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Tearing Down REOs

Discussion in 'General Real Estate and Real Estate Finance' started by Terrel L. Shields, May 12, 2009.

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  1. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    135
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    http://www.therealestatebloggers.com/2009/05/05/cheaper-to-tear-down-new-homes-than-sell-them/

    Someone commenting on stories similar to above, argued that people should be allowed to live in them...

    I say don't blame the bank-owner. Blame people and government. Extreme property taxes, high insurance, high cost to complete the houses, and the cost of keeping these houses up; then add the liability of letting people live here for free and tear the house up with impunity...and why not tear it down?
     
  2. George Hatch

    George Hatch Elite Member

    48
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    California
    Collecting something would have been better than collecting nothing. The funds lent to build those homes belonged to someone, and that someone has just lost all of those funds instead of just part of the funds.

    How much you wanna bet that lender received TARP funding and those demolitions are actually being subsidized by the taxpayers?
     
  3. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    135
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    Yes, someone "lost" money...and maybe taxpayers...but. The holding costs on these properties are extreme. So those fund holders are losing even more money and may be unable to cash flow. So....do I take 30% of the value (the bare land value) or do I continue to hold for some future date when I will have to pony up MORE money to complete the construction; in the mean time, pay taxes, insurance, mowing lawns, the holding cost; and, then wait on a uncertain market to sell into? One way is conservative, measures the actual haircut you'll take and reduces the holding costs to a minimum (no property insurance, lower taxes). The other exposes you to future unknowable costs and prays the market turns around soon anyway....One way might insure I survive. The other may be taking a big risk that I will fail (go bankrupt or in the case of a bank, be taken over by the FDIC.)
     
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