When NOT to buy a house that looks good online

[Rodney Marcantel]

Yesterday I went and looked at a house from a wholesale company locally in north Dallas (Carrollton) area that had a house they had under contract for $211K and selling to several investors for a starting price of $217K with a final sale price of $222K. What's enticing about the property (before walking the property) was location. The house faced a greenbelt area that is beautiful with walking trails. The houses on either side looked very well manicured and clean. The picture of the house looked nice. And then I went to view the property (while bumping into other investors touring the property and hearing all they would do).

About the house on walk through...

• Massive tree within 2 feet of the front of the house.
• Cracked foundation in living room. Easy to spot since most of the house was ugly painted concrete floors.
• Awful smell of dogs. They had 3 large dogs.
• Every room needed gutting. 3 bathrooms and kitchen.
• Driveway in back (alley) sloped down at least 5 feet towards the attached garage.
• HVAC looked ok but compressor outside was covered in dirt.
• Hot Water heater looked good.
• Tons of paneling in living room.
• Kitchen appliances hadn't been replaced since house was built in 1983.
• Gables outside had lots of water damage but roof looked good.

So I walked away from the property because of my analysis prior to the walk through. I analyzed the comps put the house in very nice condition (ARV) at $285K max. Other nice homes near the greenbelt were selling for $260K - $320K depending on size and updates. This house was on the lower end of size at 2,136 sq.ft. Houses in the $300K - $320K were about 2,500 - 2,800 sq.ft.

By the numbers...

• $222K selling price (I did my analysis prior to showing at $219K). 
• $285K ARV, $35K Rehab Budget, $5,652 closing costs. $240 monthly holding costs and loan payments.
• My initial (before walking property) rehab estimate was $20K. After walking property, that number jumped to $35K and one of the other investors agreed with me when we introduced ourselves as we were leaving the property.

In order to break even on the property, I would have to keep to my budget and get financing with no points and 7.83% interest rate with 6% realtor fees and closing fees total. My agent works with me to market house for only 2%, 3% to buyer's agent and 1% for other selling costs = 6%.

I'm not in business to break even so I walked away and you should too. Even a tidy $5 - $8K profit wouldn't be worth the hassle and time. If I had not done my analysis prior to viewing the property, I might have bid on the house due to the location and what I've seen elsewhere in the area where prices are on the rise.

Here's a picture of the house... (looks good. NOT)