Flip or flip it into the trash?

Question

Scenario: Asking Price $159990 for a property by seller, I'm prospective buyer

The Nightmare: Modular home built in 2003, currently owned by rental company renting for 50% the going rate of the area, property next door looks like it came out of the Swamp (peeling paint on wood siding, plastic sheeting floating in the wind over the windows, 5 lawn mowers that may or may not work at the side of the house, you get the picture), backyard faces a truck depot with a bunch of repairs behind a chain linked fence.  Reminds me of Durham, NC, right as the $40k houses started to sell for $80k.  The home may be tolerable by some people but this is truly substandard. I feel like the owners are lying about if they even rented it. Huge tears in the floor laminating, uneven flooring, exposed water heater, trip hazards everywhere.  There's dead trees in the backyard, one's about to hit the house.  A peak back shows that the current owners tried to sell it multiple times in the past without success, they originally purchased for $80k and had to put repairs in according to the listing agent.

The Dream: ALL the other houses in the area have been renovated/replaced. The school district has 8-10/10 ratings.  It's HIGHLY desirable.  A 2 story 3b2ba about 1800 sq built in 1948 that has been renovated will sell for 300k (pulled the comps) with a tiny little backyard and a total area of 0.2 acres. This lot is comparable.

Questions:

1) What to offer?

2) To bulldoze and tear down and rebuild or try to rehab? Rehab WILL require: privacy fencing to block out other things, foundation repair, window repair/reseal, repaint, tear down of current access stair and replacement, new flooring, kitchen appliances (all), additional dry wall interior and that's just the NEED, not the Make It Pretty stuff

3) What is the most times you've offered on a property? I think the longest I've gone on with a seller is 6 months with 4 offers and we finally settled.  No one wanted her house, it was vacant for 3 years, I bought it and turned it while it was rented partly and sold it in under a week with new style and deco for a positive cash flow.  It was a perfect structurally sound house that just needed a little updating.

Account Closed · Answer

Hi!

I have experienced this previously with a multifamily property. My question is how much do you want to work in order to pull off this deal?

If this is among the worst properties on the street that’s great as you can bring it up to the average of the area and it would be a great rental.                Another major question is what did they do to get a renter in their and how is the neighbor? If someone is paying 50% market rent something is up (bad credit, previous evictions, etc) low market rent and high security deposits are red flags for me. Also, what is going on the with the neighbor? If they are close to the property as the lot size is small that could hurt the rental as you can’t do much about loud/aggressive neighbors who chase out any renters.

• As far as the offer I would have all the rehab cost in place and during negotiations with the seller give them a vague idea of your price and why (don’t get into exact expenses). Everyone should understand with the property being in the condition stated and as this seems to be an investment property they can relate. I would start 30k under asking give or take on the cost of reno.

• Try to find out if the property is free and clear or if the owner does have loans on it. If it is free and clear with a stubborn owner then I don’t see you having a lot of leverage if they refuse to upgrade the property further or change anything to make it completive the with local market. I would opt to rehab the property unless you have the space/zoning requirements to add an additional unit. Most of the time it would be better to just rehab for renters as it is an up-and-coming area and push the rental rate as high a possible. Kitchen reno/appliances, bathroom, new interior/ exterior paint, remove any fallen/dead trees next to the house and light landscaping to bring up curb appeal and your set.

• I would not follow a deal for that long and would spend time going after other properties unless its something that would be a long and short-term home run. Plenty transactions happen everyday in large metro areas and other deals can be found.

Happy to further discuss this market as I live and actively help investors in the NC markets.

Brandon Despras

Real Estate Advisor

Jonathan Greene · Answer

Their price seems way too high given the condition so even if it's worth $300,000 as a new property, I can't really tell what the value is based on that listing price. It sounds to be like it's worth about $50,000 to be honest. The building costs, especially now, are too high to knock it down and build from scratch. It wouldn't be worth it and the holding costs would be long, if you have any. I've waited 18 months for sellers or longer, they only get it when it finally dawns on them that they can either take something or they will never get anything so I would offer VERY low even though I am against lowballs. But this place sounds awful on a good block. What do you think it's worth?

Annchen Knodt · Answer

Following this since I've come across similar situations and had similar questions.  Would love to hear someone with lots of experience weigh in!