Potential flip in North Carolina

[Brandon Purdeu]

Hello this is my first post here but hoping to get some advice on a potential flip. I found a property near Greenville, NC that has some fire damage. I have not purchased a fire damaged property before and would like some advice if it's a decent deal. The house is 1650 sq ft 3 Bedrooms 2 1/2 Bathrooms with a nice layout but needs some updates to the kitchen, and flooring throughout. Upstairs was damaged by fire, fire started in master bedroom and was contained to that room but smoke damage effected the entire upstairs. The upstairs is a gut job, new drywall, carpet, and bathroom. Estimate resell is around $105,000 and purchase price is $46,000. I need a hard money lender for the project but have around $20,000 of my own money to put up.  I was looking at around $25,000 in rehab costs to redo the kitchen and upstairs and freshen up the place. Would like some advice if its a decent deal worth pursuing. 

[Joseph Druther]

Hi Brandon. Congrats on taking action. That is awesome!!! I am just down the road from you here in Aberdeen.

Let me start by saying that my first deal was a fire damaged house. I am no expert on the process, but I can tell you what I have learned through my experience. I have no idea how much you know about the remodel process, so please don't take any offense if my questions seem stupid to you. Also I hope they would benefit another less experienced investor someday looking to do a burned house.

First I would like to ask how you got your numbers. 105000 ARV may be correct for that area, but at $63/ft it seems a little low. May just be difference in our areas. My house is not even in a great part of town and stuff is still going for around $100/ft. Just make sure you are calculating based on other recently sold GOOD comps.

 Also how did you come up with your repair values. Without going through a mock up scope of work they seem a little tight. Being your first flip especially would pretty much guarantee going way over budget. Do you have a background in construction? Do you have reputable contractors giving you prices? Not coming down on you, just want to have a better understanding of your skill sets. The saying goes "it will always cost more and take longer than you think."

I would consider talking to a fire restoration specialist contractor, not just a contractor that says he can fix fire damage. He will definitely quote you much more money, but he will have a wealth of information that could really save your butt. Both mine and my wife's family have been remodeling homes for a long time, and we did this remodel almost totally ourselves. 

Smoke gets everywhere. This is what they told me. Even on the other side of the house where the sheet rock looked just fine, I was told that it probably had smoke behind the walls. I cut out a small section in different areas and, sure enough, the wall cavities were filled. So ALL of our sheetrock had to be taken down and replaced. Smoke smell will come through everything. 

To cover wood that is only black with smoke (NOT BURNED), You need to seal it. There are different products they make for sealing smoke. We were told to use a Shellac based primer. Zissner or Killz, something like that. EVERYTHING with smoke on it that is staying must be sealed or the smell will not go away. Even behind the vynil siding could still smell like smoke when you walk up to house in the future. 

Ozone generators will have to be put in the house and they will take out smoke smell. Its been a while, so I don't remember the specifics, but if you ask a remediation specialist they will tell you about them. Anyone who doesn't know what they are or has never used one is not someone qualified for your project. 

How did the fire start? Was it the electrical in the home? If so you may have potential for more electrical problems. Need to get it looked at. Is there aluminum wiring? Was it installed on devices not rated for it? Wrong wire nuts for transitions to copper? Knob and tubing circuitry? Knob and tubing would have to be replaced. Assuming the wiring is Romex, any burned sections will have to be replaced if the rest of the house is acceptable. On a two story house this means junction boxes in random spots on wall or more extensive sheet rock work. Stuff you may not expect that start coming in as "extras."

How extensive is the actual burned damage? Is the roof structure AT ALL compromised? A home inspector will see that as a big red flag if there is damaged wood that has been sealed over. If damage to shingles how old are shingles? If too old then you may not be looking at a patch job, but a whole roof replace. Creeping costs like this will start to blow your profit FAST!

HVAC systems will need to be thoroughly inspected. Duct lines at least will almost guaranteed need to be replaced. That smoke smell is hard to get out of those ducts, and the last thing you want is somebody walking through your freshly remodeled home and smell smoke everywhere. Do you have two separate systems or a chase from crawl space to feed upstairs? Is there one in attic and one in the crawl? How old are the units themselves? This dictates costs significantly. If they are more than say fifteen years old then you would probably consider replacing them anyways. For one unit in crawl you may be looking at 8-10K if you have to replace everything. I am not an HVAC guy so I don't know, but make sure you have a few (like more than three actually) give you prices. My best price came from Four Seasons, but I don't know if they travel to Greenville.. Don't just go with the cheapest price, though. I have worked with Four Seasons on many jobs and know they are very good.

I don't know all of the specifics for your house or experience level, if you are planning on fixing yourselves or through contractors. Just remember that costs can creep. They can also jump up like a freakin rocket if you missed a couple of big things. And if you are taking on a project like this for 20K in profit, you might reconsider purchase price. There are a lot of hidden things that can kill your profit quickly with any job, let alone an extensive remediation/ rehab for fire and smoke. Just make sure you watch yourself.

Let me know if you have any questions or if I can help in any way. I have to go eat some breakfast with the family. Would love to hear how this turns out for you. \

Good luck, God bless