Possible first home purchase, questions about the unknown..

[John Andrews]

Hello all, 

I'm a newbie to bigger pockets. I love the site and am totally hooked on the idea of real estate investing..specifically, I'd love to learn to flip condos in my area (south florida). 

On to my topic. I've looked at multiple properties and made a few offers attempting to get into my first property but have been unsuccessful yet. I've been looking at REOs and have learned a lot about offers already. 

I'm recently married, currently renting, and the wife and I know that the next step is either invest in a new business venture, or buy a house..or both eventually. All my cruising on the MLS has come up with nothing regarding a possible home for us. She came across something on Realtor.com the other day and I initially brushed it off saying it was a total redo, and we shouldn't get into that for a first house. Turns out, I did a bit of research and the house is right in our sweet spot, in the right area, with most of the things on our must have list, and in a great up and coming neighborhood.

It's a 3/2 approx 1850 sq ft, no pool, fenced in yard, listed at $274k. The house was built in the late 60s, plaster walls, and everything in it is basically from that era. It needs a lot of work. 

We're pre approved for a mortgage, and are ready to make an offer...but I'm lost on this one. Once the rehab is complete we're going to be in a positive equity position, unless there is something catastrophically wrong with the house that we will be unable to see. 

The house needs a new kitchen, bathrooms (both), appliances etc...stripped ceilings of cheap (i don't know what) tile type materials..not popcorn, but something else...could use new windows, knock down some walls to open the floor plan up, among other things. 

I'm not so worried about all of these things that I can see. I'm terrified of the cheap looking laminate flooring in the living room that looks like its uneven. I'm not talking about water damage...there is no visible warping from water damage.. I feel like it's either just a terrible job, or that there may be something wrong with the subfloor, or foundation? I'm kind of lost. Not a construction guy...don't know the first thing about what could be going on under there...

In this same room there are also 2 separate hairline type cracks in the ceiling (popcorn in this room I believe) and they extend across the length of this room. I have the same thing in the house I'm renting right now, but don't mind it because it hasn't caused an issue (and I don't own the house...my landlord is insanely cheap and frustrating). 

But if I buy a house like this and there are things wrong that I can't see...it's terrifying. 

In the garage there is also a part of the floor that is cracked, and the crack runs up the wall..Its nothing major, but still a crack. 

I'm sorry this is long winded..as you can imagine, my mind is going a million miles an hour right now trying to come up with the right number to offer. 

Does anyone have any opinion on these things? Has anyone experienced problems with subfloor, foundation cracks, etc in your flips? What's my best and worst case scenario? 

What are some other things that I should be looking at in an older house like this that I might be missing? 

The house also had rats...and I'm worried about what they may have done to the structure in the roof/attic... can they wreak havoc? The neighbor said lots and lots of rats...like hundreds..gross. 

Any help and advice is much appreciated..

My thought process is that if we can get at least 1 room done in the house with a lower offer then it would be amazing, and we'd have that much more equity. But I also don't want to lose the house to a cash investor. 

What do you all think might be the best and worst case scenario in a situation like this?

[Erik Hitzelberger]

I'm a little confused as to whether you are buying a primary residence or an investment property.  Your primary residence is the place you and your wife will live, entertain friends, make memories and possibly babies :).  If it is in the perfect place, has everything you want, and you are both ready to own a house and willing to do the work this one requires, then go for it.  While you never want to be upside-down, the numbers are less critical.

If this is an investment property you intend to flip, make sure you account for the carrying and closing costs (both purchase and sale) in your analysis.  If the deal make sense, go for it.  If you are unsure, post all of the numbers here and BP members will help you analyze it.

Either way, you have an inspection contingency.  Use it to satisfy yourself the foundation is good and the rats didn't chew through all of the electric, and whatever else you need to have checked out to feel comfortable.  If there is a valid concern, don't buy.  Fear caused by lack of knowledge is not a valid reason.  But, you know that or you wouldn't have posted this.

One final note, check with your lender about the 203K requirements.  I think you have to have contractors do the work.  You'll want to understand that piece as it will affect your cash requirements.