The link to the property I visited is below
I purchased a turn key property in April and have since been reading about the BRRRR strategy. I found a foreclosed property online and arranged to meet with a real estate agent at the site. This property was built in 1968, 2 bedrooms, 1.5 bathrooms in Port Richey Florida. The bank is asking 65 thousand and my research on Zillow showed similar houses having sold for 90-100K. The real estate agent that met me showed a 3 bedroom house listing for 120K (not sold yet) and a 2 bed 1 bath that was listed for 85K and sold for 75K in the area. I believe this would hurt the appraisal on this property, let me know if I am wrong. At first I thought it just needed simple cosmetic work; repair some of the tile floor and repaint the house. Upon arriving at the property I quickly realized it would need much more work. All the floors in each bedroom are horrendously cracked and would need to be replaced, part of the living room tile is cracked, holes are in every wall. I quickly realized I didn't know how much it would cost to fix this so I couldn't even begin to make an offer. The real estate agent said after a bid is accepted and inspector could come out and then that report could be given to contractors to get estimates. Is this the process everyone uses or do you have another method? I think I will be finding my own real estate agent to help me find properties in the future but do you have any advice that would help me assess a situation like this? I did purchase the book on estimating rehab costs from biggerpockets and will start to read that. I know the pictures are not the best, I wasn't sure what I was looking for but I figured I would post and try to learn as much as I can from the experience.
Welcome to BP...
You're mixing up different things. An appraisal looks at the current condition of the house. It can't be compared to other properties in the area without making an adjustment for needed repairs. Ideally, an appraiser would find 3 recently sold and 3 actives of similar size and condition. Sometimes that's not available. So, the appraiser would have to make the adjustments.
However, that's neither here or there. Offers on foreclosures for rehab aren't based on the appraisal. They are based on the following formula: After Repair Value - Rehab Costs - Closing Costs - Carrying Costs - Cushion for Overruns - Profit Margin = Max Offer Price.
What you need to determine is what the value of the property would be after all the work is done and then back into it based on the repairs needed.
A home inspector is there to find hidden problems like appliances not working, bad electrical work, leaks, roof issues, etc. They aren't there to help you evaluate the value of the home. If you are obtaining financing, the lender will require an inspection.
You wouldn't use the inspection report to give to a contractor. They can't tell anything about repairs because their costs are based on the size and scope of the repairs, which is hard to determine from a photo. To get an estimate of repairs, you have to learn how to do that, there are lots of videos on YouTube about this, or do a walkthrough with a contractor that will tell you how much it will cost to repair or upgrade each room. It's not an inspection, they are just going to give you numbers based on what you tell them you want to fix. Gut and rehab a bathroom = "X". Gut and rehab a kitchen = "X". Replace the roof = "X". Etc.
Once you have your rehab estimate, then you can back into your offer number based on what rehabbed properties are selling for locally.
Happy to help you here. I buy 8-10 properties per month in the Port Richey / New Port Richey / Holiday area and I took a look at this one when it was in the public foreclosure auctions back in April 2019 (plaintiff took it and now trying to sell it as an REO).
Firstly bear in mind that this is in an AE floodzone, which makes it more expensive for any conventional finance investors looking at it as a rental. As a rule of thumb, most (but certainly not all) homes west of US19 in West Pasco are in A/AE zones.
Secondly, you´ll notice that all of the homes two blocks behind this house are mobile homes. Nothing wrong with that, but it devalues the single family homes right beside them. Here you have about 20 single families sandwiched by the 19 highway on one side and 100+ mobile homes on the other.
Thirdly, the ARV of this is about $103 per sq ft or $100k. There are a couple of areas in Port Richey where you can get $115-$120 per sq ft, but this isn´t one of them.
Finally, in terms of the renovation, the roof is fine, but that´s about it. You´d need a budget at least $22-25k to replace the HVAC, repair the stucco (not cheap) and completely update the interiors. That´s my budget using my contractors. Someone else might spend $30k+ doing the same thing.
Very best of luck! West Pasco is a great market for fix & flippers.
Hey Colin Murphy,
That is phenomenal insight! I was wondering if the mobile homes would impact the value of the house and if it cost that much with your contractors there is no way I would have made money on that one. Thank you for the tip on the flood zoning. The FEMA maps definitely support your assessment of flooding west of 19. I am glad to hear your are able to find so many properties per month in this area. I'll keep looking, especially now that I know that deals are out there. Thanks again!