City condemned my house

[Randy Thibodeaux]

My sister and I are inheriting a house my grandmother built in the early 1970s. The previous caretaker abandoned the house for the past 10 years after a large tree fell on the roof. Roof has many leaks, inside is a mess. The property is a brick house in a decent neighborhood. All electrical and plumbing are from the early 70s. House is 4 bedrooms and 2 bath, maybe 3,000 square feet or so. This was my childhood house, so there is intrinsic, sentimental value in keeping it.

I have no idea about how much it would cost to rehab? Should I even be thinking about rehabbing? The city wants to demolish the house. Should I tear it down and rebuild something newer? Your thoughts?

[Omar Ramirez]

Hello @Randy Thibodeaux! Those are some great questions you have. I suggest that you begin by calculating the cost of rehabilitation if you intend to keep the building's structures intact. You will need to get in touch with contractors and ask them to provide you with bids for the complete repair work. It is advisable to obtain quotes from multiple contractors to compare and assess the best available options. Additionally, you will need to evaluate the current value of the property in its "as-is" condition as well as its after-repair-value. Once you have determined these three aspects, you can then approach a lender to discuss a refi-rehab or refi-heavy-rehab loan proposal. We fund these types of loans all the time.

Lending Scenario
Let's assume for this loan scenario that you did all of this and the results were as follows: 

"As-Is" Value: $100k
Rehab: $100,000
ARV: $280,000
Loan Payoff: Free and Clear

Ignoring other underwriting criteria such as FICO scores and experience, most lenders will fund up to 85% of the Loan to Cost (LTC) for a real estate purchase and rehab. In your case, the property is already owned free and clear, so you have technically already funded 50% of the total cost. As a result, the lender will be willing to finance the remaining 50% LTC or $100,000 worth of rehab. It's important to note that this is a short-term, interest-only loan with a typical term of 12-24 months. While you may receive a small portion of the rehab budget on Day 1, the remaining funds will be kept in a holdback account for you to withdraw from. The purpose of this loan is to provide you with the necessary funds to make the repairs needed to stabilize the property. Once the property is stabilized, you can refinance with a long-term loan or sell it.

To summarize. I suggest you begin by assessing the current value of the property in its current state. Then, calculate the total cost of rehabilitating the property and compare it with the cost of demolishing the property and constructing a new one. Finally, evaluate the potential value of the property after it is repaired or after the construction of a new property. Once you've done that feel free to connect with different lenders and discussed the lending options available to you. I hope this information is helpful!