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Author: Woolybooger1 Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 464871  
Subject: Macro risk? Buying Distressed.... Date: 6/17/2013 6:26 PM
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Buying Distressed Property

Hi Buds and Budettes,

Just wanted to toss out a Macro "Risk" to the crowd who comes and contributes. I usually don't have much to offer outside what is going on in Medicine, so this is a bold is somewhat feeble attempt to garner some input.

Here is some back ground.

My Far Superior Half and I launched on a project about a year ago to look into real estate as an investment. Not new to many, but new to us. We wanted to try and find a deal! I know who doesn’t right?

The issue was separating the wheat from the chaff. We didn’t want some piece of junk that someone overpaid on that really was now “Way Cheaper”, but really was still a sow’s ear and not a silk purse.

I have read many a post of buying properties for rental income, retirement homes, and the like. I love reading about them because it gives you a glimpse into the microcosm of that poster’s world. It will be no different here. What I have found in the Myrtle Beach (South Carolina) and the Carolina Beach (North Carolina regions are 3 subsets of properties.

There are the beach front properties that boast ungodly like prices in spite of the pull back in overall real estate and then there are two other more reasonable types of properties. The Beach front properties are less by about 25%, but when priced in that realm actually still sell pretty easily. There are still lots O’ rich folks who are retiring from the New England Area that find these prices palatable. Not me, but hey………………….

The Next properties are those who prices were so inflated that they either have fallen so far they look cheap, or they were part of an estate sale and the kids were selling off Mom or Dad’s property to split up. Either way they are nowhere near where they were 4-5 years ago. We Wooly folk have spoke to many a 70-85 year old individual who were selling their “near beach front” property because they really didn’t need to live near the beach any more. (Here insert-“ I need the money, and the upkeep costs are killing me”) Maybe this in my imagination, but I don’t think so. It has been repeated too much over the last year.

I will relate a short story to illustrate what has gone on in this area for some context. Our good friend and real estate Maven is also a singer at a beach front Establishment. She has done so for 16 years and belts em out with the best of them. She told us of a couple from Connecticut who bought a condo on a waterway that connected to the beach in 2009. Paid 1.3 Million for it. Yikes! Okay it was absolutely beautiful, but come on really…………. 1.3 Million. Anyway, she was contacted by them 18 months ago to put it back on the market because they were tired of the heat and wanted to go full time back to New England. The Maven told them the going rate was now $750,000 for units like theirs. They balked and listed it at 1.3 Mil. Well after 6 months they took it off the Market and she has not heard from them again. She knows it hasn’t sold and the sign outside the condo unit now says $586,000 for their type of place. Double Yikes!

The last set of property is that of the Distressed Variety

Okay now to the questions I have for the more the astute. How and when would you purchase a

A rental Property

A second Home

A future Retirement home
???

We Woolyboogers have opted for a specific plan that fits us and most likely not everyone else.

We looked at HOA fees (Home Owners Association fees), tax liability, insurance and cost per square foot. Both Newish types of homes/condos and Older fixer uppers. We figured we really are not in the league to buy homes or any properties that were not distressed. They needed to be in foreclosure, bank owned, or a short sale. Problem is? Everyone else is looking at these too. The stressed or non stressed properties would would still have nearly $900 per month HOA fees. Ridiculous for everyone except the uber rich who were going to have a very nice money stream well into retirement regardless of what Uncle Sam or the state of Medicare and Social Security evolved into over the next 15-30 years. The Beach front properties HOA's were of course even higher.

Now to the fun. We prodded and poked and looked and hunted daily……….. yes daily………………….. until we found what we wanted and it made sense.

Most properties are selling in the $132-$175 a square foot depending on how close to the beach. We wanted to be within Golf Cart distance. This means the beach side of Highway 17. These properties will always be at the top of the search list for anyone who loves the ocean and Myrtle Beach Golf. After several failed attempts at bidding for bank owned property we were the first to pick up the pieces of a short sale gone bad. The bank and the current owner had finally agreed to how much the bank would lose and had set the price. This appeared to be an inside job of dubious nature and the financing fell through. We stepped in the same day for the same price and now are moving through all the steps it will take to close this out.

Two of the best advantages we had were

(1) We were pre-qualified to purchase in that range
(2) We were not in a hurry

This will take between 60-90 days to jump through the hoops to close this out. We knew this going in and were fine with that. By that time it more than likely will just be a cash purchase and we won’t have to deal with closing costs, points etc…… Yippe! even more savings....

Here were our criteria

(1) Location near the beach
(2) The cost per square foot had to be below $100
(3) The HOA Fees had to be less than $250
(4) The Taxes had to be no more than 15% higher than our current house

The Results

Location- can take the Golf Cart to the beach in a few minutes

Cost per square foot-------an unbelievable $71- built in 2009

HOA fees---- $ Zero---- yep, it is the last house built on a Cul-de-sac

The Taxes were almost identical because the house is just outside the official city limits. It may get incorporated in the future, but for now is county taxes only.

Yep, a 3500 square foot house built in 2009 that was virtually abandoned for over 18 months and the bank is taking its licking. I have no idea how much was put down by the original owner, but this has got to hurt. I do know the house was originally bought for $490,000. Now selling short at $250,000. Yikes!

This has been a fair amount of work and time, but it has been worth it. When I retire it will be to this house. I will ultimately sell this place I live in near my hospital and bid it a fond goodbye.

Luck? Perseverance? Destiny?..................... I guessing just dumb luck. But fortune favors the well prepared.

Any other stories and suggestions out there? We will get settled in and probably start looking for other such opportunities. Maybe more geared toward rental income. I guess we will just have to wait and see.

Everyone play nice, and if you have something insightful to add, please do.

Wooly…………………….. Heading to watch me an old movie after a long weekend of call. Wasn't Father's Day just Grand.......
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