Burn-out requiring demo and contains lead!

[Angela Vargas]

Hi everyone. I've come across one of the first property's that could be a potential first investment. Its sitting on a 4,356 sqft lot, hoping to construct a two story townhouse style duplex. Currently listed for 98K and has a potential ARV of 312K.

BUT after doing some due diligence on the home, these are the conclusions:

Home is a burn-out. Roof has damage on the inside, and crawl space has been flooded. This is also due to the home sitting in a low level lot, where the lots surrounding are at a much higher elevation, and will need to be leveled. I am working with general contractor who has concluded it will need to be demolished.

In addition, we have tested the home for lead paint, and it’s positive. Which means we will need a special permit for demolition, this will add on to the costs.

The area is zoned for a duplex, and would be the perfect opportunity to build from scratch. Based on comps, property could easily be valued at 300K+. However the issue is all the repair costs. At a 98K price, we have determined it would not be profitable based on the fact that costs to remove lead, demo, level the ground, and build the duplex would be around 260K+.

The seller bought the property as a burnout for 43K and we are considering negotiating on the sale price.

However, considering the costs the seller would have to settle for no more than 15K in order for this to be profitable.

I keep getting the feeling something is missing or that there is an opportunity I am not seeing? It’s also totally possible that it’s a bad investment... your thoughts are greatly appreciated!!

Thanks!

[Peter M.]

Just sounds like a bad deal. Only other option would try to get a zoning variance and build bigger but thats just more money up front with no guarantee of you getting the zoning change.