Cheap Real Estate Can Be A Bad Investment

Megan Charles - Author

Jul. 5 2013, Updated 9:58 a.m. ET

For anyone who hasn’t been a homeowner but wants to be, the idea of purchasing real-estate for a seemingly cheap bargain sounds too good to be true. However, with the real estate market as it is, buying an inexpensive home is feasible these days.

But remind yourself of the old adage, if something sounds too good to be true, it probably is.

Sure, interest rates may be low for now, and these days there are homes throughout the country that have been repossessed by banks which are for sale at auction for as little as $500 to $5,000 – thousands less than what they were originally worth.

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Cheap property prices resulting from the wake of the 2008 housing crash has since lured investors into purchasing one or several available lots in distressed areas. But many have found the buy to be a bad investment.

What new buyers fail to think about is homes are like living things – they require maintenance. And the further along a home goes without preventative or regular care, the more expensive the maintenance can be. Ignoring a growing brown stain on the ceiling can cost you.

Repairs or replacements to a cute little fixer-upper can run into the thousands between plumbing, electrical, and roofing, along with the expense of pest control, insurance, and taxes reports USA Today.

Just replacing windows on home can cost $7,000 to $15,000 – or even more if you buy within a historic district. But some people don’t consider those costs along with the enticing price tag.

Buying a home that hasn’t been lived in for a while can be a gamble.

MSN reported on the Detroit, Michigan housing market, for example. Many of the homes noted in the article are in extreme disrepair as scrap-looters have picked the residences clean of anything valuable – ripping out metal wiring, pipes, even the kitchen sink.

Either the homeowners fell upon hard times and lost their dwelling to foreclosure, or the homes were abandoned by well-intentioned owners who ultimately ran out of funds to renovate – losing out in their investment to buy, recondition, and re-sell for a profit.

Ambitious buyers who, in the Detroit market, literally purchased several homes on an online auction for a few hundred dollars also didn’t consider the insurance and property tax ramifications – as one investor mentioned still owes nearly $70,000 in taxes just for owning several lots.

Now because homeowners are unwilling or unable to pay these taxes, the city suffers. In 2011, Wayne County, Detroit wrote off $170 million in uncollected property taxes on nearly 100,000 city-owned properties – again, dwellings abandoned or in limbo.

Ultimately, first time buyers especially, need to be aware of what they are getting into when investing in property – figuring in all of the possible repairs and expenses that go along with home ownership.

[Image via Shutterstock]


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