Forclosure needs extensive renovation

[Denise Tinsley]

As a newbie I purchased a foreclosed home with cash at $22,000. The previous loan on the home was for $88,000. Comps for similar homes that are in good shape would be around $100,000. I have estimated that the cost to renovate the home is $70,000. The home is located in a lake community 15 minutes from a larger town of 17,000. The area is slowly becoming more popular as the Corp of Engineers is adding many upgraded to the amenities around the lake. The larger town is building new developments 10 miles away and an interstate is being built about 10 miles away. The population in the town where the home is located is 2,400. Demographics in the area is  low income ($35,000) average household income, many retirees, but also people who own vacation homes who live in larger nearby cities. My question is should I demolish the house and divide the large lot it is on into two separate lots just to make my money back or go through with the renovation.  I made many newbie mistakes, the first underestimating the repair the home would need. I made the dumb mistake of not seeing the interior before purchasing since it was an occupied foreclosure home. 

[Jerryll Noorden]

Is this a flip or a buy and hold?

I wouldn't have bought a ARV of 100K for a flip. The neighborhood simply is not ideal for a flip.

So if it is not a flip it could be a decent B&H

Now, if it is a B&H do not make things complicated. Match the condition of that house to all other houses being rented out, and then do "smart" upgrades.

What that means is simply this. Match the core condition of the house to other houses being rented out, and then go all out for a select few upgrades.

I have seen a lot of that level houses have "Garage/Shoplight" in the kitchen.

Buy a 60 dollar new nice dome light and put that in the kitchen. Pay someone 300 dollars to put a subway tile backsplash in the kitchen.

THat is what I mean with that. Really cheap stuff that even the most lux houses will have. It gives the "illuaion" you did quality finishes.

Paint the walls, a nice blueish grey color and paint all trims white.

I would NOT demo the house. You will make it 3 times more expensive and complicated. But again, I am not there and I don't know your market, so I can't say too much. I definitely wouldn't do it.

Next time, know this. A home that needs 70K for repairs has no profit margin when the ARV is 100K.

Can you make it work, if you are really good .. maybe.. but for a lousy profit... for me it is not worth my time. (yeah even for a B&H I would think twice).

The last time I spent 70K in repairs the ARV was $250K, and we got it for way below as is value.

If the house is worth 100K and you got it for 22K with a cost of repairs of 70K (It is always at least 20%-30% more than estimated) you didn't get it at a discount. You got it at market value. That is not really what investors do. Remember that! Be careful!