This weekend Robert Elder and I took out a group from our Wealth School class to view seven REO (bank owned) properties in the Oklahoma City metro area. We do these house tours to uncover hidden real estate opportunities in the form of bank owned properties. We hadn’t intended it to work out this way, but it ended up being an almost perfect demonstration in what OKC metro properties not to buy. In this article, I’m going to tell you the tale of two of the houses we looked at on our tour of Oklahoma City bank owned properties.
Before I get into that, let me say that I would definitely buy every bank owned property we saw on the tour for the right price. Every bank owned property we saw had it’s good points as well as its down side. Every one of those would have been money makers with the right property management.
The first bank-owned property, a single-family house was a 3 bed, one bath house that was just over 1,200 square fee built in 1950. The only real redeeming quality of the house was that it is located near my daughter’s school, Nichols Hills Elementary in northwest Oklahoma City. However, the house is located about 3 blocks outside of Nichols Hills proper.
My biggest problem with the house was that the plumbing and electrical had not ever been updated. It had a puny 60 amp electrical service coming into the house, which needed to be updated to at least a 100 amp service. The water supply lines were also galvanized which would need to be all removed and replaced with new pex lines. We saw some lead drains, so there is a good chance we’d have to replace all the drain lines in the house as well.
On top of that, the house had a flat roof add on that leaked badly. Water damage in that part of the house was extensive.
It had central heat, but the unit was very old. It looked like almost the whole system would have to be replaced.
If we made all the repairs, which I’d estimate to be at least $15,000, I’d say we would be able to rent the house for $650 to $700 per month. I doubt it would make a very good house to sell retail given current market conditions, but someone will probably buy the house to attempt exactly that. Needless to say, we’d have to buy it a lot cheaper than the $35,000 asking price for it to make sense.
Another bank-owned property we looked at on our tour was also a three bedroom house although it had 1 1/2 bathrooms. It was built in 1960, and decent sized at 1,591 square feet. I have at least 3 other rental properties within 3 blocks of that house in northeast Oklahoma City, all which are doing quite well for me.
What you noticed right away upon walking in the front door is that the house had been recently remodeled. The remodeling looked up to date, as if it had been done in the last few years. The plumbing, electrical, and heat and air had also been updated and looked new.
So far, so good.
But what you also noticed when you walked in is that the bottom 3 feet or of sheet rock was cut off just above the floor because it had a huge mold problem. The main bathroom seemed to be at the epicenter of the problem, and I think resulted from at least one on-going leak from somewhere in the bathroom. However, that was not the only water problem in the house.
Upon going into the back of the house, you will find a cinder-block add on with a flagstone floor. It also had a very large fire place. On the very back of the house was an odd raised cinder block area where a small pool had been installed.
While these were all very “cool” features, they add up to sheer disaster when it comes to using this house as a rental property.
For starters, the back yard slopes toward the house and has created a situation where groundwater is seeping through the floor of the add on. Looking at the layout of the back yard, there was no obvious way to fix that systemic problem.
Any pool on a single-family home you plan to use as a rental is a bad idea. At a minimum, you would need to fill in the depression within the raised area.
A fire place is also a very bad idea in a house like this. I have rented properties with fire places, and tenants will set them on fire. We decided the cheapest way to deal with the fire place was to frame in around it so it could never be used again.
The bottom line with the 2nd house is that it would be potentially very challenging to fix the water problem in the back of the house. It would be a very tricky remodel.
If it couldn’t be fixed, you’d have to rent it as a 2 bedroom house, which would bring $500 per month or so. Like the first house, you’d have to buy it for WAY cheaper than the current asking price of $25,000 for it to make any sense whatsoever.
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