A Home For $6,000!

[Jon Arthur]

I was out looking at homes today and found a for sale by owner that looked like crap on the outside. After talking with the home owners daughter, she said they were looking to sell the home for $6,000. After talking with her for a while it seems they are just looking to get rid of the house and the price would be negotiable. This definitely peeked my interest, nothing that I know of ever sell for that price in this area. She was able to meet me out at the home and show me the property. 

The biggest thing I'm worrying about is how much will this thing cost to fix. The home is about 800sqft with 2 bedrooms and 1 bath. It does have county or city water and is not in a bad area. Don't look at the single wide on the right lol.

I have talked with a local friend and investor about it. He has fixed up and is fixing up homes similar to this one. I do have the cash for the numbers he told me but I got a little sticker shock. We ended with about $20,000 to $22,000 that seems crazy for a home of this size.

He was saying basically fix everything siding, roof, windows, bathroom, kitchen, floor, and so on...

I think we can just keep it like is, what do you think?

I think you get the idea. So I think my next step is to talk with a contractor or 5 about the property. 

Now should I try to get the home under contract and lock in a price? Do I have to worry about a contractor finding out about it and scooping it up? 

It is not easy to find the house and they have done a poor job of marketing it so I'm not worried about other people trying to buy it but I need some help on what to do next.

[Mark Reynolds]

Well I have to disagree on the fix-up budget. If you notice in the first photo the roof is not a straight line but curves upward to the left. That's  a pretty good sign that the house has settled/that the foundation in inadequate or that the walls themselves have rotted at the bottom. All of these are things to be avoided in a house you intend to hold for a long time. 

Came across a similar thing a while back not long from where I live. Still I was willing to buy it because it came with a 3 acre lot and was in a great school district. I figured I could spend $10-15K rent it for $1,100 a month, tear it down in 5 years and build a big house on the lot.

Obviously in the current situation you don't have those advantages. I think a plan that has this house selling for $20,000 in the near future has difficulties. 

On the other hand if you can buy it for $6K and put $20k in it to rehab then rent for $400. That would give a 15% cap rate which is a pretty good return.

My thinking goes like this-- buy it for $6K. Tear it down for $1,500. Put a double-wide on it for not a lot more than the $20,000 rehab. Now you have a new house with 3 times the space. Figure you'd have $30,000 in the deal that way and that it would rent for $800 per month. That is a 30% cap rate or about twice as good a deal. Plus your on-going maintenance costs on the new prefab are going to be a lot less than they are on the existing house with foundation problems.

Where I come from (in Chicago, a very different market) 0.12 acres is considered a "standard" lot.