BRRRR (rehab) question

[Marvin Meng]

Hi all!

This morning I looked at what could be a potential BRRRR property but I'm concerned the rehab might be a little out of my depth. Some of the floors on the ground level were noticeably uneven. It's a two story and I also noticed upstairs floors were also uneven in spots. This seems like a likely foundation problem but even if the foundation were repaired could the house, maybe through proper bracing be made reasonably plumb? The house was built in 1880.

It's a three bedroom, two bath. Seller is asking 60k, would probably go far below that. If properly fixed up would be worth maybe 120-130 and should easily rent for $1100.00. 

Have any of you had to deal with something like that before and what did you do?

THANKS!

[Robert Feol]

Marvin

It sounds like you have what is known as 'structural settling'.  This is usually indicated by uneven floors, and then more noticeably, cracks in the walls.  On the exterior this presents itself visibly as cracks in the foundation(brick facade or cement underpinning, for example).  You can tell on older homes if this has been repaired - in a cement underpinning, for example, you would see an old crack which has been filled in with mortar of some kind - it looks like a smear.

I'm not a structural engineer but have done this a long time.  Deterring visible factors also manifest themselves when you look at trim - hallway, bathroom door trim, for example, is no longer square, but starts to look somewhat trapezoidal.  It's hard to miss.

Assuming you want to BRRRR a property, this one for example, you would have to be all in at 75% of ARV.  assuming 120k as a realistic value, can you be all in at this house for 90k?  Or 85k, assuming 5k in your refinance costs and impounds cost about $5,000.  Seller asking 60k, maybe you would be looking at 40k as a discounted price - can you rehab a house built in 1880 to modern standards for 45k or less?

These older homes all have secrets, and secrets can be costly.  So, make sure - if you get an accepted contract - you get a structural engineer to investigate the issue - it is possible the seller might pay for this inspection as a request in the contract.  Assuming you can repair the issue, and be all in at 90k or less, sounds like you have a great deal on your hand, assuming you fix up the home properly.  We like to address ALL deferred maintenance items when we rehab homes in Memphis - new dimensional roof, windows, hvac, electrical, everything.  I'm glad to send you a list of what we do as a scope of work if that would help you.  

Remember, however, there are many great deals - heavy, structurally intensive rehab work may  be too much for you to take on, understandably.  There may be a better deal out there.  Let me know how it goes!

rf