Your Colorado Springs Life & Home

Fixer-Upper or Money Pit? Navigating Distressed Properties

• Lori Thompson • Episode 7

Share episode

 Should I Consider Buying A Distressed Property?

Are you dreaming of buying a fixer-upper that could become your perfect home or a profitable investment? Before you start swinging that sledgehammer, veteran Colorado Springs realtor Lori Thompson has some crucial wisdom to share about the reality of distressed properties.

The journey into distressed real estate starts with understanding what "distressed" actually means. As Lori explains, this spectrum ranges from homes needing simple cosmetic updates to properties requiring major structural repairs. Your success depends largely on two factors: your personal skill set and your network of reliable contractors. While some investors come equipped with respirators ready to tackle meth-contaminated properties, others find value in homes that simply need a thorough cleaning, fresh paint, and landscape rehabilitation. The key is knowing where you fall on this spectrum and being honest about your capabilities.

Smart buyers know that due diligence is non-negotiable when considering distressed properties. Lori strongly recommends comprehensive home inspections with special attention to big-ticket items like structural integrity ($30,000-$50,000 to fix), sewer line conditions ($15,000-$20,000), and roof quality ($12,000-$20,000). For just $100-$150, having a sewer scope done can save you tens of thousands in unexpected repairs. Financing options exist for those without cash reserves, including the FHA 203k rehab program, though these specialized loans come with specific requirements including using approved contractors. VA loans can still work for properties with minor issues, provided there are no significant health hazards.

Looking for the perfect distressed property opportunity? Lori offers this insider tip: "If the property is real pretty and if it blings, that's probably not your best deal." Sometimes the best values are hiding behind terrible listing photos taken by "lazy realtors" on cloudy days with cell phones. These overlooked gems might just be your pathway to building substantial equity. Ready to explore distressed properties with an experienced guide? Call or text Lori Thompson at 719-332-1807 – because distress doesn't have to mean disaster when you've got the right expertise on your side.

To learn more about RE/MAX Properties Inc. visit:
https://www.LoriThompson.REMAX.com
RE/MAX Properties Inc.
Colorado Springs
719-332-1807

Speaker 1:

Welcome to your Colorado Springs life and home, where real estate meets real talk and maybe a little too much coffee. Hosted by REMAX Properties, licensed realtor, broker and top producer Lori Thompson, a local legend who's been helping military families and civilians buy and sell homes for over 40 years. Whether you're PCSing, upsizing, downsizing or just daydreaming, lori's got you covered. Why? Because she's your lifetime realtor and she actually answers her phone. Imagine that.

Speaker 2:

Distressed properties can be diamonds in the rough or money pits in disguise. Lori Thompson shares what buyers need to know before jumping into a fixer-upper, from financing options to renovation realities. Welcome back everyone. I'm Millie M, co-host and producer, back in the studio with Remax Properties, licensed realtor and broker, Lori Thompson. How's your week going, Lori? Oh, pretty good. How are you doing? Doing well? Today we're talking about distressed properties because sometimes the best deals come with a little dust and a little due diligence. So should I consider buying a distressed property?

Speaker 3:

That depends. What is your skill set set or who do you know? And that's some of the important things. And one of the most important things when looking at a distressed property is, once again, unless you are really talented in this area, have a thorough home inspection. Make sure that you have checked out all of the health and safety potential issues. Some of the things I've seen surprise people. Oh, do you know what a sewer line costs? That's $15,000 to $20,000. And in this market it's about $100 to $150 to have someone scope it with a camera. So, once again, have it scoped, know what you're getting into. Now.

Speaker 3:

I also work with a lot of different investors who are very talented at doing flips, which is where they buy the distressed property, they fix it up and they sell it for a profit. I have one guy who has everything from respirators for methamphetamine homes that are meth homes to your more average investor who just knows hey, we could put in some new flooring, we could paint the walls, we could redo the kitchen cabinets and new appliances to the average homeowner who's looking for a good deal. I'm working with one couple right now and this is a house that needs a thorough cleaning. It needs fresh paint and this is a house that needs a thorough cleaning. It needs fresh paint.

Speaker 3:

Landscaping needs a lot of love to bring back whatever was there before and they're getting a really good deal because the house was dirty, it needed fresh paint and it needed lawn work. He is fiscally prudent and they're expecting their first child and she's already got the paint colors picked up. So the degree of distressed in the distressed property depends on the individual Understood their friends. How do your friends and do your friends really know what they're doing? And so a lot of people will overestimate the cost of certain repairs. So I try to guide my clients to good vendors who can give them a realistic quote on what it costs to do different things.

Speaker 2:

That's where you're an amazing resource. You're not just a realtor to walk them through the contracts, you can also give them some resources that they can utilize. So what qualifies a property? I know you talked about there being levels to it, but what qualifies a property as quote unquote distress, and how common are they in the Colorado Springs market?

Speaker 3:

The qualification is personal opinion Remember, I have the guy with a respirator who just goes ooh when he sees mold or meth or anything like that. But if we get into a technical qualification, if we use VA loans as a benchmark, okay, if you're buying a home using your VA benefit, it cannot have peeling paint, the roof has to look halfway decent, it can't have any health hazards, so it can actually be a little stinky, a little dirty. That does not preclude you from using your VA financing. If it's a little bit more in depth, there are different programs available. Just in case you're not green and wrinkled and made of money, there's an FHA 203k rehab program and that one they'll let you borrow extra money, but you have to use the FHA approved contractors. That's a step-by-step process. So if I were to think of a distressed property, I would think neglect, just basic neglect, that it was not maintained and they let it run down and it's a good opportunity to put in some elbow grease and make it a home or an investment.

Speaker 2:

I love distressed properties because I think sometimes people don't see the vision they look over them and it's a great way to walk into a property, maybe put some money into fixing it up and still have a lot of equity. You talked about the 203kb. Are those difficult loans to get into and are there other special loan programs available for someone looking at these homes?

Speaker 3:

You know, I have heard that the VA was going to come out with one, but I have not dealt with that one yet, so that one I can't speak to. I have done two 203k programs through FHA and they're a bit of a pain. Was it worth it for my clients? It really was. So we had to have an FHA approved inspector. We had to use FHA approved contractors. Anyone who wanted to work on the home had to submit an application and then they would parcel it out almost like a construction loan.

Speaker 3:

Okay, here is the painter, boom. Here's your check. Here is the flooring vendor. It's complete. Here's your check. They don't always let you do a lot of the work yourself, and so if you keep the major items done under the 203k and then, after everything's done, you can do the painting once it's your house. So it's an interesting process. Most of the distressed properties I sell are to investors and they have their own crews and they have their own money. They get a hard money loan to purchase the property and to fix it up. They turn around and they sell it and they pay off their costs and make a profit.

Speaker 2:

We love profit.

Speaker 3:

Yes, we're very capitalist and I support other capitalists who would like to make a living.

Speaker 2:

I understand that. I understand that. So mostly investors. But if there's a family, what would be the qualifications? If a family comes to you, is it maybe their loan or their budget, where you say you might want to consider a fixer upper of some sort?

Speaker 3:

And also their skill set. So frequently I have someone who wants they always want a good deal, and just I always tell them if the property is real pretty and if it blings, that's probably not your best deal. But if you can find one that has weird paint or other things that are so easy to fix, that's where your best investment is. Or I like lazy realtors who take marketing photos with their cell phone and they don't highlight the property in its best format. So years ago I can't call this one distress. The house was actually beautiful, but the pictures were horrible. So don't always go by those MLS pictures.

Speaker 3:

Ask yourself does this look like it was taken on a cell phone during a cloudy day? Try to look beyond the marketing photos and then be realistic. Am I good at painting? Am I good at repairing a wood deck? Am I good at doing certain things? Good at doing certain things? Then have your complete and thorough home inspection to avoid the money pit. Inspectors are not going to find everything, but they'll find a lot, and so that's why it's really important.

Speaker 2:

What are the major red flags? Just give us like three major red flags that you would avoid as far as getting your clients into a money pit situation.

Speaker 3:

Okay, if it is a couple looking to buy a home, single person, whoever it is, I would look for structural. That's a huge expense. Structural have your sewer scope done Mold is pretty rare in our dry climate, but that's something to look out for. And the roof? So I look at okay, if we need a new sewer line $15,000 to $20,000. Structural $30,000, $40,000, $50,000. A new roof $12,000 to $20,000 on a standard home. So I always look at big ticket items. What I put in a more manageable category is flooring paint. Look for appliance sales. Those things are easier. So red flag to me is look for structural. That's going to be your biggest dollar item. And then make sure you check the roof.

Speaker 2:

Love that deep dive. If you are handy and you have a good skill set, you might be able to do that carpet and flooring yourself. But you don't want to get into any structural or roofing issues. We appreciate you. Distress doesn't have to mean disaster when you've got the right guidance. Thanks again. Get a sewer scope, do not get a sewer scope. We appreciate that. We'll catch you next time on your Colorado Springs Life and Home. All right, thanks, millie.

Speaker 1:

That's a wrap for this episode of your Colorado Springs Life and Home. Got questions, need advice? Just want to talk about interest rates and granite countertops? Call or text Lori at 719-332-1807. Yes, she'll really respond. Or visit lorithompsonremaxcom to get started with your lifetime realtor, because when it comes to Colorado real estate, lori doesn't just know the market, she is the market.