Foundation Rental issues

[Matt Waggoner]

Hello BP Community!

We are in our first year of our REI journey. We grabbed a 2 duplexes that were in decent shape and already occupied and renting for well under market value. 2 of the Tenants have been in place for >20 years and we don't have a ton of reserve, so keeping cash flow in place was a priority. We knew that we needed to replace windows and roof on units and planned to get these done in the next 2 years. We thought everything was going well. We closed on the property, then received a cancellation notice from our homeowners policy bc of the condition of roof. Our agent found another insurer, but this resulted in an increase of $800 annually to each property. We still cash flow, but its less now.

Fast forward to another property on the market near our home. We live in an area that is highly desirable and this home is perfect for renting. It was picked up for 55K in feb by a flipper who is currently selling it. They did some really good upgrades, and its nearly rent ready on purchase. My concerns are these. The inspection has seen bowing of the walls as well as deteriorated masonry. This home is from 1890 and has been ripped up and rebuilt a couple times based on our observations. Additionally the stairs that go to the 2nd floor are slanted. 

All homes in the area that have comparable specs are selling for close to 75K higher. My concern is that based on what I went through in the first rental, I am concerned about the ability to insure the property and if there are implications to renting based on the issues with the foundation and stairs. There appears to be no crawlspace and no basement. I am not sure of the implications with this. We are torn, because even this morning, we had a facebook post for a family looking to rent in our area for $1200 a month which means we would still cashflow about $300 per month after CapEx. There is nothing available for rent in the area aside from a farmhouse about 5 miles outside of town going for 2100.

We just don't know if these are issues that will prevent rental, create potential for legal issues, or have issues with finding insurance for the property. 

Appreciate any expertise as we navigate this potential purchase. 

matt

[JD Martin]

Good advice above overall. None of what you described is a deal breaker *BUT* without reserves you never know. A bowed wall could be bowed and stabilized for 50 years or might have happened 6 months ago. No such thing as no crawlspace or basement unless you are on a slab; most likely is that you've had enough settling that it doesn't appear there's anything under there, which again may or may not be a major problem. 

Considering you already own a couple of units you really need to have reserves available to you to cover those properties, even if the reserves are just lines of credit or high limit credit cards. Nothing might sink your investing career faster than being overextended and not being able to address issues as necessary or going negative and not being able to cover costs.