PROBLEM HOMES: TO BUY OR NOT TO BUY?

UC Midwest Lifestyle Properties real estate agents work with a diverse clientele. From hunters to property investors, we desire to give you the best buying experience in the real estate profession. This is why we have received numerous awards for our sales and dedication to clients. Whatever your reason for buying, buying a “problem home” can be an adventure. That’s why you can count on UCMLSP real estate agents to keep you informed and prepared during the process of buying a “problem home”.

In today’s article we are going to cover the following:

1. Know What You’re Getting Into
2. Talk With Your Bank: Be Prepared To Have Your Own Cash

KNOW WHAT YOU’RE GETTING INTO

Problems homes are just that, problems. The problem may range from a leaky roof, bad structure to old pipes that need replacing. Whatever the case, you will need to bring some knowledge and experience to the game. One of our knowledgeable agents can help you wade through the known problems of the home.

We can begin by requesting an inspection of the home by a dependable and professional home inspector. Following that, we can go through the home while reviewing the inspection report; doing our own inspection as well. Hopefully, this isn’t your first “rodeo” or you have a trusted friend/mentor who is familiar with construction and contracting. Having experience with or getting advice from someone in the construction business as well as contracting is valuable.

Stating your purpose behind the purchase will help me obtain the best contract deal. Some people are looking for a cheap home to fix up and live in, others are looking to “flip” the home, or perhaps you’re looking for a rental property. Whatever your reason, it’s good for me to know your purpose.

TALK WITH YOUR BANK: BE PREPARED TO HAVE YOUR OWN CASH

After reviewing the inspection report, and obtaining advice from trusted friends in construction and contracting, you will have a clear understanding of how much capital you’ll need to have to finance your problem home. If you are financially independent, you’ll most likely swing the property purchase and construction costs yourself, but if you’ll need some financial help your bank will want to know what they will be getting into as well.

Being financially independent has some great advantages. It doesn’t always mean you have lots of free cash lying around. Here is a list of “cash” that you might have on hand that you weren’t aware that you could use:

• Actual cash! Yep, some folks still have that “old tin can”.
• Friends or family looking to invest some of their “free cash”
• Equity in your current home and/or property, properties
• Collateral, such as collector car, investments that are NON RETIREMENT such as savings, stocks and bonds, money market, ROTH (only money in the account that is pre-taxed)

Banks will also ask you what your purchase intentions are for the property as well. They will need full disclosure of all the “issues” with the property and home. Your bank will have its own rules they function by as well as governmental and local legislation.

Most banks will NOT finance a mortgage if the home/property has the following problems:

• Infestations such as rodents, termites
• Structural damage
• Environmental Issues: meth house, soil contamination, or neighboring properties with contaminants- generally those that have NOT been cleaned up.

Overall, your bank sees obtaining a loan as an investment partnership. They will gauge the amount of “risk” by the intentions behind your purchase. Rentals are considered an investment risk and will require a larger down payment with a shorter mortgage term. “Flipping” homes are considered speculative and require larger sources of cash in order to cover market risks. If property and home purchase are to be your main dwelling and you won’t be looking for HUD/FHA assistance, you will need 20% down. There are programs available that allow you to place less money down, but those programs may be more expensive in the long run.

GET READY FOR SOME HARD WORK

Once you’ve got your financing settled, it’s on to the implementation of your plan! Your hard work and effort to transform your problem property into a real estate gem will be a great reward for you personally as well as financially. We at UC MWLSP would be honored to showcase your home when you’ve turned that
“problem home” into a stunning property investment