Real Estate Investing: Avoid Buying a Unique Home in Preforeclosure - Even From a Nice Family!

Early in my career as a real estate investor, I got a call from a really nice family about to lose their home to foreclosure. Located in the suburbs, the house looked pretty much like every other house in the middle-income neighborhood on the outside. On the inside, though, the house was very unusual.

You see, the husband and wife were theater majors in college and they remodeled the lower level of their home to look like the set of a movie. The home gym looked like the set of Million Dollar Baby. The playroom looked like the set of Home Alone. And the home theater (with seating for six and a big screen TV) was painted entirely black, floor, walls, and ceiling.

The parents home-schooled all four children, so the lower level also housed a study room with computers and desks. The two-car garage was fully carpeted because the youngest children liked to play there during the day.

The house was a full time home, school, gym and theater for this family. The parents thought they would live there forever - or at least until the last of their children moved away. But sadly, they missed a couple of mortgage payments and found it impossible to catch up. They called me in hopes of selling their house fast so they could save their credit.

When I did my due diligence, I learned that homes in this neighborhood did not stay on the market long. Close to the public schools, it was a quiet neighborhood with lots of green space. Add to that: the neighborhood homeowners association often held potluck dinners and street parties and were the envy of the surrounding community.

What could be better? I thought. A great one-of-a-kind house in a great neighborhood at a great price.

I bought the house with about 20% equity, no money out of my pocket, and cash back at closing. I immediately put the house on the market. At the time I thought the uniqueness of the property would be a great selling point. I thought it would stand out as "one of a kind" and families would fight to live there.

Boy, was I wrong.

Most people who looked at the house thought the unique features of the lower level were just plain weird.

I marketed the house specifically to families with children who I thought would love the spacious gym, the play room, the home theater, and the study rooms as much as the family who had put so much of their personal stamp on them. But no one else seemed to see the beauty of it.

Only the strangeness of it.

The house sat on the market five months without a decent offer. I watched my profit dwindle drastically over six months while paying holding costs, utilities, and lawn care.

Then I made a hard decision. I hired a remodeler to transform the lower level into an ordinary looking basement with smooth white walls, dropped ceilings and beige carpet. I watched even more of my profit evaporate.

But I quickly found a buyer.

Lesson to be learned: Three bedroom, two bath, bread-and-butter houses are the best investment properties for a reason. Everyone can imagine living in an ordinary house. Not everyone can see themselves living in a really unique one.

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