95% of Foreclosures are in “Need of Rehabilitation”

We see investors are buying up foreclosures, viewing the potential returns from REOs-to-rentals as better than most other investments. But, are they the “Best Buys?”

Investors some times take on more than they can handle, and do not devote enough attention — and budget — into the rehabilitation of many of the properties they buy.

Nearly 95 percent of distressed homes are in bad shape and unsuitable for renting out, Morgan Stanley analysts estimate. Correcting conditions could require permits, etc! 

“The importance of getting construction — or specifically, re-construction or rehabilitation — right cannot be overstated,” according to a recent report sent to Morgan Stanley clients. “The quality and cost of rehabilitation can continue to benefit or haunt the asset far past the initial completion of work. For example, shoddy plumbing or other infrastructure work can result in significantly higher maintenance costs over time, and can also affect eventual exit pricing.”

Morgan Stanley provided estimates to investors in the report, citing estimates of renovation work to cost about 25 percent of the purchase price. Your thoughts?

Source: “Rehabilitation Vital to REO-to-Rental Success,” HousingWire (4/13/12)

3 thoughts on “95% of Foreclosures are in “Need of Rehabilitation””

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