However, there is a large group of homes of which there is an overabundance, and these are known in the trade as “distressed” homes. It’s a euphonious way of saying “trashed.” These houses may be missing only appliances if they’re in relatively good condition. But more often, such houses may lack air conditioning units, duct work, walls, wiring, and plumbing.
According to the Sun Sentinel, these distressed homes are moving at warp speed into the hands of cash rich investors, who fix them up quickly and then resell or rent them. One investor purchased 42 homes within a month’s time. The object, of course, is to move them back into the market quickly.
What makes these foreclosures appealing to new homebuyers in Florida is that they feel they’re getting a bargain, relative to the cost of surrounding homes. With very rare exception, the buyers are correct in their perception. The investors purchase the distressed property at approximately 30% - 40% of current market value. After purchase, they rehabilitate these homes, doing work that banks don’t want to do. In fact, the investors often make the homes look better than new, with granite counters, new cabinets, fancy bathroom vanities, and the latest style in tile. Then, they put the homes back on the market at 80-90% of current market value.
The cost of putting a property with all that damage back together is extremely prohibitive for the banks that suddenly find themselves in possession of these distressed houses. The banks are already losing money on their investment. If they have to repair and then care for these homes until their sold, the losses multiply.
Investors have no such qualms. Typically, investors bring not only money to the table, but experience in construction. They know how to budget for rehab work and they employ crews who are ready to go to work as soon as the property is free and clear.
Because of the 90 day period required between the time an investor buys and the time that the formerly foreclosed home can be sold, many investors will create a rent option agreement with first time home buyers. This allows the potential home buyers to move in, take physical possession of the home (but not title) without the necessity of a 90 day wait.
At the end of the 90 day period, the new homeowners, already comfortably ensconced in their new (and newly refurbished) home, can sign the contract, take a out a mortgage, and become the official owners. They don’t even have to move their furniture, because it’s already in the house.
Written by Marc Jablon, Realty Associates
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