Frankenstein house found - Thoughts on what to do with it

[Jeremy Michiels]

I just walked through a home in North Dallas yesterday that has gone through multiple modifications and add-ons. It's zoned as SFH, but currently housing 2 separate renters and the owner (think 3 plex). The owners split the house in two while enclosing the garage to create a 3/1 and 2/1, in addition they enclosed a back patio area to make an efficiency studio area 1/1 no kitchen.

Asking price is $185. ARVs in the area for 3/2s are $220-$240k.  It needs new flooring throughout (about 1600 sq ft), paint, some windows need replacement, A/C units are 10+ years (there are 2). The second kitchen would need to be gutted and the house remerged together. Bathrooms need updating (there are 3 total) I believe the enclosed back patio is out of code, built on insufficient foundation. There is some foundation concerns also. Lot size is smaller. Close to good schools. Land value is ~40k per tax roles.

Question for rehabbers out there. What kind of offer would you put on something like this? Would you approach from a Gut and rebuild or is this better suited for a tear down? 

I have no interest in pursuing it, but am highly curious if there are strategies that may make this worthwhile.

[David Faulkner]

Originally posted by @Jeremy Michiels:

@David Faulkner

That makes me think it could work for a rehab/house hack combo, with renting out the additional space in AirBNB style or longer term.  There is a university about 4 miles away. I did forget to mention that the city does have some rental certification requirements. In current condition it would definitely fail. I'm assuming, since there are no leases in place that the current owners have ignored this requirement.  It was previously listed 2 years ago and the listing simply expired. Looks like a tough one.

Yep ... rental certification would be a problem and you'd have to be willing and able to "fly under the radar" on that one. That could have insurance and other liability implications as well. Financing may also be an issue, depending on how picky the bank wants to be. FHA would be a no-go for sure ... traditional MAY be ok, but only on appraised value (based on original conforming floorplan), and you wouldn't be able to put the extra rental income towards your DTI calculation. My Dad buys all cash, essentially self insures, and flies under the radar, so not an issue for him, though not the business model I personally prefer as mentioned.