Lately, there have been a number of inquiries about investing in real estate. Even though there is some frothy-ness going around, be careful!
Below is an extreme example, but demonstrates how quick, and how bad, a deal can go wrong for a participant, in this case the hard-money lender who thought he had equity built in.
17215 Camino de Montecillo, Fairbanks
12 br/10 ba 16,636 sf
YB: 1993, 1.88-acre lot on lake
SP: $6,450,000 8/29/06
Opening Bid: $5,000,000 8/08 back to bene
Sale Price: $3,200,000
The lender ended up losing around two million dollars, and the new buyer has to spend another $1,000,000 in repairs. The scary part is that the original mortgage that recorded the same day as purchase was $7,125,000, and it looks like in 2007 the owner paid down and refinanced at $4,650,000 – but could it have been a second mortgage? Just a year later it unravels, and lender forecloses.
If you are thinking of buying at a trustee sale, buying a fixer, or “stealing one from the bank”, watch yourself – things can go wrong, very wrong. Assume that there is no “built-in equity” and what seems like a simple repair job usually costs double.
Guess they forgot about that thing called cash flow.I guess there is a difference between investing and speculating.
Once again, I’m so thankful for the home that I ended up purchasing. It was a retail sale from the original owners with all papers and disclosures. The guy kept meticulous records and the place was almost “as-new” condition. One year later, and I’m still 100% satisfied with the place. No buyer’s remorse on a purchase so major is something to crow about! 🙂
$1M in repairs? That’s slightly less than a 1/3 of the price. This is why I would never, ever buy a foreclosure. You never know how much crap the last owner did on the way out, intentionally or otherwise.
A simple home inspection should find most major problems. Not all foreclosures are in poor shape, and not all standard sales are in good shape.
In any case, this isn’t a house-it’s a damned shopping mall. 16,636 square feet is huge. I’m not surprised it needed so many repairs, especially if some of the repairs weren’t really repairs at all but were actually upgrades/remodeling.
If you have money to buy something like this, you have money to fix or remodel it to your liking. 🙂
Also, look at it from another perspective. The new owner got a fully fixed and habitable $6.45 mil. mansion for only $4.2 mil. That’s not a bad deal at all!
Jim, think you can sneak into the place with your camera? 🙂
Do you have any idea what the $1m in repairs was for? That is one heck of a bill to fix a house..
Why is everyone so shocked about the $1M? I totally agree with Francois. This house is a monster and looks like it’s all original. It needed massive updating and likely huge deferred maintenance. Here are some pictures:
http://www.sdlookup.com/Pictures-080069027
As a flip the investor has to get the house up to a level that a $6M+ buyer expects as their personal residence. Just looking at the pictures it is going to take some serious cash & work when you look at other $6M comparables in RSF. The kitchen alone needs a $100K upgrade, I’m sure the bathrooms, flooring, etc. need to be completely redone. This one does have location going for it, right on the lake….
BTW, any idea what the yearly maintenance is on a monster mansion like this? Let’s see, Gardener: $1000/month, House Cleaner: $1,000/month, light bulbs: $150/month, Electric bill: $1200/month, etc. etc. Ouch.
New_renter:
We bought a new home once that didn’t have a single light bulb in it–cost us $350 to fill all the sockets (back in 1992!) Lots of specialty bulbs we never really had noticed before. I almost died.
I just looked at the pictures link. I agree. On a house that size and of that price range/quality, there’s some very seriously expensive upgrading to do. People who pay over $3M generally don’t even want to see any of “last year’s” designs. And given the very few interior photos–I’d bet the rooms they weren’t showing needed more than the kitchen they did show.
Now maybe if the entire home was indeed in original shape, the buyer should keep it as is for a generation or two and then it would be historical! 😉