A foreclosure report from RealtyTrac.com indicates that foreclosures in the US swelled to over 800,000 in Q1 of 2009, a 24% increase from the same quarter a year prior.

To put it in perspective, one out of every 159 houses received a foreclosure notice, just in the first quarter of this year.

It’s no surprise that the hardest hit areas are Arizona, California and up the West coast, along with Florida, the entire East coast and inland to nearly the Mississippi River.  The Midwest has held up fairly well in the foreclosure department, although the highly populated areas of Texas and strangely most of Arkansas are suffering.

In my area, there are some foreclosure opportunities to be had for investment purposes, but they’re not moving.  Investors aren’t gobbling them up like I thought they would, which makes me wonder about the overall perception of the real estate market.  There’s just no appetite for risk right now.

A prospective future rental?

As for me, there’s a 3 bedroom, 1 bath single family home near my previous rental that is currently in foreclosure.  Asking price is $18,000 which would represent a third of what it would appraise for, give or take.

Unfortunately it’s located to the South of the Campus, so it violates requirement #1 of my criteria for future rental properties.

I’ll keep an eye on it, and if it doesn’t move in the next couple weeks, I’ll have to get a tour and find out why.

Real Estate foreclosures, investment property, Rental Property

This afternoon I went over an looked at the property I’ve been watching for a few months. From the outside looking in, it appeared to be a rehab project that simply ran out of money. It’s typically opportunities like this that widen the margin on a deal, as most of the expensive stuff has already been taken care of by someone else.

Walking in through the front door, it was evident that the place had been lived in since the renovations took place. The carpet was dirty and stained, and there were remnants of belongings (crayons, broken pencils, etc) left in the kitchen drawers.

The walls in the front living room were cracked (as they typically are for the area) and are in need of a patch job and paint, but all in all it didn’t look too bad.

The basement reveals all.

Then I took a trip down stairs. The basement will always give you an idea of what’s really behind the walls because it provides the most access to the structure.

The plumbing had been redone fairly recently, as the new-style PEX (essentially plastic) plumbing that all the new houses are being built with today was running among the floor joists on the ceiling. The electrical had evidently been redone recently as well, as the 100 amp breaker box still shined and the wiring still looked new.

The furnace and hot water heater were new within the last couple years, so there wasn’t much risk in all the basic services and utilities.

A quick look between the joists and everything went south. About half of the joists were brand new, indicating to me that someone really did an overhaul on the major structure. It’s not easy to just replace a bunch of floor joists, especially on the lower level, as these joists typically bear the load for the rest of the structure. Replacing them is like swapping out the bottom level of blocks in Jenga. It’s a very delicate procedure that carries significant risk. The question then becomes: why were they replaced in the first place?

At first, it appeared that the sub floor was rotten. Perhaps water damage rotted the floor, and while the floor was being replaced, it was a good time to replace some joists that were over 100 years old. My curiosity kicked in, and it was while digging around in the rotten floor that I noticed that this was no water damage, this was termite damage!

Termites had turned the old sub floor to a fine dirty powder in most places, and a soft wooden sponge almost everywhere else. Yikes. I was starting to become deterred, but not completely put off. I could pull the carpet up (it needed to be replaced anyway) and replace the rest of the sub floor, no problem.

One thing about termites, though, is that if they had enough time to chew out an entire floor, chances are they didn’t just quit eating after the first coarse was through.

Back on the first level, I noticed there was a small hole in the wall in a lower bedroom. I stuck my finger in the hole to see if the lathe was still in good shape. I ended up poking at a dry spongy material inside the wall. What once was the lathe behind the plaster was now leftovers from the termite feeding that I was now standing on.

The entire structure of this house had been dissolved from the inside out by termites!

If it weren’t for the termites!

The house had so much potential. All the expensive components had been fixed, remodeled or replaced. All it needed was carpet, a few patches in the walls and a fresh coat of interior paint… and oh yeah, it needed to be gutted and rebuilt.

There is now way my conscience would let me rent this place out to college students knowing there were some major structural problems with the floors and walls, and completely re-doing the structure would not leave me with enough margin to rent.

Oh well, there are other fish in the ocean, and I can afford to be picky.

Real Estate, Rehab Projects, Rental Property investment property, Real Estate, rehab, rental, termites

I’ve been casually looking for another rental property next to the one I already own. For a long time, the people in the area have been very proud of their houses, asking nearly 5 times what they’re actually worth. Needless to say, those houses are still on the market, many for as long as 15 months and counting.

But there is one property just a block or two away from my first one that has been on the market for 4 months, and its price has been dropping like a rock. The reason? The bank wants out!

I remember back when this property was on the market the first time around, and was purchased for nearly $100,000 by someone with intentions to rehab it. Evidently, they got half-way through with the job and ran out of money. The foreclosure process began and the bank ended up with their very own, half finished rehab. Just what they wanted, I’m sure!

The initial list price was $89,900 and has come down $10,000 each month for the last three. The current list price is $59,000 but I’m sure the bank would take less if the terms were right.

I’ve got an appointment to take a look in the property on Saturday, but I got bored today and started snooping around outside and looking through the windows.

The stucco exterior is in good shape and has been recently painted. The windows look brand new all the way around, and with the exception of a couple of torn screens, won’t need any work.

The bushes in the landscaping have died off due to neglect, but it wouldn’t take much to spruce things up.

The air conditioner looks fairly new, as the finish on the side of it is still shiny.

The property lacks guttering all the way around, but it wouldn’t take much to fix that. The last guttering job I had done ran me $800, but I wasn’t terribly pleased with the workmanship.

Peaking through the windows, the kitchen has been completely upgraded with new tile and counter tops all the way around. It’s not contractor-grade stuff either, which may explain why they ran out of money during the rehab!

The carpet in the lower level looks like it needs to be replaced or at a very minimum steam cleaned, and there are a few holes in the drywall, which is an easy fix. The original trim is still intact and has been recently painted, but I’m not a big fan of the pinkish color.

Naturally, I wasn’t able to see the bedrooms in the upper level, or the basement.

A few things I’ll be on the lookout for on my visit Saturday:

1. The condition and extent of the electrical wiring.
2. The condition of the plumbing. Anything but newer copper could pose a problem.
3. The condition and structural integrity of the foundation. The stacked-rock foundations in the area are fairly robust, but this is a major area that could bust a deal really quick.
4. Overall integrity of the structure. Drywall I can handle, major structural issues, not so much.

The property is in a better part of the neighborhood than my first rental, but it’s also further away from the local campus.

More to come…

Investing, Real Estate, Rehab Projects, Rental Property foreclosure, investment property, Real Estate, rental propert