Like a lot of homes that went to foreclosure, it was in really rough shape when we first took on the project. But the repairs and renovations are going well, and I’m very excited about how it will turn out. It is a pretty well-constructed single family home, and homes in the area were selling in the peak a couple years ago in a range of $250,000 to over $300,000.

I have got to post some of our project photos, so you can see just how much work goes into renovating one of these foreclosure properties! I keep talking about how taking on these repair and renovation issues yourself is a huge and inconvenient endeavor, but a picture speaks a thousand words. Our construction crew is very skilled and professional, but I still wouldn’t want to live in the house with all of this work going on!

Check back next week for photos…

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While out looking for homes one day, they stumbled across my street sign and website. When the parents came by the house and it was still under construction, they immediately called Jan and told her “We found your house.” They called me and asked what seemed like a million questions about all the renovation work we planned to do. They were good questions, particularly from people not in the construction business. They told me their story of seeing so many properties, and the poor condition the banks were trying to sell them in.

Once Jan and I talked, we struck a deal for a little less than what the neighborhood homes were currently selling for by owner-occupants. She even paid me more than the negotiated price in order to get the appliances upgraded to exactly what she wanted. With all the work we did, it was still an older home. But, the place was in true move-in condition and fixed up just as she wanted.

Jan, as a single owner with no renovation experience, did not have to worry about plumbing issues, appliances, windows, bathrooms, flooring, the hot water heater or heat pump…the list goes on. The house was a true deal for her, unlike all of those other nasty foreclosures she saw. Since it was already well-renovated, she was able to get over the first year of so of being “house poor” before deciding whether or not to change other things in the house — which would then be optional and not major repairs.

Check back on Monday for Part 3 of Jan’s buying a foreclosure experience: The Closing

If you are looking for a home to live in, there are still deals to be had out there. But, that tiger on steroids is still lurking for unsuspecting buyers who get all pumped up emotionally about buying a foreclosure. Buying a house often turns into an emotional transaction. And many people who make money on these transactions bank on just that. DON’T, DON’T, DON’T make this an emotional transaction!

Responsibility

For most people in America, buying a home is the single biggest transaction of their life. It is up to you to get it right! Your name is on the paperwork with the bank saying you are responsible for the payments, condition, upkeep, and so on of the property. Screw it up, and they will hammer you. You won’t find the real estate agent’s name or the mortgage broker’s name there to help with any of that. They’ll be long gone with their commission checks, and have no responsibility to help you after the deal is done. So know what you are doing before plunging in blindly. With the rush to get a foreclosure deal in this down real estate market, people may be getting in over their heads again.

There were many, many parties responsible for the sub-prime mortgage mess and the collapse of the housing market. The big shot crooks on Wall Street, mortgage brokers, real estate agents, builders, etc. filled people’s heads with trash, convincing them they could afford these overpriced homes. And they said, “Real estate prices will keep rising. You can sell it at a profit if you find it too hard to make the payments.” But regardless of who says what, the person truly responsible for dealing with the whole mess is you, the buyer.

Now the big pitch for selling homes (particularly foreclosed, bank-owned homes) is that you’ve gotta get in before it’s too late. Yes, there is some truth to that. Eventually this mess will get cleared up and whatever constitutes a “normal” market will be here again. But, don’t get sucked in to “get a deal” that you get “dealt.” Do your homework, check out every person you choose to do business with, and really be honest with yourself about what you can afford — both financially, and as far as the time you are willing and able to spend on fixing up a distressed property.

Here is what I see from being out there every day looking at properties. The banks lent on all kinds of houses, both new and old. Many of the newer properties that are now bank-owned are in need of minor repairs: paint, carpet, a door here, a window there. You should always remember the saying “buyer beware,” as things like appliances, heating and air conditioning systems, roofs, gutters, garage door openers, and water heaters can go bad even in a newer house. But if you are handy, or have a brother-in-law like the guys on This Old House, you are probably good to go.

Unfortunately, most foreclosure homes are fixer uppers. If a homeowner was unable to make their mortgage payments, they probably weren’t able to pay for all of the necessary repairs or upgrades to their properties either. Sometimes when people realize they’ll be losing their home, they just give up and stop putting any more money into it, letting the problems with the property’s condition just compound. In the worse case scenario, they may even trash the house on purpose out of anger or frustration.

So here you are, all excited about getting a deal on a foreclosure. It is an old house and kind of had a rough life, maybe even some abuse by the previous occupants. Yeah, it is a little dated and the layout is a little obsolete, but your real estate agent told you it will only cost about $20,000 to make it a place of your own. Since you paid such a low price for the house, the extra money isn’t a problem. Piece of cake!

Ever had sheetrock or plaster dust with your morning cereal?

Ever cranked up the hot water for your morning shower before your long commute to work and got a blast of cold water? Come home exhausted from your day in the trenches, faced with ripping out the rest of that wall you thought was going to be a breeze? How about hauling the plastic bags of construction debris to the landfill in your Prius? But remember, it is only $20,000 to fix the place up, no big deal.

The fact is, choosing a fixer upper foreclosure means investing not only money but a lot of time and effort into a home that is not move-in ready. The renovations will take nearly all of your free time, and you’ll be living in chaos in the meantime.

If you’re willing to put up with all of these things, buying a foreclosure directly from the homeowner or at a bank auction may be the perfect choice for you. If money is the most important factor, you will certainly pay the lowest price going this route. If the value of your time and your quality of life are also factors — like they are for the many people we work with — consider purchasing a foreclosure home from a responsible investor. You will still pay much less than the market price for the house, but all of the repairs and renovations will be completed so all you have to do is move in to your new home.

All real estate investors are not created equal, and you should be careful when evaluating the quality of their work and selecting who to do business with. But that is another whole article…