House Hunting 101

Shopping for real estate is personal– every investor’s looking for something different. Some turn away from termite damage, some get nervous over cracked slabs, others are fanatical over water problems. Our biggest concern is always location. Almost anything can be fixed if the numbers work and you have a good contractor, but short a load of dynamite or a pack of pachyderms, location is permanent and if it stinks, you’re stuck.

Note: Recently Biggerpockets founder, Josh Dorkin asked if I’d write weekly for the website’s blog. My first contribution is on this very topic because (surprise!) it’s weighing heavy on my mind. Currently, we’re finishing the Magnolia house and looking for house number next. So as not to repeat myself repeatedly and stuff, you can read the post here.

Looking for Prospects

Over the last few years, the mister and I developed a drive-by system for winnowing out the dross. It doesn’t always work, but it keeps our real estate agent from throwing things at us.

We check location and exterior condition and try to get a sneaky-peak inside without actually breaking and entering.

Location:

• General atmosphere of neighborhood
• Condition of neighboring houses
• Presence of Nearby Nasties (things that can’t be changed like a power plant next door or freeway behind the house)
• Quiet or busy street

Exterior:

• Signs of termite damage (dirt mounds or tunnels running up the foundation)
• Cracked slab (walk the perimeter, look for visible cracks that extend up the brick)
• Rotted eaves and siding
• Condition of paint
• Condition of roof
• Appealing yard (fenced or not, too large or too small)
• Garage or carport
• Outbuildings

And if a peek inside is available:

• Intact bathrooms and kitchens
• Presence or absence of flooring
• Holes in the doors and walls

Yesterday’s Prospects

The two places I actually located yesterday are good examples of what you can find on the drive-by.

#1

3/2/2  asking price $86K

From MLS: HUD HOME ****CASE #XXX-XXXXX**** SELLING ‘AS IS’

Living: 10X11
Den: 10X17
Dining: 9X11
Kitchen: 8X8
1st Bed: 9X12
2nd Bed: 10X11
3rd Bed: 9X9

The asking price on this one’s high, but its been on the market awhile. The neighborhood is well established, good trees, a lot of quiet streets. 3/2/2’s consistently rent here for $1000/$1100 per month. Before the drive-by, my estimate for ARV (after repaired value) was 100K. Inside pictures from MLS show an interior in great shape for a HUD home-tile floors, new cabinets and counters, nice-looking bathrooms.

It took awhile to find this house– no sign in the yard. Here’s a summary:

Location:

The house sits on a corner lot and the nearby houses are in great shape with well-kept yards.

House across the street– police officer living nearby is always a plus.

One very big negative just half a block away–

This may not look so bad, but any large apartment complex is a turn-off to potential tenants. This nice looking place just happens to be public housing and no one around here will rent anywhere close by if they can help it. I’m afraid it’s a deal-breaker.

Exterior:

The brick and eaves are in excellent condition–no sign of rot. Even the paint’s in pretty good shape. A walk around the perimeter turned up no signs of settlement. The roof is older but no patched or curling shingles. The yard’s small, but neatly fenced with a large concrete pad for 3 or more cars.

There’s a notice on the front door:

This will probably keep the house from selling for quite awhile.

Baby-sized prints in the cement– these are starting to get to me…

Peeking through the windows:

The interior doesn’t look as good as the MLS photos– tile floors are poorly done and look like a DIY project gone bad. Otherwise, no surprises.

Evaluation:

If not for the housing projects in the backyard, this would get a closer inspection. Mold may or may not be a problem– there’s usually some in most older homes whether HUD slaps a notice on the door or not. IMO, this house won’t sell anytime soon or for anywhere near $86K. Fear of crime will keep people away even if actual crime isn’t a problem. Before the drive-by, I thought this would be the house we’d be interested in, but I doubt it would rent for more than $700/month unless we wanted to go Section 8.

#2

3/1/1, asking price $29K

From MLS: FORECLOSURE, ONE STORY, ONE CAR ATTACHED GARAGE, FORMAL LIVING, FORMAL DINING, DEN, BREAKFAST ROOM, THREE BEDROOMS AND ONE BATH. PROPERTY IS BEING SOLD AS IS, WHERE IS. HARDWOOD FLOORS IN LIVING, DINING AND BEDROOMS. HOME NEEDS REPAIRS IN AND OUT.

Living: 16X11
Den: 23X11
Dining: 11X07
Kitchen: 11X07
Breakfast: 13X11
1st Bed: 13X09
2nd Bed: 12X09
3rd Bed: 12X10
Utility Room Desc: Utility Rm In Garage  

The neighborhood isn’t one of my favorites and is infamous for foundation problems. Still, the price made it worth a look. A 3/1/1 in this neighborhood will bring $800/$825 per month rent. My guess at ARV before seeing the house was $65K

Location:

Turning down the street, I was pleasantly surprised. It’s closer to grocery, schools, and shopping than I remembered, and the houses are nice with well-kept yards.

The house next door– the other nearby houses are the same or better.

View down the street looking the other way– nice yards, a lot of through -traffic while I was there.

Exterior:

Hmmm… I’ve seen worse.

This spot has one of those horrid Chinese Tallows growing overhead–sap on the roof probably caused this damage.

The windows and trim need replacing.

‘Nuff said

The backyard is spacious and fenced on 3 sides. The 4th could be easily enclosed.

Side yard has extra parking and a place for basketball.

Interior peeking:

Couldn’t see much through the dirty windows, but took a few pictures just for grins. Once uploaded to the laptop, quite a bit of detail is visible.

A view through a back window into the house. The room in the foreground looks like an addition–probably an enclosed back patio.

Another view into the add-on. One good thing about add-ons–they can usually be added-off easily if needed.

A view into one of the bedrooms– note the hardwood floor. Also, I didn’t see any holes in the sheetrock or doors and all the trim seemed to be intact.

Evaluation:

Strangely enough, I like this house. It feels solid  despite pictorial evidence to the contrary. If the slab was cracked I couldn’t tell. The roof needs replacing and the air conditioner was awol. My estimate for ARV after drive-by would be $80K and it might rent a bit higher than first thought. I’ll schedule an appointment to see inside for next Monday when the mister is off.

When Good Dogs Go Bad

I was planning to finish this off with a rousing tale of the vicious pooch that assailed my person. But sadly, the bum cannot endure another tale of woe. I’ll get to it tomorrow– for sure

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Tags: foreclosures, real estate investment, rehabbing, rent houses