone who doubts the housing bust will take decades to work through doesn’t drive out to these neighborhoods and look around. These aren’t isolated stories. House after house after house is like this. The bank is literally taking a loss of over $400k on just this one house. Wow.
“The bank is literally taking a loss of over $400k on just this one house. Wow.”
Bank doesn’t have to mark to market. So until asset disposition they can still work to fudge the numbers.
“Keep in mind the property was deeded to the bank on 10/30/2009 and it was just listed for sale for the first time as an REO today….”
Your scenario isn’t unique at all nor particularly long. I’ve posted two listings of the same condo in a non-GZ ‘hood where it took two years to go from start of distress to foreclosure listing.
From 175k -> 75k over 3.5 years. Just wow.
“Bank doesn’t have to mark to market.”
Yes- they do. On the loss. Can’t hide these.
“Yes- they do. On the loss. Can’t hide these.”
Yeah but asset disposition = loss. And by that I mean asset disposition to a third party. (Not an off balance sheet entity controlled by the bank that were so popular circa 2007).
“I have no idea of the condition of the interior, and there is no interior pics….but that’s 78% off the 2006 appraisal/mortgage price. ”
Gawd appraisal were total crap then. The highest sale on that block was $715k, and that’s for a new(-ish) construction house twice the size of this dump. Most that place was ever *actually* “worth” was about $425k–and that’s still being very, very liberal in appraisal thinking, and giving some value for a structure that was probably always really a liability. Probably should have maxed at ~$350k, which is about what peak teardown value would have been there.
I agree anon(tfo) but it still to this day blows my mind the kind of money they were lending in 2006.
“I agree anon(tfo) but it still to this day blows my mind the kind of money they were lending in 2006.”
It those loans with those appraisals that lead to the appraisal-rules freak out. Anyone doing a respectable job on the appraisal absolutely *could*not* have justified a valuation over $425k. The comps just weren’t there.
Funny thing is, it looks like they used the $$ to put 15% down on another, new home in that development b/t Kilbourn and the tracks. No LP on that house–looks like the classic trade-up, strategic default, even if it isn’t, since the LP on Kenneth was filed 24 months after the loan was made, by HSBC (not a fast actor during the meltdown) meaning they likely made *very* few payments on the $550k loan.
“This is a true pick-up truck rehab.”
Hi dahliachi –
Just wondering. How can you tell this is a pick-up truck rehab as opposed to a professional rehab? What gives it away? To me, it looks pretty good. And in the listing notes they claim to have updated the electric. If I was going to buy this house I would have it inspected, but I was curious as to what gave it away that this was a less than kosher renovation?
Thanks.
“curious as to what gave it away that this was a less than kosher renovation?”
One notable thing is that it looks like they didn’t move a single wall.
Interesting. Thank you for the tip, anon tfo. I will look for that in the future. I have some experience in renovating, but not a ton, and I never would have known to look for that. I’ll be there over MLK weekend looking at more stuff.
“Interesting. Thank you for the tip, anon tfo. I will look for that in the future. I have some experience in renovating, but not a ton, and I never would have known to look for that. I’ll be there over MLK weekend looking at more stuff.”
Obviously it depends on what the existing layout is–if it’s “normal” for newer stuff, then it doesn’t mean anything. But if they leave tiny, early-20th c. rooms with tiny closets in place, they *most likely* didn’t do much “hidden” work.
No permits whatsoever. Quick turnaround . Updated electric could mean anything.
it’s two flat so they did not need to move walls
“Updated electric could mean anything.”
New panels and new outlets does qualify as “updated electric”. But could easily be worse than just leaving everything as it was, esp. wrt the panels.
And, as we’ve discussed before, no permits doesn’t necessarily mean unprofessional work.