I am looking to buy a foreclosure property which has the following characteristics in chattanooga, TN. I am trying to understand my risks before I get involved.
This property was in abandoned state for over six months. The city tried to contact the home owner and was not successful. Hence the city decided to go ahead with demolition and put a lien on the property. While this was happening, the bank proceeded with foreclosure on the property. The bank requested a stay on the property for the demolition. And the bank had 6 weeks time to dispose the property. They have already burnt 2 weeks from that.
Here are the numbers
- Sqft of the house: 1165
- Asking price of the House: 75,000
- City's estimate to bring up the house to code: 45,000
- City's lien on demolition:15000
- Average market rate in this area: 130/sqft.
I am thinking of putting a cash offer at 60,000[ 25,000 savings and rest may be hard money or personal loan] closing 10 to 15 days. Please advice on this deal. Can somebody advice me the steps to move forward and get additional time to fix up the property. What would be my legal risks. What is the reserves I need on this property.
I am buying this property as for my personal residence.
Thanking you in advance.
You need to know what the ARV of the house will be after you purchase it for $60K and then potentially spend $45K to renovate it. You're all in for at least $100K and then you have to carry the property for 6 months or more with taxes, insurance, mortgage payments, etc... You should also figure on an additional six months of expenses set aside for after the project is completed and you start to market it. (Don't even show it until it is 100% done).
I would say you want to net at least $30K if you are looking at a six month renovation project. Do you have any idea how long this will take or how much it will cost beyond the numbers the city is using? Have you ever flipped a house before?
Thank you for your update.
The ARV in this area is between 150,000 and 175,00 for a house of this size. This is my first rehab project and as I said earlier its for my personal home, I don't want to loose money, but I think if I end up little more It is going to be okay.
I had been to the property and there are some serious foundation issues and the roof needs to be replaced. The electrical switches looked current and there is a AC unit in there. I am not counting it would work, but if it does I am lucky. The house looked super clean, it even look it does not need painting.
The biggest risk I have is dealing with the city and retaining the building without them demoing it. I don't want to end up with a expensive lot. If you can help me with the process of dealing with the city in getting a stay and time to fix up the issues would be great.
Talk to the city. Explain the situation and ask them how they will handle it. I would think that as long as progress is being made they would be happy to postpone demo.
The repair costs seem to be the biggest question.
"Up to code" by the city's standards is not the same thing as "fully renovated and ready for retail sale" (I realize you don't intend to sell it, I'm just making a point).
Get an experienced/trustworthy contractor (or two) in there to give you some solid numbers.
If the numbers work, then you can talk to the City...they shouldn't be too eager to demolish it if you have plans in the works to repair it (vacant lots don't bring in nearly as much property tax revenue as 1200 sq ft homes!).
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