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Real estate investors who aren’t familiar with construction codes, village permitting processes or general contracting, can easily pick the wrong foreclosed property to purchase.
“This is where novice investors will benefit from bringing in a professional who can assess how much work needs to be done to a house to make an “A-quality” tenant want to live there,” says MACK CEO and President James McClelland. “A lot of distressed inventory on the market has been vacant for a long time. The price might sound like a bargain, but if the house is damaged or you have structural issues that need to be fixed then that price may not be so attractive any more.”
MACK Companies typically invests $50,000 into redeveloping the homes it purchases to bring them up to new-construction standards. “The best tenants are long-term tenants,” says McClelland. “And the best long-term tenants tend to be families. That’s why we’ll renovate a home from top to bottom, including everything from a new roof and mechanicals to flooring and appliances. We want properties that a family would be proud to call home.”
As such, James McClelland tells investors that they should consider the following before purchasing a distressed property:
Size. Because MACK thinks the best tenants are families, the firm primarily invests in single-family homes with three or more bedrooms, 1½ baths, two nice-sized living areas, a good yard space and a two-car garage. (The typical MACK tenant is a family of five who lives in their home for 4.8 years.)
Services. MACK prefers to invest in homes with city water and sewer services as opposed to well and septic. McClelland noted investors should also make sure water and sewer lines are open and not damaged prior to purchase.
Structural integrity. Investing in a property with foundation issues or structural roofing damage can be extraordinarily costly and is not advised for the novice investor.
Location/Village relationships. Realize that each village treats redevelopment and housing inspections differently. “Many villages embrace turning an REO property into a redeveloped rental property because it helps everyone in the neighborhood and improves their community,” says McClelland. “But some villages utilize the permit process as a revenue source for the village with inordinate fees, onerous reporting and over improvements. If you buy a real estate investment in one of those villages, the costs will quickly add up and eat into your profits.”
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