so I recently got under contract the following property located in Southern Utah (well, we're still waiting for the bank to countersign, but they gave their verbal approval):

- Fourplex built in 1996, 5400 sf total (so each unit about 1350 sf)

- 2 stories - 2 units downstairs and 2 upstairs

- Short Sale

- Contract price: $51k

- 3 units rented at average of $550/month (market rent, if fixed up: $600), 4th unit unhabitable

- ARV if there wasn't a foundation issue (which needs to be disclosed to a future buyer) would be somewhere between $250 and $300k

- Value of the land (about 0.25 acres): $10k

The property was apparently built on soil that is rich in gypsum, and the proper procedures were not followed at the time (the proper procedure is apparently to excavate the soil down to a certain depth, then replace it with new soil that does not contain gypsum).

Poor drainage around the building caused water to get into the ground, which washed out the gypsum and the property started sinking. In 1999 piers were installed on one side, and in 2006 on the other side. It now seems that the perimeter of the building is stable due to the piers, however there was some sort of plumbing leak under the slab in the one downstairs units, which washed out some more soil, and the slab collapsed by as much as a foot, rendering the unit inhabitable.

There is a quote on hand for $22k from a foundation repair company to take out the collapsed slab, add some new soil, compact and pour new slab (all of which they supposedly can do without vacating the other 3 units), and another quote for about $130k to redo the inside of the affected unit, and correct other inside and outside cracks around the building and the other units. There are also 2 cracked windows because the building moved so much!

The $130k seems a bit excessive to me. I know that I can rebuild the inside of the affected unit (new kitchen, bathroom, flooring, drywall, painting etc) for $30k to $40k. And fixing some drywall and stucco cracks throughout the building can't cost all that much (even if we would restucco the entire building, we're talking +/- $10k).

So my question to you: what would you do?

I know that some will say "run", which I'm considering doing, and I would like to see how many people on the other hand would go ahead with this, or have had similar situations, and what your strategy would be?

One possible strategy would be to fix the slab for $22k, so that the building doesn't end up collapsing, but not fix the unhabitable unit, and just keep collecting rent from the 3 other units (tenants are paying slightly below market to account for any cracks they may have in their walls).

Demolishing the building and starting over is not an option, because the demo would cost more than a vacant lot nearby.

Thank you in advance for your ideas.

Jean

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