Don’t buy a house with a glaring defect

Opening up the old mailbag again, I am printing my response to a recent fixer upper email question that I received.

Hello Terry,

I’m writing you with a somewhat specific question.

I am looking at a house at xxxx Star St. in Duluth, MN. It’s a vacant house (so many are nowdays) and the listing price 39k. Repairs look to be 10.9k plus a fee of 1,100 for re-registering it as occupied.

I walked through the house, visually it’s fine. I like the house, don’t get me wrong. New windows, carpets, paint, etc. But the repairs are mostly plumbing etc. Should I put in my bid for 39k EVEN or throw it down for 29k?

It’s in a fairly low crime area, but across the street is a halfway house for prisoners just getting out into the world…Prior values in the 200k for this area before the Great Collapse….

Thank you for your time,

Malcom

Dear Malcom,

What I see is a red flag that should influence your decision.

The location of the house across the street from a halfway house is going to considerably limit what you can do with the house. Regardless of whether you are going to turn it into a rental or flip it, you have a very limited pool of potential tenants or purchasers. In my opinion, most people would not want to live there.

Consider, if you had a tenant who had a choice to rent your property, or one in another neighborhood nearby that did not have a half-way house across the street. Which would they choose?

Granted, the purchase price is low. However, in my opinion, it’s better to spend a little more money for a house that doesn’t have a glaring defect.

There are a lot of properties on the market right now, and many at bargain basement prices. If I were you, I would consider looking around for another one.

Donald Trump said, “Sometimes your best investments are the ones you don’t make.”

Best of luck in your business.

Best regards,

Terry Sprouse

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6 Responses to “Don’t buy a house with a glaring defect”

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  3. I agree with you completely Terry. Don’t buy it. People aren’t going to want to move their family in across from the halfway house.

  4. anonathon says:

    I’m looking at a (California coastal) house that’s within walking distance to a city center and the waterfront, a 5 min drive from beaches, but out of the flood zone. It’s on a quiet street, not a thru street, uphill from a park with nature trails. In this town there is no such thing as a “good neighborhood” in the incorporated parts; they are all mixed income. The house is not in the *worst* neighborhood, however it is just 2 blocks from 2 unmarked halfway houses for drug recovery. (Not the kind celebrities go to, the kind for homeless & low income drug addicts). It’s also next door to 2 small apartment bldgs (6 units in each) which look well-kept. Across the street are well-kept, expensive looking Victorians that appear to be occupied by a single family. Should I even bother? I am tied down to this town and own a business here, but I want to be able to sell my house at some point – or rent it out (although it’s a little big for a rental). Should the halfway houses & apt bldgs be a deal-killer? There are better neighborhoods, but the whole town has negative aspects about it, everywhere you look. Thanks for any input.

    • admin says:

      anonathon,

      That’s a tough call since I don’t have a real insiders knowledge of the area. However, the fact that the house is only 5 min. from the beach may outweigh the negative aspect of the halfway houses.

      I guess it could depend upon what the availabiilty is for potential tenants or buyers to get other houses with the same beach appeal, but not have the negative aspects.

      I suggest contacting some local real estate agents and investors, and getting input from them too.

      Best of luck.

      Terry

  5. Interesting observation on how glaring defect can shape ones perspective. Thanks for sharing.

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