Buying a Vacant Distressed Property

[Bill Mitchell]

It looks like I will be able to get a smoking deal on a property here in DFW that I might buy for myself its so cheap. Well, buy for myself temporarily. I was considering taking title and then sticking the property on auction.com to sell to the highest bidder, just to get my feet wet a little instead of just assigning the contract.

I have never purchased an investment property like this before. What items do I need to get in order to proceed?

Utilities: How do I have these killed once title has been transferred.

Insurance: How would I go about getting this property insured? Its vacant and distressed, but what happens if it somehow burned to the ground? I would sleep easier at night if I were able to get some sort of coverage.

Liability: I will own a vacant distressed, house that is not structurally sound for a month or two (hopefully) before it sells. But what if someone were to break in and injure themselves, I need some sort of protection against this.

Anything else I left off the list feel free to add, thanks everyone.

[Dev Horn]

Another cost to consider - taxes. Another alternative to an LLC is a trust, but I'm not sure if a trust would protect you like an LLC. But trusts are relatively easy and low cost to set up.

The utilities are basically just like if you were buying the house for yourself - once you have the deed transferred to you, you just call them and they'll switch them over. Your homeowners insurance will cover the liability issue. If someone breaks in and gets hurt, I'm not sure they have much of a case. But a contractor or potential buyer could fall, or the house could catch on fire, so you definitely have to get insurance to protect your investment. Tell the agent that you expect to own the house for only 4 months or less so they can get the right/pricing product for you.

Those are your primary holding costs - utilities, taxes, and insurance - in addition to the cost of financing (e.g., points & payments on hard money, etc.). The key is quick turnover - if you hold it too long those holding costs eat up your entire profit margin.

So, that brings me to a bigger question - why would you buy and hold this house if you are not planning on rehabbing? Are you thinking of doing a quick double-close sale? In that case, you might eliminate the holding costs. But I'm concerned that if you hold a non-rehab deal, you're just losing money every month waiting for it to sell for not much more than you paid for it, so the holding costs could wipe out your profits FAST.

I've got a cool spreadsheet for analyzing a deal which really helps you consider ALL the costs involved and estimate your profit based upon the month that you sell the property (send me a note & I'm happy to share). Really helps you see how your profit vanishes as you hold a property longer than 2-3 months.