3,000 too much?

Question

Hello All,

There is a home in my grandma's neighborhood that has been abandoned, vandalized, and empty since the previous owner died, about 6 or 7 years ago. It is completely overgrown and I have no clue what kind of structural shape the house is in. I do know copper, fixtures, ect were stripped from the house.

I finally tracked down the owner who lives out of state. I told him I would offer him 3k for the property as a starting price basically but I believe I should be MUCH lower, like right around the 500 range. I want the house but I don't want to kill the deal at the same time.

The repairs WILL be major and I anticipate atleast 15K for repairs but I should be able to get rental rates in the neighborhood of 800 or 900 via section 8. It's a 2 bed 1 bath in the 38126 zip code of Memphis, TN. The assessor appraised it at 24k this year even in this state. 2 years of property taxes are delinquent on the property as well but only amount to about another $500 I believe. I know that several Code Enforcement violations have been filed against it also making it an uninhabitable property.

Lastly, would I be able to borrow against the massive equity I would have in the home immediatley to do rehabbing or would I still have to wait 6-12 months for seasoning? Any advice from the pros on this board? Thanks in advance, I know alot of information to swallow but you guys are pros!

Will Barnard · Answer

Like Bill stated, if the numbers were acurate, then you have a great deal for buy and hold, not such a great deal as a flip unless you could sell for at least $45k.

Make ssure your rehab number is accurate as $15k can go real fast for a rehab on a property this neglected. Sounds like a full gut and redo to me which will be well above $20k.

Bill Gulley · Answer

Seems to me you're saying you'll buy it 3k, pay 15k to bring it up and have about 1,500 or so in closing and back taxes, worst case, that's 19,500 for a property that rents for 900 a month?

Like Jason said, get a contractor in there (you might be surprised) but if those are the numbers you could have a great deal! Rents would buy it in about two years! That's pretty good in my book!  I wouldn't tick the seller off trying to beat him out of a few hundred bucks on a property like that!  All subject to what your contractors says.

J Scott · Answer

What makes you think rehab will be close to $15K? If the house hasn't been lived in for 6 years, you could be looking at 5x that amount, depending on the size and condition. Without actual repair numbers, there's non way to tell if it's a good deal or not.

I would recommend getting a contractor on there to help you estimate costs...

Aaron Mazzrillo · Answer

In this case, and since the house has a lower retail value, I would negotiate directly with him just as you have been.

I live in California, so the strategy I mentioned works very well when one is dealing with a $300K+ property that has been orphaned. Again, lots of legalities involved, but VERY profitable when completed.

Aaron Mazzrillo · Answer

I don't know what the laws are in your state and I shouldn't corrupt your mind, but this looks like a great claim of right to title and a quite title action.

In CA, if you have a claim of right to title and pay the taxes for 5 years you can file a quiet title action and acquire the property. A very boiled down version would be to pay to have a fence put around the property (Open and notorious use), pay the taxes for 5 years, then sue. If it needed less work, I'd go ahead and fix it up, rent it out, pay the taxes, then sue for title.

Just thinking out loud here...

Shawn Dandridge · Answer

Finance,

I have been keeping watch on this property for several years as its next door to two relatives. The Code Enforcement office has been heavy in the neighborhood about getting rid of abandoned houses. This has been on the city's naughty list since around 2007. If I can pick it up cheap and spend no more than 15k on rehab I will be pleased.

Bill Gulley · Answer

Sounds to me like the owner opened a letter from the city about a Notice of Dangerous Building right after he talked to you!

Good idea to give yourself plenty of time for due diligence, 90 days might be a little long, I'd think 45 days would be long enough. After all, you need to get in there and get'r done! Do you want to look for tenants in July or after school starts, maybe be marketing it in the winter? Time is always of the essence.

Bill Gulley · Answer

WOW! At least you started out by say "If you have a claim to" that's is the basis for pulling such shananigans!

Great way to get your a** sued off!  Having a valid claim or reason to do so will be required. True, most anywhere, you can walk in and pay taxes of any property that is delinquent, the owner can simply pay you plus interest too.

As to going upon the property, if a neighbor sees you, you could have a free night in the municipal hotel and get to meet a guy in a black robe! Put up a fence.....really!

I'd say the comment is really out of place in this thread, unless it was just a lead in to some slicker-do system, have no idea what the motive was!

You seem smart enough not to do go upon a property and do that, so I'm surprised.

Shawn Dandridge · Answer

Aaron,

Taxes are only behind for 2 years technically, 2009, 2010. Taxes for 2011 haven't come due yet but I am assuming they will not be paid as well. I'm thinking giving him $500 and if the work is too extensive for my budget to complete or if I am not able to secure financing, I will wholesale it to someone more experienced/cash heavy.

Shawn Dandridge · Answer

I meant seller by the way.

3,000 too much?

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