The Reality of My Estate

The Brain Dump of a Chicago Real Estate Consumer

Friday, January 05, 2007

On HGTV and Spam, Part 2

Who in their right mind would buy such a place?

The question, of course, is somewhat rhetorical, because I'm sure the answer I would (and will) give is fairly evident from the tone of the previous post.

Only someone gullible, naive or (worse) shady would buy such a house at its new asking price of $130K. If someone were to buy such a property at or even near its new asking price, the best-case scenario (for the new owner) would be to make cosmetic changes only and try to flip it as quickly as possible. This is not only bad for the property (making no substantive improvements, only cosmetic) but it's also bad for any subsequent owners who, assuming they've been deceived by appearances, will be buying a needy property at or near the neighborhood's "fixed-up" market value. It's also, as I write this, not terribly likely that the cosmetics-only Shady Owner would be able to flip it quickly, since it is now a buyer's market, and potential buyers can afford to be choosy (even if, at 150K-$175K, the house and neighborhood would be considered "lower middle class" in Chicago).

Remember, nothing has been done to improve the property — the Spamheads are just trying to cash in on the profit formerly collected by rehabbers. Even a shady fix-and-flipper is probably going to know this (assuming, like most cons, they have a certain misdirected cunning brilliance about the pool in which they're swimming).

So who's left?

People watching HGTV, of course. I guess I really shouldn't dump this all on one cable channel's shoulders, but as they're one of the most high-profile, most "respectable" disseminators of real estate info out there, they're an easy target. Moreso, in fact, than the out-of-date "make millions in real estate" books on the shelves of Borders, or the late-night "turn debt into wealth" infommercial schemers, because one doesn't even have to buy a book or set of DVDs.

Specifically, the charge I'm levelling is that some of the programming on HGTV, like spam, shows mostly (if not all) Upside but little-to-none of the Downside. The few times I've seen people get in over their heads on HGTV rehab shows, the shows have made it clear that the owners have either made horrendously bad choices (ones which, of course, the Viewer presumably wouldn't make) or the owners happily justify their over-expenditures by keeping the property to enjoy for themselves for a while.

What we never see on HGTV is someone get in over their head, end up being unable to handle duplicate mortgages, and having to sell the property for a song to avoid financial disaster. And this is what my wife and I see fairly frequently, particularly when — pumped up on TV visions of "doing it right" and making $10,000+ in the process — they naively buy a property from Spamheads without truly appreciating the expense involved in rehabbing a property.

The casual reader might think I'm simply chomping on sour grapes, or that I'm bemoaning 6-digit profits lost to the competition in a free-market society, but that's simply not the case. Frankly, I've never seen 6-digit profits. Matter of fact, in the example I gave, the most I would expect to recoup from the middle-class property I mentioned is about $10K-$30K (max). Neither my wife nor I are Rehabbing Gods, but we've had enough experience to know that the cost of repairs alone would be in the neighborhood of $50K-$70K, improvements to update the basic amenities to modern standards (necessary in a buyer's market), an additional $15K-$25K and, assuming we did want to sell it (highly likely in this case), there's the Seller's Discount of roughly $20K to consider.

To be continued...


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