Investors Beware of Houses that Fail to Flip
We know an enthusiastic house flipping hopeful who bought a rundown house in a street of rundown houses that he planned to remodel and flip for a big profit.
When he finished his remodel and found a buyer an appraiser gave him a heartbreaker of a reality check.
The house did not appraise for the price he hoped to get from a buyer. The buyer could not get a mortgage for the agreed upon price. The deal died. problems like this can be disasterous when commercial hard money loans are involved.
It’s a reality of the appraisal business.
A house that is in a particular location is worth about what all of the houses around it are worth. So if you buy a house on a street where all the houses are worth about $25,000, that’s all your house will be worth when it goes to resale…regardless of what improvements you make to the property.
This particular property was in Birmingham, AL but there are many locations where this would also be true, especially in Midwest rustbelt cities like Detroit. They have started bulldozing houses rather than leaving them unoccupied for squatters and drug dealers to take over. These cities are losing population and tax payers in record numbers and have been for some time.
We owned a house in Dayton that we were lucky to sell when we were transferred. Our neighbor across the street had his house for sale for the entire 18 months we lived there and had no lookers, much less buyers.
We sold our house by advertising ourselves and enlisting the help and interest of our neighbors with flyers and conversation. No one has a greater interest in who buys a property than the neighborhood. They WANT a good neighbor enough to tell friends, relatives and other contacts. Our next door neighbor sold our house to some close friends of theirs. The realtor never even showed the house before it was sold and closed in about 1 month.
Dayton is another of those cities that is losing population and has inner city crime problems. For many potential buyers this is a quality of life issue. They want to be in a safe neighborhood that is comfortable and secure for them and their families.
Dayton was not safe. Even people who had lived there for years do not feel comfortable. During the time we were there I almost had my purse snatched at the mall and our dog had to actively prevent a home invasion. Our upscale subdivision was still unsafe even though the houses were pricey. Our 149 pound Great Pyrenees insured our safety, but not everyone has one that is well trained and capable.
The municipality disapproved of him and gave us a hard time about keeping him controlled even though he had never bitten anyone and our yard was fenced. I suppose if we had not had him we could have called the police and waited however long it took them to come.
What a lousy plan. The dog worked for us and the home invaders never completed the break in out of fear of the dog. He never came into direct contact with the bad guys. His big bark scared them away.
These types of locations are undesirable for many reasons. Unless municipalities can get it together enough to keep people relatively safe these cities will continue to shrink and fail as government entities.
Look for better places to flip houses or rent them. It is critical to your success as an investor. Your success quotient might improve if you have developments with private security.
This requires plenty of money to back up investments so pay attention to building your financial health.