'Elbow grease' often invested in foreclosures
Back in 2011, Christina and Brian Jenkins decided to take up a sideline as landlords. Since then, they've acquired three rental houses in the St. Louis area. Two of them were foreclosures.
They have advice for those who want to pick up a foreclosed house on the cheap, and it comes from a fairy tale.
“You have to go through a lot of frogs before you find a prince,” Christina Jenkins said.
The frogs may have ripped-out plumbing, or a crumbling roof or an air conditioner that disappeared. The princes sit in nice neighborhoods and need some paint, carpeting and other minor fixes.
The princes and frogs have one thing in common. They're usually cheap compared with houses of similar size in the neighborhood. That's what attracts landlords as well as would-be homeowners.
To a buyer, a foreclosure is a mystery house. The old homeowner is long gone, so there's no one to fill out disclosure forms listing problems with the house.
Homeowners facing foreclosure do little maintenance, and the process can drag on for more than a year. Even with the homeowner gone, the house can sit vacant for months before the bank puts it on the market — time for roofs to start leaking, thieves to rip out the copper pipes, basements to fill up with water and mold to climb the walls.
That's why buyers should make purchase offers contingent on a professional building inspection. The banks and government agencies that own foreclosed homes generally won't make repairs. But at least the buyers will know what they're getting into.
In the Jenkinses' last foreclosure purchase, the carpet smelled and the house needed “elbow grease,” Christina Jenkins said. But the hardwood floors were pretty and the Jenkinses thought renters would like it.
They found themselves in a bidding war.
“There were multiple offers. We went back and forth two or three times — once after we gave them our ‘best and highest' offer,” she said.
Bidding wars are becoming more common on the best foreclosures, real estate agents say.
“Usually, they're priced pretty reasonably,” said Dennis Norman, who has negotiated many foreclosure sales at MORE Realtors in Chesterfield, Mo. “The buyer has to get there immediately. People flock to them.”
The bidding process can put off buyers, Norman said. Instead of replying to an offer quickly, the bank may sit back and collect several, then ask bidders for their best and final bid.
To sweeten the pot, the Jenkinses took a chance and waived the building inspection on their last house. By that time, the couple figured they knew what they were doing.
“We can look past the ugly,” said Christina Jenkins. Instead, she looks for structural soundness. “Is it eaten by termites? Is there a flood problem? Is there mold?”
Then they calculate how much it will take to make it attractive to a renter. “It's not just the value. It's what we'll have to put into it. Is it in the right neighborhood?” Landlords check ads for rentals in the neighborhood to get an idea of what rent to charge.
The Jenkinses got the idea to become landlords while helping a relative shop for a rental home. They saw the rents landlords were getting, compared it to prices of homes and saw a profit to be made. How much? The long-term return of the stock market is 8 percent, notes Christina, who is an accountant. Anything over that is gravy for an investor with a long horizon, and she's anticipating gravy.
Adam Roberts is a rehabber. He looks for foreclosed houses he can buy for $100,000 to $130,000, fix up, then sell for $170,000 to $200,000.
Competition is fierce, he said. His last purchase was in Sunset Hills, Mo., and it drew 12 offers the first day it was on the market. “Low-ball offers are not going to work,” he said. “The price they're listed for is what they go for.”
To get a leg up on other buyers on the best homes, he won't demand a home inspection contingency, and sometimes offers cash.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- U.S. Steel considers temporary shutdown of Minn. plant
- Home prices rise as supply still tight
- Stocks of Pittsburgh-area companies set record in March
- Conventional gas, oil drillers seek rules differing from shale industry in Pennsylvania
- Japan snubs China investment bank
- Internet gambling results ‘disappointing’ so far
- Dominion Resources CEO Farrell made $17.3M in 2014
- Pittsburgh region’s unemployment rate stays steady
- 6-year stock market rally still going strong, bulls say
- Late decline eats into previous day’s stock market gains
- Highmark delays payment to UPMC over in-network issue