Canada Foreclosure in Boom Town BUT....serious problems

[Matthew McLean]

Hi Folks,

Came across a deal in a boom town and wanted to see if it was actually a deal. Keep in mind this is in British Columbia (BC) Canada so some things differ but any advice is still welcomed. The aim is to buy, rent for 1-3yrs and sell when time is right. Thanks so much in advance for taking the time to read and even more so if you post.

THE TOWN

This town is a booming natural resource town, a lot of industry moving in, massively high demand for housing (They even brought a cruise ship into this place to house some of the workers as housing is so scarce).

THE PROPERTY

This place is a bit of a nightmare like stuff you see on the shows except nobody has been paid to make this place look so disheveled. It is a foreclosure with serious water damage. It was listed for $150k then after inspected/appraised was dropped to $130k due to the leakage and mould in the basement. It's a 3BR 2Bth home with basement. 1800 sq ft right in town close to a school.

REHAB

This place needs work. Likely that the whole house needs to be dug around and the whole basement waterproofed. Problem is said to be an external underground plumbing problem on the exterior, suspected Storm Water Drain. Inspection is rumoured to have mention of serious water damage (duh!) and there is apparently chat about a footing/foundation issue which could be a dealbreaker. A house down the road got basement waterproofing done PLUS Perimeter drains PLUS sealed it with tar (Lifetime warranty) for $20,000. The mould has gotten into all walls down the bottom so Stripping, Cleaning and starting fresh down there is a must. This would include electrical and furniture and probably plumbing. Upstairs is dated and even has some mould so may require stripping and cleaning etc. Place is foreclosure and is old and gross so will need furniture, and big remodel. Built in 1960's so may have asbestos issues. Driveway is cracked and needs repair. Roof is New (within a few years, thank god something positive!) and half the windows are new. Boiler is ruined and needs replacing, New Heating likely required. Estimated budget is between $85,000-$110,000 depending on foundation damage unless someone has feedback on this?

AIM/PLANS for REDESIGN

With the intention of renting, we are looking into options to have separate Basement entry (Could be a little small) and designing this home to suit local worker rental for the short term and ideally family for the long term. Looking to do medium quality everything with a modernized look appealing mostly to 20-40yr old workers and couples/families. We want move-in-ready design. Curb Appeal needs sprucing. Opportunities exist with so much demolition to redesign with most efficiency. As mentioned total budget for Rehab is around $85,000-$110,000 unless someone has alternate suggestions?

THE MARKET/ARV/COMPs

There aren't many homes for sale in the area at all as demand is so high. People in the town have within 3 years gone homeless because of the boom as homes so expensive. But new workers coming in are filling voids with bigger pockets (no pun intended). Nearly all single family homes are going for at least $250k. A 4 BR 2 Bth home on the same street in good shape is currently listed at $350,000. Estimates for this home are between $300,000-$380,000 depending on quality of rehab. Rental Income for single family homes of this type in the area is $1500-$2500. If we were able to separate the basement then we may be able to get $1000-$2000 per floor? Some rooms in this town are going for $1000pm!

THE FORECLOSURE ASPECT

Some decent articles explaining the Canadian Foreclosure process here:
http://whatthesooke.com/2010/11/21/foreclosure-in-bc-what-you-need-to-know-part-i/
http://whatthesooke.com/2011/01/16/foreclosure-in-bc-part-2-at-court/
http://whatthesooke.com/2011/02/11/foreclosure-in-bc-part-3-closing-and-possession/

This foreclosure is a "Power of Sale" where a lender is ordering sale through Court. A Bid has been accepted on the property at undisclosed amount (No court date set yet so bid not public yet). I have been warned there is a lot of interest in this and there will be a bit of a bidding war apparently. I am interested enough to go in but not too interested to haggle too crazily. I would look at probably not paying more than $180,000 for this at all but might go in for less at court.

BREAKDOWN

Purchase Price = $150,000

Bid War Blowout = +$30,000

Loan/Mortgage Interest = ???

Rehab = $120,000

Closing Costs = $5,000

Murphy's Law = $20,000

ARV = $325,000

Profit? = 0

This is an ultra conservative guess at worst case scenario. For my first flip it might be a bad idea.

ADVICE / SUGGESTIONS ?

What I am looking for are a few things and if anybody has any insight I would really appreciate it!

- Is my estimate about right for Rehab costs?

- Is this deal any good?

- Advice for basement water damage?

- Are foreclosures dumb as a first timer? This place just has pretty decent returns and huge demand so thought would be a good learning exercise.

We live out of town and thus have to budget for higher rehab costs but they will no doubt come down.

Any advice and suggestions welcome! Feel free to tear me down too if this sounds preposterous. Cruel to be kind I say! I am partway through reading many of the suggested books but wanted to get right into real world experience.

Thanks for your time!

Matt