Should I take a house that was offered for free?

Question

Hello BP,

I have a coworker who wants to give me one of his houses for free.

I have only taken a look at the house on google maps and from those images it looks like the house is going to take a lot of work.

So I am not sure if it's a good deal? Or more specifically a good deal for me.

The house fits a lot of my criteria. A duplex in the city I work in near a good school. However I not sure where to start to analyze the deal to see if it will work for me? I am also not even sure what questions to ask to get me pointed in the right direction.  With that said any advise is much appreciated. Any info i can provide let me know. Thanks!

Steve Vaughan · Answer

Get a full title L&E report (about $150) plus check the county for taxes owed and the city for code violations and any utility payments due.

Being next to commercial brings up potential environmental concerns as well. Don't want to be stuck with an EPA soils decontamination bill or something later.

Sounds like a neat opportunity if all checks out!

Matthew Paul · Answer

I would check out the zoning , why ?  The property next door is commercial .  If it is you may be able to sell it to the property owner to the left to expand their building or parking lot .

Shawn Clark · Answer

HAHAHA...what HE said! LOL. If it's free, drive your a$$ by it ASAP and find out what's going on. Because either 1) it's really awesome and you need to jump on it now or 2) your "friend" is making you into a sucker. Either way, I would want to know...and soon.

Ned J. · Answer

NOTHING is for free......

Unless this guy is some saint and your soul mate best friend, there is a reason he's getting rid of it for FREE....a reason why the business next door passed......a reason why the charities are passing on a FREE house/land

Your job is to solidly find out WHY.........

Andrew Johnson · Answer

@Antonio Boone Ummmmm...so maybe a couple of things:

1.) Why haven't you driven by the house?  I'm all for good ol' Google Maps but the image was captured in 2012.  The thing could be a vacant lot by now, covered in snow, holes in the roof, massive water damage, etc.  There's no way on the planet that if I was serious that I wouldn't have driven by, alone, last night, with a camera, taken 10 pictures, and posted a few here.  If that's too burdensome there's about a zero percent chance you'd make it through the rehab process on a place like this.  Man, I'm coming across as feisty today...

2.) Just off of the top of my head I'm going to say that it's the wrong property for you.  If I were in your coworkers shoes and charities were passing on the place, I'd probably have called every property manager and residential construction company in the area and offered to sell it for $5K.  At least a hypothetical family-owned construction business could eat their margin on the rehab costs to get a (hopefully) valuable property post-rehab.  At the very least they could get materials at cost.  If they can't see a margin/spread is doing the deal "at cost" that should tell you all that you need to know.

3.) Assuming zoning wouldn't get in the way, if the business next door just passed on the property it *probably* means that: Cost-to-demo > Value of raw land.  Otherwise you'd take it for free, scrape, and even if you didn't put in a parking lot (capital intensive) you could fence off the lot and use it for storage of some kind.  I can't imagine you're going to have massive property tax bills on a scraped lot.

Bottom line:  Everyone has had a shot at the property.  The constituents who should want the property (charities, the next door business, etc.) have no desire for it.

So maybe here's a way that I'd think about it...  Have you ever randomly been at a gas station at around 3:00 a.m. and seen that one odd-looking shriveled hot dog left on those automated rollers under a heat lamp?  It's been there for hours...hundreds have customers have walked by it...they might have bought other hot dogs...but that's the one that's left.  If the kid behind the counter said "Hey, I just want to turn off the heat lamp, you can have that hot dog for free!" would you eat it?

Anthony Dooley · Answer

I have seen houses that I wouldn't take for free. The only reason that I would accept it is to immediately put it for sale. I wouldn't do anything to it besides remove trash or hazards.

Michael Gansberg · Answer

Some of the most expensive houses are 'free.' A bank gave me a free house about two years ago.

The bank offered it to me because I was the neighbor(I owned- and still own- a 3 family next door.) I estimated its free market value at negative $5,000 to negative $15,000. The house had plenty of fire damage. But I didn't want some neophyte picking it up and making a mess of it- plus, I had the adjacent house, which could offer some upside in the future(when I'm 400 years old) should someone want to buy both lots and put up a small apartment building. All told, I figured it was worth about zero to me- $5k to $15k more than anyone else.

So the bank offered it to me, and I took it. The rehab costs were more than expected(about $100k,) the timeline was worse than expected. But finally, the place is leased up, owned free and clear, and I don't have a burnout next to one of my properties. It was pretty arduous though- not sure I'd do it again!

But there is something I love about revitalizing neighborhoods. My capital and my manpower can improve the lives of people I'll likely never meet, can turn a speck of urban decay into a vital part of the urban landscape, a home for families, a place to lay one's head.

Best of luck in your endeavor. I hope you find it less challenging than my recent free home, and at least as rewarding.

James Wise · Answer

Typically in these situations the cost to renovate the home is equal or sometimes even greater than it's after repair value. Not saying a free house that you put $40k into that ends up being worth $40k is automatically a bad idea, it's just something you need to be aware of.

This could be a nice opportunity for you to learn the biz & take down a property you otherwise couldn't afford. Maybe you don't have $40k right now but could slowly work on it.

Amanda G. · Answer

Try getting a general contractor to walk through with you. I looked at a lovely place that needed work. I had underestimated the price tag to bring it up to rentable by $100k. An informed estimate from an expert will let you know if there is any hope of it being worth the amount you will need to put into it.Another option for financing: I just learned about a loan option one of my local banks does. They give a construction loan for the amount of the purchase price plus the remodel. Once the remodel is complete, they go back in with an estimator and convert the construction loan to a mortgage. You might see if something like that is available in your area.

Should I take a house that was offered for free?

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