Fire Damage Fiveplex Phoenix

[Lindsey Jessup]

Before I dig into numbers, let me say that I'm completely new to the industry! The deal: Fire damaged Fiveplex in 85034. Observations: obviously burnt... Through the ceiling supports between the two center units. The fire probably started at the charred water heaters. Also, notice many termite tunnels hanging from the ceiling in the front unit about six inches in length. No HVAC on the property. Good news: it's right off of seventh street and the 17 freeway near all the awesome downtown stuff like Chase field, so many great museums and entertainment. Numbers: Asking price: $75k (seller bought for $40k) Median rent for 1 bed 1 bath ~$675 according to rentometer Gross rent: $3375/mo Estimated repairs... I'm praying for $50k but I honestly don't know. ARV: ~$150k according to Zillow zestimate Mortgage estimate: ~$700/mo I'm thinking of offering 50k (sellers already dropped the price 15k) and seeing where it goes. That leaves me with a hard money loan at 90k and me cash in 10k for the remainder. My goal is to BRRR the property for cash flow. Someone already started tearing out the drywall and insulation in the damaged units, but this doesn't include the termite infested area. If my numbers are anywhere near correct, I think it passes the 50% rule. Should I consider getting an estimate from a fire damage specialist and GC, or just move on? This would be my first investment property, so I might be biting off more than I can chew. What am I missing? Thank you for your time!! Lindsey Jessup

[Andrew Brannick]

I want to tell you something that was great advice to another investor in a situation kinda like this. They didn't listen and are still stuck with their mistake! It was told to a rehabber that was going to do a teardown/new build on a house after only doing two remodels.

-This isn't an easy rehab; this isn't a rehab that any beginner should do; you should have at least 20 or more rehabs done before taking on a job like this; you can get your numbers to work on paper but the little mistakes and unknown problems are going lose any profit. 

Before taking on a project where you are counting on refinancing as an "exit strategy"; have an LO or the bank that can do a refinance on the property come out and confirm that you will be able to get what you are looking for. Have your GC there to explain the changes that will be made.

RED FLAG! It sounds like the previous investor (assuming it was an investor that bought it for 40k) started work on the unit. The investor now wants to back out of the situation and still make a profit, without adding any value. 

-The investor realized that they were in over their head, sell to minimize losses

-Projections for the property were off, this is last opportunity to make a profit

-No money left for project, need to get out

There is a reason that the current investor is looking to get out of the project. You exit strategy is different than the typical investor, and could possibly make the deal happen, but it is still unlikely. This is also a very complex deal.