There is a house on my street that has been sitting empty for about 6 months now.  This is a story of incompetence by real estate investors.

One of my neighbors talked to someone who was working at the house.  The person said that Zillow had bought the house.  Zillow is a company that I am familiar with.  I occasionally go to its website and look up the estimated value of my house and those around me.

Apparently Zillow is investing in residential real estate, but so far the company isn’t doing a very good job from what I can tell.

The house on my street sat empty for several months after it had been sold.  I think it was around March when it had sold. Sometime in late July, contractors started showing up at the house.  They were there for several weeks straight, sometimes including the weekends.

I saw many different people with many different vehicles coming and going for several straight weeks.  Most of the vehicles were regular cars or pickup trucks.  Sometimes I would see as many as 4 cars parked there at one time.

I think I saw new appliances being delivered at one point.  But I don’t know what else was being done inside.  On the outside, I could see they replaced the front door and painted it.  They also painted some of the trim on the front of the house.

One day, they took out some nice-looking rocks in the front yard and replaced them all with mulch.  If I were living there, I would probably prefer the rocks.  The new mulch probably looks nicer for pictures, but it won’t look as nice in a few months.  In just a few weeks, I already see some grass growing through the mulch.

I can’t imagine how much money has been poured into this house that is only about 15 or 16 years old.  There was already a new roof put on by the previous owners just before they sold.

Just the labor hours of the contractors alone has to account for tens of thousands of dollars.  I have no idea about the cost of the materials because I don’t fully know what was done inside.  Paint is relatively cheap, but not completely insignificant.  Mulch is relatively cheap.  From there, the price of the materials only goes up.

For about 6 months, this house has sat empty except for the people working on it.  That is 6 months of paying property taxes, association fees, landscaping costs, insurance, and everything else that comes with owning a house.  That is also 6 months of opportunity costs.

My guess is that they have spent well over $50,000 on “renovating” a house that isn’t that old.  I have no idea how they are going to make money on this unless the housing market keeps booming like it is, which it won’t.

Is This What a Takeover Looks Like?

I have seen a few people fretting over big investment companies taking over the housing market.  They think it is a grand conspiracy to control everything and hurt the little guy.  Well, if this is their grand conspiracy, they are doing a pretty bad job of executing it.

Unless they are going to get a direct government bailout, I don’t see how this venture is going to be profitable any time soon, unless we see some form of hyperinflation.

I had heard this house was going to be sold, but now I’ve heard it will be rented.  Either way, I don’t see how any money can be made unless it is a long-term rental and the company starts to quickly gain more competence.

If this is a flip, I don’t think the money put into it, along with the housing costs, will be recouped while also making a profit.  Even in a booming housing market where prices have probably gone up about 20 percent over the last year, I don’t see how that much waste can be recovered.

If it is a rental, it may be even worse.  Why are you going to get all new appliances, new paint, and seemingly everything else for some tenants to go in there and possibly not take care of it?  I know some people want a nice place to rent, but this seems like overkill.

And either way, it is still sitting empty.  There are no people in there renting right now.  So they are still operating at a major loss each month.

There may be a few other houses on my street that are owned by investment companies.  I believe there is at least one that was bought a decade or more ago when houses were cheap, and it is still being rented.  Even with that one, I have seen major incompetence, although the company is probably making money because it was bought at the bottom of the housing market.

In my neighborhood, most of the houses are owned by the people who live in them.  I don’t know this for certain, but I think most of the houses that are rentals are owned by individual investors.  I don’t see a major takeover by corporate America.

Unless you are depending on government bailouts, you can’t be completely incompetent.  If Zillow is “investing” like this across the nation, then the company is going to go bankrupt when the housing market cools.

Everything probably looks great on paper to them right now when the housing market is red hot.  Prices are skyrocketing, and rents are rising too.  It’s almost as if it is a market where you can’t lose, yet they are going to find a way to lose.

Do you know what else has gone up in price besides housing?  The answer is labor and raw materials.  Maybe it took months to get anyone in there to “fix” the house because there is a shortage of contractors.  There is a shortage as some price, which they weren’t willing to pay.

If and when the housing bubble bursts, Zillow the company is going to be left standing naked where the water went out.  That’s assuming that its “investment” strategy overall resembles anything like my anecdote.

This is why investing in residential real estate for individuals can be so profitable over a long period of time, if it is done right.  Individual investors wouldn’t have let this property sit for months and then spent the farm on renovating something that didn’t really need renovating.

Now is a bad time to buy almost anywhere.  When the housing bubble finally bursts, there will be deals available for those with cash and credit.