Heavy Basement flooding & Mold. Should I run?

Question

So I walked through an AS-IS REO today. It's a 3 Bedroom 2 bath Brick Ranch with a basement. Upstairs needed a standard kitchen/bath update, new paint, etc. It seemed pretty standard to me.

... but then I walked into the basement. I think the attached pictures do a way better job describing it than I can in words.

Just a quick run down, I'm looking to flip this. If I move foward I'd end up paying 55k (cash deal) & I'm confident in my ARV coming in between 130-140k. I'm an agent & I used to own a restaurant walking distance from this property, so I feel like I have the buy/sell figures down pat.

HOWever, the rehab costs are concerning me. Upstairs needs a kitchen/bath update, new paint, etc. That seems pretty standard to me. But, I've never seen this much flood damage to a property & I'm just being jittery.

Looking at the pics, can someone give me direction on what to expect when doing flood & mold repair/remediation? I have quite a bit of wiggle room between Purchase price & ARV. How much have you folks paid for repairs/remediations in the past? Are there Other hidden costs/issues (electrical?) I should be concerned about during the flip? Are buyers going to cause me headaches even after the property has been rehabbed?

Thanks you in advance for all your help!

Patrick Liska · Answer

That looks like it has been flooded, you will have to gut all those walls, drywall insulation and trim redone of course and foundation and framing treated for mold. upstairs will be about 20- 25,000 downstairs you are probably looking about the same, so you are probably looking at about $50,000.which will put you at 105,000 and probably about $10,000 closing costs when you sell and probably 2,500 when you buy it - you are now at 117, 500  plus holding costs. you can maybe make $10,000 on it.

Account Closed · Answer

@Taylor Kamal

Mold is potentially harmful to your health. You need to be very, very, very careful with removing anything that has mold growth. I am not a medical professional, but serious usage of Personal Protective Equipment is a must and most likely trained Mold Remediation Specialist usage is in order. The quick takeaway: Costly, Time Consuming, and Potentially Hazardous.

HOWEVER: The second issue is why was this space flooded in the first place... If you remove all the finishes, and then you find massive cracks in the foundation through which water seeps in in during even the mildest rainstorms.... you're going to have a disaster. Even if you don't notice it, what happens when the buyer comes along with their home inspector and they notice it? Perhaps the flooding was just caused by a broken sump-pump, and it will never happen again, but perhaps it's more serious damage.

I'm not an expert at flips by any stretch of the imagination, but it seems to me that there's enough risk involved with flipping houses that you should probably forego this additional issue. At the very least, find a mold remediation expert and have them walk the house with you before you purchase.

David Dachtera · Answer

Account Closed,

In many cases, the cause of flooding is little more than the electrical service being cut off and, as a result, the sump pump doesn't run. The first heavy rain thereafter the basement fills up.

If the pipes freeze up and burst, well, that certainly doesn't help.

Joel Owens · Answer

The bank isn't giving enough markdown for the problems this property has.

A long term rental investor will not buy a house in this condition.

A rehab and resale might but has to be ultra cheap.

Maybe go in at 30k or something. Has to be dirt cheap where you know you can unload it and will not be stuck with it. If not wait for the next one. That is a ton of mold there. When it is resold a mold company has to give a clean cert for air quality and remediation.

Taylor Kamal · Answer

Thank you so much for all your insights, folks! So many great points!

I'll definitely have to create a big enough cushion & come in with an offer below the bank's asking price, as @David Dachtera mentioned.

And I completely agree, @Kacper Lastowiecki - I'd never touch any mold related project myself or to regular handymen. This would definitely have to done by Specialists.

Richard Fields · Answer

If the water level was above the mechanicals (house heater and water heater) they are going to have to be replaced too. The electrical panel too if water touched it

David Dachtera · Answer

@Taylor Kamal,

Where I come from, we normally say, "Mold is Gold". (@Charlie Claxton)

In the case of an REO, however, it gives you justification for an offer below the bank's asking price. Simply provide the pictures above along with a contractor's estimate for both repair and remediation to justify your offer.

Heavy Basement flooding & Mold. Should I run?

Most Popular Reply