Distressed properties. There are tons on the market these days. There are great values including the bank owned. I looked at one yesterday. There were three, three bedroom houses on a 10,000 square ft lot. The price is very good and there is a lot of square footage for the money.

Problems? Yes, the place was a wreck. It is boarded up but squatters are still getting in at night. There is trash everywhere and inside everything needs major upgrades. The property next door is a real eyesore with peeling paint and boarded up windows. The neighbors dog barked constantly. Also, despite a big down payment, the appraiser had already been by and the bank refused to lend on the property because of its poor condition.

What was I doing here? An investor friend wanted me to take a look. He is interested in buying it. He is a contractor and can save lots of money doing the renovations himself. He will end up with a good upside in rental income when he is finished.

What was my advice to him? First, a high fence all around the property to make it private and to conceal the neighbors houses. Also, I suggested that when he paints he should offer to paint the side of the neighbor’s house that faces his. It will make a big difference when he has a prospective tenant touring the property.

The neighborhood is not good enough for me, but I can see the value in the property. If you read my post below, you will see that I was not initially positive about this project. Now I can see the benefit for him. Personally, I like a more well heeled tenant but everyone needs a place to live. When finished this property will cash flow even if it on the low end of the local market. The buyer has a very good renovation strategy and contacts for purchasing materials that will keep the costs down. He plans to spend about $20,000 per house in materials to bring them up to rental condition. I thought that sounded on the very low end but possible.

What about the loan? I told him to keep shopping it. Guidelines vary tremendously from lender to lender. I have seen properties in worse condition getting financed. Plus, he has 33% down which is a real bonus for a lender. I also suggested that he talk to the bank that owns the property now. Many time a bank foreclosure can be financed by the bank that currently owns it.

Bottom line. He is taking all the right steps. He has researched the neighborhood and the current rental market. He has spent lots of time planning the renovation at a cost that he can afford. I think he has a winner here. Stay tuned.