Detroit Real Estate

The key to flipping homes of course is to make a profit.  So many times I see first time home investors jumping in with both feet buying properties that may not make a profit.  I have seen some first time investor fail miserably.

Making a profit is not so easy.  The two biggest mistakes I usually see is: 

1.) The inability to estimate the cost of repairs correctly

2.) The over estimating of what the property will sell for.  This is important because if you are $5000 or $10,000 off that eats directly into your profit.  So when you look for investment properties be sure to know what the property should sell for after it is fixed up.

Have your real estate agent pull comps of the recently sold homes.  Don't be overly optimistic of what the house is worth.  Don't plan on selling the house for what the most expensive house has sold for.  That is what gets some first time investors in trouble.

So if you are a first time home investor estimate and re-estimate.  Have somebody experienced go with you.  Then don't plan on getting more than what recent homes have sold for.  Plan on a mid-range sales price and that will help you decide whether to buy the property or not.

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Here is an explanation of what a BPO is a broker price opinion.  A BPO (broker price opinion) is when a bank or lender hires a real estate professional or appraiser to look at a property and to give their opinion of price.  It is the real estate brokers opinion of price based on recent sold homes in the area, the condition of the property, and the size and style of home.

Banks use BPOs (broker price opinions)to set foreclosure list prices.  Banks use BPOs to figure out what to sell a short sale home for.  BPO's are just an opinion.  Many times they are off.  They can vary on what the house is really worth.  It boils down to what comparables the real estate agent or appraiser is using.   Real estate agents usually get paid $50 to a $100 to do a broker price opinion (BPO).  A BPO is the major factor on how the bank sets price for the property.

I hope this explains what a BPO is.

We are hearing more and more about strategic defaults so what is a strategic default on a mortgage?  Is it legal?  Currently there is no laws stopping them. 

So what is a strategic default on a mortgage?    A strategic default is where a home owner intentionally lets the bank foreclose on their home for the purpose of

• getting a lower house payment
• getting out from under a mortgage
• to move into a better school system
• to buy a bigger house with the same payment
• to move into a better neighborhood
• to get back on the right financial path

A strategic default is going into foreclosure on purpose. Those who participate in this choice are people who have the ability to pay their mortgage, have a stellar credit rating and abruptly choose to walk away from their home payment responsibility.  They are choosing to go into foreclosure on purpose. 

Currently as of January 2010 they are saying about 25% of all foreclosures are strategic defaults.  Is it legal.... yes at this time.  Is it ethical?  It is up to each person that is thinking about going into a strategic default.  Some people don't think it is right to go into foreclosure on purpose that we as consumers are paying for it. 

So this is what a strategic default is?  What do you think about it?  Should homeowners be penalized for it?

Russ Ravary your Metro Detroit real estate agent serving the Detroit suburbs and out lying areas.

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The worst mistake real estate investors make when buying Metro Detroit investment properties is:

Under estimating the cost of repairs and the time it will take to fix up the Metro Detroit home.  I see it over and over.  A new real estate investor eager to make the big bucks flipping homes.  I see some of them losing money never to try it again.  It's not that they are dumb.  It's because they did not plan well enough.  They did not figure out the costs accurately.  They could have saved themselves a lot of money.

Always remember it will take you longer than you think and there will always be something extra to fix or repair.  I always say buying Metro Detroit investment properties is not for the inexperienced, or people that are busy.

You need to have the skills to do the repairs yourself, or have good trades that work cheap.  What I mean by that you need to have plumbers, carpenters, electricians that are very reasonable.  Or be able to do it yourself.  Getting a Michigan investment property ready to flip or rent takes time.  Workers don't show up or it takes longer than you expect. 

Time is money.  So sit down and do a spread sheet and chart of all the repairs.

Break down the costs.  If a piece of Livonia real estate needs a kitchen then break it down into :

1. cabinets
2. flooring
3. electrical
4. drywall
5. painting
6. appliances

Then break down into time periods too.  How long will it take to do the cabinets, or flooring.  Even the most experienced flippers and Metro Detroit investment property buyers sometimes under estimate the costs.  But if you are new to the business take my advice and break it down into projects. 

That way you won't make the mistake of under estimating the cost of buying Michigan investment properties

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My quote of the day is:

A smile costs nothing but gives much. It enriches those who receive without making poorer those who give. It takes but a moment, but the memory of it sometimes lasts forever. None is so rich or mighty that he cannot get along without it and none is so poor that he cannot be made rich by it. Yet a smile cannot be bought, begged, borrowed, or stolen, for it is something that is of no value to anyone until it is given away. Some people are too tired to give you a smile. Give them one of yours, as none needs a smile so much as he who has no more to give.
-- Author Unknown

Here are upcoming HUD changes coming on February 12.   When you bought a HUD home in the last year HUD was giving some incentives to buy.  They are going away on February 12, 2010

Attention Selling Brokers and Agents: The following HUD Owner Occupant sales incentives will expire as of February 12, 2010:
1. FHA $100 Down Sales Incentive
2. $2,500 Owner Occupant Sales Incentive (For properties with a purchase price of $25,000 or greater)
The incentives will be eligible on all owner occupant sales with a bid acceptance date on or before 2/12/2010.  All owner occupant bids accepted after 2/12/2010 will not be eligible for the any of the incentives above.

Search Wayne County and Oakland County Michigan HUD homes and get the latest listings emailed to you.

Russ Ravary your metro Detroit real estate agent