Newbie- thoughts on this deal?

Question

I know of a house that is up for auction through the 11th. It's listed on the auction site as a 2br/1.5ba, 1891sq ft with a full foundation basement.

I know that the "basement", which is really a walkout, has three bedrooms and a full bath, in addition to a den area. The actual living sq ft is a little over 3800.

The auction site says previously valued at $190k, but I know that was the amount owed upon foreclosure FWIW. The comps has it valued at $177k.

Here's the kicker- there's a mold issue in the basement because the foundation has shifted two inches in the back of the house. The house is built into a hill (I don't know what the term is for that), so where it has rained, that's become a problem for the lower level. The ceiling on the main level livingroom has a crack, guessed due to the foundation. I'm not sure exactly how much foundation and mold repair costs in NC, but the rest of the house is VERY well kept on the inside and the foundation and mold would be the majority of the repairs. The kitchen was just updated a year ago. Berber carpet in the livingroom, tile and hardwood - laminate in the lower level and carpet upstairs. It's in a very desirable school district.

The opening bid is $55k, and it is a cash only auction.

My question is- how would you know how much it would cost to fix it in order to flip it? I guess that comes with more experience, but is there a rule of thumb one can go by when dealing with auctions? I'd love to be able to be a part of this project knowing this house personally.

Thoughts?

Bob Okenwa · Answer

@Wendy Wood

As the saying goes, you make your money when you buy, not when you sell. Part of buying is knowing exactly what needs to be fixed, how much it'll cost, and throwing a little extra on the back-end because something always goes off track and costs more than it should or takes longer than it should. Foundation concerns can be as simple as cosmetic patches that may run a few hundred dollars, to as serious as jacking up the house and leveling it, which could run upwards of tens of thousands. If you can't estimate the costs yourself, get a contractor in there to walk the property (pay them for their time if you have to) and have them give you a ballpark estimate if not a line-item bid. If you can't get in there beforehand, you're going to want to make sure the spread is big enough to handle all of the costs you think it'll take to fix and a contingency budget as well. As far as rules of thumbs for auctions, know the neighborhood, know your ARV, bid with your head and not your heart.

Wendy Wood · Answer

Thanks @Bob Okenwa @Christopher K. and Account Closed, I appreciate your input. I'm still in the learning all I can phase. There are so many things to take into consideration! I'm not in a place to do a project myself, but would love to be able to follow someone through the process. At this point I'm still working out numbers myself as I see properties. From different conversations I've had it seemed like foundations and mold were things to runaway from as fast as you can. It's nice to witness differing perspectives.

Account Closed · Answer

I'd use a contractor who specializes in that type of thing, what I wouldn't do is try to become an expert at repair estimates, there's a lot of free sites that will give you estimates; or do like we do and treat your contractor as if he/she was an attorney meaning keep them around using a retainer-like agreement, where you prepay for consultation, it helps.

Christopher K. · Answer

Good reply from @Bob Okenwa.

The investors I know in my area that deal in auctions on the regular either 'find a way' (read that how you want to) into the property before they bid or they have a contractor/project manager/GC that doesn't mind 'finding a way' in. This isn't how I like to operate so auctions generally aren't my bag but is pretty much how the business works.

The last thing you should do as someone inexperienced is bid on it without knowing what you're really getting into. If you can't get into the inside and/or find a competent contractor to get in and give you a real price first (or at least a reasonable approx. range), I'd steer clear.

Neither mold remediation or foundation issues HAVE to be super expensive issues but they vary a GREAT deal - both on the individual case by case situation itself and who you know or hire to do the work.

If there's a property I'm genuinely interested in and I see evidence myself or otherwise have reason to believe there could be foundation issues, then I pay a structural engineer to come out and assess the property and give me a letter. This would typically cost around $250-$500. It depends on your level of experience and amount of risk you're willing to take as to when you want to get this done. If it was an auction and I had to put 10% or more non-refundable down up front, I'd very likely get my engineer out there before I placed my bid. And I've been doing this for decades. If it was just a typical transaction using the normal NC Offer to Purchase, then I get my engineer out there during my due diligence period, so worst case if it's a total nightmare to repair, I'm only out my due diligence fee (if there is any) and whatever my engineer charges me.

Depending on how much money you have to play with, these costs associated with deals that potentially don't close or work out can add up before you even get your hands on a real deal. But it's a cost of doing business and you should be prepared to spend a few hundred here and there on deals that don't end up making you any money. Better this than losing thousands or tens of thousands on a problem you could have discovered early on if you'd done your homework.

If you do to the point where you pick a property up that needs foundation work and you've had your engineer go out and draw up what needs to happen to fix it, Carolina Foundation Solutions does good work.

Newbie- thoughts on this deal?

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