By Jane HodgesRISMEDIA, September 3, 2007-(RealEstateJournal.com)–The investor: Steve Minor, 41, began investing in foreclosures in North Carolina about four years ago. He spent 11 years in the building industry and says he understands and can oversee property rehabilitation, so he is comfortable buying distressed properties. He and his wife, Jenny Minor, live near Raleigh, N.C. and have completed 12 deals so far.
“The old saying is that you make your money when you buy the property,” he says, noting that foreclosures’ low prices present good equity-building opportunities for investors capable of handling the renovation process.
The property: The Raleigh contemporary duplex was built in 1983 and is set on a .24-acre wooded lot. Each unit has four bedrooms and two bathrooms, a stone fireplace, new washer/dryer and kitchen appliances, oak floors and ceiling fans. The property is near the North Carolina State University campus in a neighborhood that is home to families and students. The duplex offers parking for a total of six cars on two driveways, but doesn’t have a garage. When he bought the home as a bank-owned foreclosure, it was in poor shape, Minor says. Aside from needing aesthetic updates, it also had structural problems including a leaky roof, the result of storm damage.
“It was pretty bad,” he says.
Purchase price: $142,000 in July. Minor financed the purchase with a zero down payment loan that required interest-only payments (at 8.75%) during the first six months of the loan’s term. If he doesn’t sell the property within the first six months of his loan, he’ll need to pay both principal and interest on the mortgage.
Additional investment: $75,000. Subcontractors handled numerous projects, including labor and materials required for installation of new cabinetry and hardwood floors in both units ($14,000), interior and exterior painting ($8,000), a new heating, ventilation and air conditioning (HVAC) system ($6,400), a new roof ($5,200) and other repairs.
The strategy: Minor intends to sell the home and has received some bids from other investors. He put it on the market in mid-August and would like to sell it as soon as possible, in keeping with his past strategy of repairing and selling homes rather than holding on to them. Potential buyers include parents of NC State students and investors looking to purchase a rental property, Minor says.
The pitfalls: After observing how many students were living in Raleigh, Minor says that he was tempted to explore renting out the duplex. He learned, however, that Raleigh operates a program designed to keep landlords accountable for problem tenants (who are loud and destroy property, etc.) and could be fined for infractions at the property. The policy reinforced his decision to sell, he says.
The transaction: Minor initially intended to sell the units without a real-estate agent for $179,000 apiece, but is considering lowering the price to about $167,000 after receiving some low-ball offers from potential buyers, he says. He is willing to pay a 2.4% commission ($8,592 for both units) to a buyer’s agent and expects to pay $30,000 in taxes after the transaction. He acknowledges his initial price was “on the high end” but says that the property, which is similar to another area duplex on the market for $170,000 per unit, should fetch at least his lowered asking price — thanks in part to the $75,000 he invested in renovating it.
Jane Hodges is a free-lance writer in Seattle.