Buy Neighbor's House and Tear Down?

Question

Hello,

Looking for advice from the wise folks on these forums. I own a property in an OK neighborhood in north Saint Petersburg, Florida (close to Mazarro's Italian market for any locals reading this). The house two buildings down from me is abandoned. The roof has a giant hole in it and you can look through the window and see the blue sunny Florida sky! It is pretty bad, I guess beyond repair. The city has several notices stuck on the front door.

I might be able to convince the owner to sell it, but I am not sure if it is worth the hassle. The average prices in the block are around $150k, but there are $300k houses 3 or 4 blocks away. Strategies after buying something like that:

1) Demo and rebuild, then sell.

2) Demo and just sell for land value.

3) Demo and hold on for long term land appreciation.

Is it worth buying something like that? I read somewhere that a fair price should be 1/3 to 1/2 of the price of a new home on that lot.

Let me know if more information is needed to answer the question.

Thanks,

Faisal

Zach Kidd · Answer

It all depends on the specifics of the situation, and those are the one thing that you need to know everything about.

It is a difficult problem, but that's where the seed of opportunity is.

Who owns it? Private individual? Bank? City? Is there a property tax lien? Other liens? Is the city demanding demolition? Why? How much to get it out of hock? How much paperwork / red tape? Etc.

Everything else is easy. Seriously. A wholesale deal is much simpler than digging this information up, right?

If the difficulty level and potential profit are good, move forward.

If not, you will have put in a few hours to know that it's not worth it.

Those few hours of work are peace of mind - no regrets either way.

Zach Kidd · Answer

Not my specific area of town, but I'm familiar with the area.  I also have a similar situation.

The good news - you have two major home improvement stores nearby.  There are also quite a few investors and homebuilders in our area.

First question - who owns it? In other words, is it REO yet? That can really complicate the issue.  I will presume there is still an individual owner involved, at least for purposes of discussion.

I suggest digging a little deeper for information.  If code enforcement has tagged it repeatedly, there's a good chance the owner is either highly motivated or has dropped off the face of the planet.

Code enforcement becomes a great ally at this point. Cultivate that. They will happily provide a massive amount of information if you approach it right.

"I'm a real estate investor who lives on the block.  I'm happy that you are aware of the situation and handling it the best you possibly can. While I am, of course, interested in the potential profit in rehabbing that property, I'm also very concerned about my own property value.  I'm doubly motivated.  Is there anything I (as an investor and/or neighbor) can do to work with you and the rest of code enforcement to help fix this problem?"

Do what you can to reach out to the owner.  If you can make contact, gently ask what is the absolute lowest price they would take for the property.

If it had burned down, what is the smallest check from the insurance company that you would take without getting really, really mad?

Then you have the option to wholesale, or purchase for a fixer for yourself.

Faisal Farnas · Answer

@Zach KiddLOL I will dig deeper. Are you saying that even though the city served a demo notice, the property could still be rehabbed? Or are you saying there could be some profit made with wholesaling the empty lot? This is where I am confused.

Appreciate the advice! Back to work now...

Zach Kidd · Answer

You're quite welcome!

I would absolutely dig deeper.  Don't make me drive over there and scout the neighborhood myself, lol!

It won't take long to find out the HELOC amount / situation, and it should be pretty easy to find out the total amount of the city fines.

From there, you should have a starting number and a guesstimated difficulty level.

If you don't get to this point, you'll always wonder if you missed out on a deal.

Check the options, both good (wholesale and make $15k) and bad (everything goes south and you're stuck with an overly expensive lemon).

Then you have to make an informed decision.

Does the potential reward outweigh the potential risk?

Faisal Farnas · Answer

Thanks for the replies @Zach Kiddand @Brian Turnbough. It seems that there is a demolition notice by the city and several citations/fines against the property. I guess that I am just going to sit and wait to see if they actually proceed with the demo! Did some digging in the city records and it seems there is a HELOC against the property! Somebody is in trouble.

If the city is going to demolish it, I am not sure if there is any benefit from just buying the land for value. The block is just ok, not the best in the area. What are your thoughts?

Brian Turnbough · Answer

One thing to think about is, that property is going to bring down the value of your property. So if you can get it and rehab and sell around 150k you will improve the value of your property. When determining what you can get always look at the lower estimated value. But hope for the higher value.

If the house is condemned and has to be torn down then, I would tear down and sell the land at improved land value.

Buy Neighbor's House and Tear Down?

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