Big change of plans!!

Big change of plans!!

Rehabber · Erie, PA · Member since 2012 · 32 posts · 3 votes

I recently won an auction for a house. (Judicial tax sale so we couldn't go in before to check out the inside.) I paid $29,000 for a small house on a 1/3 of an acre lot in a great area. The houses on either side are adorable and fixed up very nice and this house had nice-looking vinyl siding.
We finally got into the house today to look around and it's bad! It is a ranch house and the walls are buckled. The ceiling in one bedroom has totally collapsed and there were acorns and dirt everywhere. The frame and underlayment of the roof is soaked and there was mold everywhere. I easily put my finger through the ceiling that was buckled. We made our way down the ladder-like stairs to the basement and we couldn't stand up. There was a puddle in the middle and 2 hot water tanks tipped over. In a connecting room in the basement there was a huge pile of dirt up against the wall. The foundation in the back of the house was crumbled and missing huge chunks of concrete. All the wood trim outside has rotted.
Here's my question. Our only option seems to be demolishing this dilapitated pile of XXXX. Has anyone been in this situation? Do I have the demo done and sell the land? The land in this township goes from $35,00-$75,000 for 1/3-1/2 acre. Or should I build a small house and sell? Prices in the area go from $90,000-$129,000. Any advice?

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Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y

Mariana Skonieczka was there someone living there who physically prevented you from walking up and having a look? Or, were you just told to keep away? You've made a huge bet. Being told to leave seems like a small risk to take to try to evaluate the odds on your bet. Someone with a shotgun or a rottweiler would have kept me away. But if not, walking up and knocking on the door would have been in order.

I would seriously try doing absolutely nothing and trying to sell it as is. If a rehabber has their own crew and is experienced with big rehabs, they may be able to get this one fixed. By your own admission, you're a novice. What looks horrific and impossible may not be so bad for someone with more experience. Roofs can be repaired. Ceilings can be fixed. Concrete can be poured. For example, we bought the house we live in in 1999. As part of finishing the basement, I considered moving a bathroom. But I didn't want to dig through the concrete to deal with the plumbing. Since then (in that house I mention above), I've had to dig up a bunch of concrete in a basement. What terrified me in 1999 turns out to really be no big deal. A $100 jack hammer rental, a few sacks of concrete, and a few hours of time and I could have moved that bath.

Are there any building projects in the area? There are very few in mine. But I saw plenty when we were in Houston a while back. If there aren't, a lot is going to have little value. If there are, stop at those projects. Find the GC or the owner and chat with them. They might be able to give you some idea about the cost to build and the value of lots.

Do you have good title? Auctions often don't give you a clear title and its up to you to deal with any issues. Have you done a title search, or at least a preliminary one? Around here, title companies will do basic searches (called "owners and encumbrances" or O&Es) for free. You should do that if you haven't.

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  • Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
    13y

    How much would it cost to build a small house? That's the important question imo although something tells me that regardless of the answer I'm going to lean towards selling the land.

  • Basehor, KS · Member since 2012 · 16 posts · 3 votes
    13y

    I'd recommend talking to a construction company that specializes in remodels and getting estimates on having the work done compared to building new, and discussing those options with a Realtor to see what kind of sales you might see.

  • Durham, NC · Member since 2012 · 498 posts · 48 votes
    13y

    In many areas, the market price of a house is far lower than the building cost of a similar house. If this is the case, it is better just sell it as a lot.

  • Rehabber · Erie, PA · Member since 2012 · 32 posts · 3 votes
    13y

    Thank you for the replies and taking the time to read my loooong question. I have more research to do but it's looking like I'd sell the lot.

  • Massachusetts, MA · Member since 2009 · 144 posts · 31 votes
    13y

    What is it worth now do you think? You could try putting it on MLS or craigslist for a few weeks and see what happens.

  • Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    Were you unable to peek through the windows and walk around the house before the auction? Some of the issues you describe should been apparent from the outside, I would have thought.

    I agree with John H., give it a shot as-is. My business partner and I had the borrower default on a loan, and took back a house. We spend several months and a bunch of money finishing the rehab and fixing the code issues. In hindsight, we should have done exactly what banks do - sell as-is.

  • Rehabber · Erie, PA · Member since 2012 · 32 posts · 3 votes
    13y

    We weren't allowed on the property and the house was set back from the road. Possibly if I take it down to bare bones and prefab it, it might sell.

  • Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    Mariana Skonieczka was there someone living there who physically prevented you from walking up and having a look? Or, were you just told to keep away? You've made a huge bet. Being told to leave seems like a small risk to take to try to evaluate the odds on your bet. Someone with a shotgun or a rottweiler would have kept me away. But if not, walking up and knocking on the door would have been in order.

    I would seriously try doing absolutely nothing and trying to sell it as is. If a rehabber has their own crew and is experienced with big rehabs, they may be able to get this one fixed. By your own admission, you're a novice. What looks horrific and impossible may not be so bad for someone with more experience. Roofs can be repaired. Ceilings can be fixed. Concrete can be poured. For example, we bought the house we live in in 1999. As part of finishing the basement, I considered moving a bathroom. But I didn't want to dig through the concrete to deal with the plumbing. Since then (in that house I mention above), I've had to dig up a bunch of concrete in a basement. What terrified me in 1999 turns out to really be no big deal. A $100 jack hammer rental, a few sacks of concrete, and a few hours of time and I could have moved that bath.

    Are there any building projects in the area? There are very few in mine. But I saw plenty when we were in Houston a while back. If there aren't, a lot is going to have little value. If there are, stop at those projects. Find the GC or the owner and chat with them. They might be able to give you some idea about the cost to build and the value of lots.

    Do you have good title? Auctions often don't give you a clear title and its up to you to deal with any issues. Have you done a title search, or at least a preliminary one? Around here, title companies will do basic searches (called "owners and encumbrances" or O&Es) for free. You should do that if you haven't.

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    You could ask the fire department to do a control burn on it for a training exercise and cut down on demo and haul costs.

    You could also fix and sell it quick depending on what it could rent for.

    If you posted pics on here many of the rehabbers could let you know an estimate to fix and time involved. Labor and material costs vary and are local but you could get an idea.

    At the auction were you the only one bidding or were others?? Can you get their contact info and maybe sell to them?? You could also try to sell to the adjacent land owners for an outright cash sale or hold the note with adown payment.

    Good Luck

  • Investor · Buford, GA · Member since 2012 · 120 posts · 31 votes
    13y

    I really encourage you to get it checked out by a rehabber. You could have it listed as-is while getting quotes. I was also gonna suggest the burn idea.

  • Wholesaler · Fort Myers, Cape Coral, Naples, FL · Member since 2009 · 185 posts · 33 votes
    13y

    What is the ARV of this house?

    What was your projected rehab numbers before going in?

  • Rehabber · Erie, PA · Member since 2012 · 32 posts · 3 votes
    13y

    I already did call the fire dept and the house next door is too close. I think I will get a contractor in there for his opinion. The ARV is $85,000-$90,000 although Trulia is saying $101,000. I bought it for $29,500 and there were 2 others with me bidding. I planned on putting in $25,000 and selling it for around $75,000.
    I truly appreciate everyone's opinions and information, thank you!

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    13y

    OK, so you bought for about 30% of ARV, and your planned rehab was close to 30% of ARV. That leaves like 10% of ARV, but very little in dollar amounts for "surprise contingencies" when ARV is below 150K IMO. When you can't see the inside, you have to leave yourself more "headroom" for the surprises. Plus in PA, your closing costs can be high since you still have a transfer tax to pay when you sell, so your plan has to be to do everything for below 70% of ARV. You already seem to know you shouldn't have bought this; just offering some explanations as to why.

  • Rehabber · Erie, PA · Member since 2012 · 32 posts · 3 votes
    13y

    Thank you, Steve, for stating my obvious painful truth! kidding But what would you do in this situation? I just went through today with a contractor and he didn't bat an eye at the problems. He said he's done similar houses. I'm so confused.

  • Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    Its OK to be confused.

    First, be a little wary of the contractor drawing you in with a low bid and promises of easy sailing followed by lots of "oh my, we found such and such when we opened the wall." Multiple bids on a big job are essential.

    Assuming he's on the up and up, this just reiterates what I said above. Some things seem really scary, but aren't really that bad when you know how to deal with them.

    You didn't answer my title question. You really do need to get a title company to do your own title search on this, if you didn't do that before the auction. You don't want to invest more time and money to discover some unresolved lien.

  • Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes
    13y

    Just another note, quoting trulia is a mistake. You should of had a CMA from a realtor done prior to purchase and known what your ARV range was based off potential repairs. As john said, unless there is a threat of immediate death, I'm looking in the windows at minimum.

  • Rehabber · Erie, PA · Member since 2012 · 32 posts · 3 votes
    13y

    Yes, the title has been cleared.

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    13y

    This "Judicial Tax Sale" - was it conducted as part of the sheriff sale, or as part of the county Tax Claim Bureau's sales? If it was part of a sheriff sale, there might be a redemption period. If it was part of the Tax Claim Bureau, it's not uncommon for those to need a quiet title action. Just because you got a deed (all tax sales in PA will get you a deed), does not mean that somebody won't put a claim against title. But at least you know that lots of potential liens were extinguished with the judicial sale.

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    13y

    Oh, the contractor will be able to repair this probably, but at what cost? That is your dilemma - this property could be worth little, like maybe the price of vacant land. Not at all uncommon in a tax sale property - no money to pay taxes, no money to fix; or terrible condition of a deteriorating property leads some to let the property taxes go unpaid, that then results in a tax sale.

  • Durham, NC · Member since 2012 · 498 posts · 48 votes
    13y

    Would a good title policy just take care of all?

  • Rehabber · Erie, PA · Member since 2012 · 32 posts · 3 votes
    13y

    Right now it's looking like it will be a prehab. This may change tomorrow but I'm not going to do anything until after the holidays. I think I will gut it and clean it out and sell it. And no more judicial tax sales!

  • Investor · Buford, GA · Member since 2012 · 120 posts · 31 votes
    13y

    I am not sure it is fair to blame it on the type of sale as much as making a newbie mistake. No barb there, I am a newbie too.

    Did you ever get a real quote for repairs?

  • Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    13y

    You have to check to see if there is a redemption period. I wouldn't spend 1 cent until this is known.

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    13y
    Originally posted by Jeff S.:
    You have to check to see if there is a redemption period. I wouldn't spend 1 cent until this is known.

    In PA, there will only be a redemption period of 9 months from the date that the new deed is recorded, if and only if it was sold via a sheriff sale (and even then there are some exceptions where there will be no redemption). Tax claim bureau sales have no redemption period. PA has some quirky laws about this stuff ...

    And in PA, if there is redemption, then to redeem the former owner must cover certain expenses above and beyond the winning bid at the sheriff sale. Any insurance and taxes paid by the new owner during the redemption period get included into the redemption price in PA. Buyers should become familiar with the legalities for this stuff.

  • Rehabber · Erie, PA · Member since 2012 · 32 posts · 3 votes
    13y

    There is no redemption period but right now I only have equitable ownership. I will get the quit claim deed in about 3 months.

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