BRRRR deal gone sideways

[Max Sherman]

Hi folks,

I'm looking for some advice on what to do here, maybe someone has been in a similar situation?

I'm an out of state investor trying to BRRRR in Lexington Kentucky. I bought a pretty distressed SFH for $90,000 and figured I could rehab it for about $45,000, and then get it to appraise for $150,000 which I thought wouldn't be so bad given the current market. It took me a long time to find a contractor who would give me a bid that was at the level of detail that I felt comfortable with, and the more they worked on the bid the higher the price rose...

By the time the contractor's bid was finished, the rehab was going to be just under $100,000.  Of course, I wasn't thrilled with that but I figured I'd call this a "tuition payment" and if nothing else I'd have a pretty solid rental with no deferred maintenance at the end of all this.  We agree to the contract and the contractor gets to work.

A week goes by and the first stage of the job is underway.  My contractor is sending me photos of the work almost daily revealing huge structural defects, damage from rot and termites, and he's telling me the inspector is telling him there are a ton of code violations that are going to add to the cost, for example the HVAC ducting needing to be totally redone.  He tells me that the damage to the house is three times worse than he could have ever imagined and there are things the inspector didn't include (or notice?) in the report when I had the house inspected during the contract period.

He tells me that it's likely the inspector is going to have the house condemned, and at this point I've sunk $100,000 into the project (90K for the acquisition and 10K for the first draw).

I'm waiting to hear back from my contractor about what the inspector says, but I'm not holding my breath.  I'm hoping someone here can offer me some advice?  At this point it seems like my only two realistic options are to sell the house at a huge loss (as basically land for a new developer) or to try and build an entirely new structure, which will likely not make much financial sense.

Anyway, that's about it.  Any advice is much appreciated.  Hope everyone is staying safe out there.

Thanks,
Max

[Joe Alonzo]

As a brrrr investor myself in Louisville ky the 1st problem I see is your numbers, I would not have taken that house even if I lived next door and here is why. house 90k, rehab 45k = 135k invested , and you think you can get it apprized for 150k , ok lets say it did . so as a investment property lets just say your able to get 75% on the refi that would give you 112,500... you invested 135000 - 112500 (refi check @ 75% of 150k) = 22,500 left in the deal + closing cost ect.. it was a bad deal from the start, then on top of this bad deal you hire a contractor for another 55k (is this your dream home or a brrrr?)  then justify spending that "tuition payment" money , yea you just paid for the school of hard knocks, now we are talking 77,500 left in the deal , live and learn buddy don't let this one bad deal knock you off your dream were all here to help each other , thanks for the post!