Cheap Houses – Opportunity or Money Pit?

I had to go to the supermarket on Saturday evening to pick up some basic items. You know, bread, milk, tomatoes, etc. This particular store is closed on Sundays so during the last few hours on Saturday they usually mark down some perishable foods with heavy discounts. It’s very tempting to pick up some of these cheap items until one realizes that there’s a good reason they are so inexpensive.

That discounted loaf of bread has already reached its “sell by” date. Before we can use the whole loaf it will most likely become moldy and we’ll have to toss half of it. That gallon of milk is also about to expire; by the time we get through half of it, the milk will probably sour. And that shrink-wrapped package of six tomatoes? They’re already getting soft – how fresh will they be in 2 or 3 days? Ugh!

Sometimes cheap really is cheap. The real estate market can be very similar to the food market – there’s always a reason that that bargain is priced so low. Learning why a cheap property is priced so low is critical to figure out if it is truly “worth it” to pursue. Seeking the advice of a buyer’s agent can be a very wise move to make before you jump on a cheap home.

Homes that are listed with major discounts can normally be classified in just a few categories:

1. The Handyman’s Special

Homes that have fallen into disrepair can usually be purchased at prices well below the asking price of well maintained, similar properties. When the property owner is unwilling or unable to make the necessary improvements, the only option is to list it for sale at a heavily discounted price.

If the prospect of investing “sweat equity” (i.e. manual labor) is particularly unappealing, you may want to avoid this type of cheap home. Likewise, if paying someone else to perform the necessary repairs is out of the question – walk away. However, If the prospect of doing the work yourself doesn’t make you uneasy, these fixer uppers can be an excellent choice.

2. Location, Location, Location

We’ve all heard the saying that the three most important aspects of real estate are location, location, location. Well, it’s really true. The value of a home can vary quite a bit depending upon its neighborhood. This can be fabulous for the homeowner in an upscale location. However, it can be devastating for a homeowner in a neighborhood that has fallen on hard times. Contrary to many people’s beliefs, real estate values do not always increase with time.

In many urban locations, certain neighborhoods that have declined are gradually being revitalized through renovation of individual homes. As these improvements spread the value of homes in the immediate area can begin to rise. Your buyer’s agent should be able to give you an idea about the direction that prices are moving so that you can make an informed decision about the true value of cheap homes that are in this category.

3. “Priced for Quick Sale”

Circumstances may arise when a homeowner must sell their property very quickly. These can include a need to liquidate assets for cash in hand, a requirement to relocate for employment purposes, or pressure to get out from under double mortgage payments after committing to the purchase of another home.

This category of cheap homes provides the best value. However, often times these bargains are not available very long since a quick sale is the goal that the seller had in mind in the first place. The best tactic for finding these opportunities as they arise is to have your buyer’s agent notify you when new property listings hit the market. Most agents have access to automation tools that can notify you via email the same day that a property that meets your requirements is listed. Without that edge, it’s very likely that you’ll miss out on these prime opportunities.

4. The Mystery of the Unknown

This is the “catch-all” category for homes that don’t seem to fit any of the three previous categories. They are the riskiest properties and should be approached with extreme caution. There is always a reason for a house being under priced – if it’s not apparent at first glance you may have to do some serious investigating before considering a purchase. Sellers are obligated by law to disclose any information that affects the home’s value. Your buyer’s agent will prove invaluable in these cases by helping you ask the right questions.

Obtaining the assistance of a buyer’s agent and investigating the reasons that a home is priced lower than would normally be expected are the keys to determining the true value of a “cheap” home. These deals can look very attractive at first but, with further investigation they can end up being either a “money pit” or a fabulous opportunity. It all depends on performing your due diligence.

Jim Navary has worked as a freelance writer and researcher for over thirty-five years covering a wide range of topics. He is also a licensed real estate salesperson in the Commonwealth of Virginia featuring Fort Lee VA real estate and Colonial Heights VA homes for sale.