Should I take a house that was offered for free?
IT · Wilkes-Barre, PA · Member since 2014 · 23 posts · 2 votes
Hello BP,
I have a coworker who wants to give me one of his houses for free.
I have only taken a look at the house on google maps and from those images it looks like the house is going to take a lot of work.
So I am not sure if it's a good deal? Or more specifically a good deal for me.
The house fits a lot of my criteria. A duplex in the city I work in near a good school. However I not sure where to start to analyze the deal to see if it will work for me? I am also not even sure what questions to ask to get me pointed in the right direction. With that said any advise is much appreciated. Any info i can provide let me know. Thanks!
I would check out the zoning , why ? The property next door is commercial . If it is you may be able to sell it to the property owner to the left to expand their building or parking lot .
Antonio,
First off, that house is NOT going to be free.
As you mentioned, the property is going to need a lot of work; that will require $.
You can analyze it just like any other deal: where you would normally put it $xxx,xxx for "% down," you now are going to put in the cost of what its going to cost to get that house livable where someone will pay you market rent.
That $ cost that you put in is going to be the estimates that come from contractors. It might be $25,000, could be $125,000. You don't know till you have them look at it.
Hello BP,
I have a coworker who wants to give me one of his houses for free.
I have only taken a look at the house on google maps and from those images it looks like the house is going to take a lot of work.
So I am not sure if it's a good deal? Or more specifically a good deal for me.
The house fits a lot of my criteria. A duplex in the city I work in near a good school. However I not sure where to start to analyze the deal to see if it will work for me? I am also not even sure what questions to ask to get me pointed in the right direction. With that said any advise is much appreciated. Any info i can provide let me know. Thanks!
Typically in these situations the cost to renovate the home is equal or sometimes even greater than it's after repair value. Not saying a free house that you put $40k into that ends up being worth $40k is automatically a bad idea, it's just something you need to be aware of.
This could be a nice opportunity for you to learn the biz & take down a property you otherwise couldn't afford. Maybe you don't have $40k right now but could slowly work on it.
I would check out the zoning , why ? The property next door is commercial . If it is you may be able to sell it to the property owner to the left to expand their building or parking lot .
Get a full title L&E report (about $150) plus check the county for taxes owed and the city for code violations and any utility payments due.
Being next to commercial brings up potential environmental concerns as well. Don't want to be stuck with an EPA soils decontamination bill or something later.
Sounds like a neat opportunity if all checks out!
Antonio,
First off, that house is NOT going to be free.
As you mentioned, the property is going to need a lot of work; that will require $.
You can analyze it just like any other deal: where you would normally put it $xxx,xxx for "% down," you now are going to put in the cost of what its going to cost to get that house livable where someone will pay you market rent.
That $ cost that you put in is going to be the estimates that come from contractors. It might be $25,000, could be $125,000. You don't know till you have them look at it.
Thanks for the reply. Seems like it should be the same to analyze just minus the purchase price. the cost of the loan, lawyers, title and such. What makes it have new degree of difficultly for me is the unknown price of repairs. Then the next step which would be new for me is getting a loan, which will probably be a hard money loan if i understand correctly. For the reading and listing i am doing it seems like the BRRR strategy is probably the way to go. But Hard Money and the size and scope of work is intimidating.
Are taxes owed, who'd rent it, what's the condition (how much to get it rent ready). That should be a good start.
But I'd be curious why you're getting it for free... probably means there's a catch. It's free, but...
I am wondering about what the catch is as well.
I haven't really dug into all the particulars of the house but from what i am told there is no back taxes on the house.
Once it's fixed up I would live on one side after my current mortgage allows me to move penalty free. I would rent out the other side.
My next step is to visit the house first with my coworker sometime at the begging of February then with a contractor and inspector at the end of February so i can kinda get an idea of the cost to get it up and running.
I would check out the zoning , why ? The property next door is commercial . If it is you may be able to sell it to the property owner to the left to expand their building or parking lot .
That was my co-worker original idea. He said he offered it to the business next door to build a parking lot for free but they didn't take it and the back yard is huge compared to the neighboring houses.
He offered it a local charity but they didn't take it as well.
Get a full title L&E report (about $150) plus check the county for taxes owed and the city for code violations and any utility payments due.
Being next to commercial brings up potential environmental concerns as well. Don't want to be stuck with an EPA soils decontamination bill or something later.
Sounds like a neat opportunity if all checks out!
All great tips! I will add this to my check list. Question though. What is a L&E report?
@Antonio Boone I dont know the area , but if the house is free , and it appears the house is junk , I would get a price to tear the house down , leaving a vacant lot . The property taxes would be next to nothing . At some point someone may want to build something either residential or commercial . All in you would probably be less than 10K into it .
Makes me wonder why no one wants it for free
Some of the most expensive houses are 'free.' A bank gave me a free house about two years ago.
The bank offered it to me because I was the neighbor(I owned- and still own- a 3 family next door.) I estimated its free market value at negative $5,000 to negative $15,000. The house had plenty of fire damage. But I didn't want some neophyte picking it up and making a mess of it- plus, I had the adjacent house, which could offer some upside in the future(when I'm 400 years old) should someone want to buy both lots and put up a small apartment building. All told, I figured it was worth about zero to me- $5k to $15k more than anyone else.
So the bank offered it to me, and I took it. The rehab costs were more than expected(about $100k,) the timeline was worse than expected. But finally, the place is leased up, owned free and clear, and I don't have a burnout next to one of my properties. It was pretty arduous though- not sure I'd do it again!
But there is something I love about revitalizing neighborhoods. My capital and my manpower can improve the lives of people I'll likely never meet, can turn a speck of urban decay into a vital part of the urban landscape, a home for families, a place to lay one's head.
Best of luck in your endeavor. I hope you find it less challenging than my recent free home, and at least as rewarding.
Try getting a general contractor to walk through with you. I looked at a lovely place that needed work. I had underestimated the price tag to bring it up to rentable by $100k. An informed estimate from an expert will let you know if there is any hope of it being worth the amount you will need to put into it.
Another option for financing: I just learned about a loan option one of my local banks does. They give a construction loan for the amount of the purchase price plus the remodel. Once the remodel is complete, they go back in with an estimator and convert the construction loan to a mortgage. You might see if something like that is available in your area.
@Antonio Boone Ummmmm...so maybe a couple of things:
1.) Why haven't you driven by the house? I'm all for good ol' Google Maps but the image was captured in 2012. The thing could be a vacant lot by now, covered in snow, holes in the roof, massive water damage, etc. There's no way on the planet that if I was serious that I wouldn't have driven by, alone, last night, with a camera, taken 10 pictures, and posted a few here. If that's too burdensome there's about a zero percent chance you'd make it through the rehab process on a place like this. Man, I'm coming across as feisty today...
2.) Just off of the top of my head I'm going to say that it's the wrong property for you. If I were in your coworkers shoes and charities were passing on the place, I'd probably have called every property manager and residential construction company in the area and offered to sell it for $5K. At least a hypothetical family-owned construction business could eat their margin on the rehab costs to get a (hopefully) valuable property post-rehab. At the very least they could get materials at cost. If they can't see a margin/spread is doing the deal "at cost" that should tell you all that you need to know.
3.) Assuming zoning wouldn't get in the way, if the business next door just passed on the property it *probably* means that: Cost-to-demo > Value of raw land. Otherwise you'd take it for free, scrape, and even if you didn't put in a parking lot (capital intensive) you could fence off the lot and use it for storage of some kind. I can't imagine you're going to have massive property tax bills on a scraped lot.
Bottom line: Everyone has had a shot at the property. The constituents who should want the property (charities, the next door business, etc.) have no desire for it.
So maybe here's a way that I'd think about it... Have you ever randomly been at a gas station at around 3:00 a.m. and seen that one odd-looking shriveled hot dog left on those automated rollers under a heat lamp? It's been there for hours...hundreds have customers have walked by it...they might have bought other hot dogs...but that's the one that's left. If the kid behind the counter said "Hey, I just want to turn off the heat lamp, you can have that hot dog for free!" would you eat it?
I have seen houses that I wouldn't take for free. The only reason that I would accept it is to immediately put it for sale. I wouldn't do anything to it besides remove trash or hazards.
NOTHING is for free......
Unless this guy is some saint and your soul mate best friend, there is a reason he's getting rid of it for FREE....a reason why the business next door passed......a reason why the charities are passing on a FREE house/land
Your job is to solidly find out WHY.........
@Antonio Boone Ummmmm...so maybe a couple of things:
1.) Why haven't you driven by the house? I'm all for good ol' Google Maps but the image was captured in 2012. The thing could be a vacant lot by now, covered in snow, holes in the roof, massive water damage, etc. There's no way on the planet that if I was serious that I wouldn't have driven by, alone, last night, with a camera, taken 10 pictures, and posted a few here. If that's too burdensome there's about a zero percent chance you'd make it through the rehab process on a place like this. Man, I'm coming across as feisty today...
2.) Just off of the top of my head I'm going to say that it's the wrong property for you. If I were in your coworkers shoes and charities were passing on the place, I'd probably have called every property manager and residential construction company in the area and offered to sell it for $5K. At least a hypothetical family-owned construction business could eat their margin on the rehab costs to get a (hopefully) valuable property post-rehab. At the very least they could get materials at cost. If they can't see a margin/spread is doing the deal "at cost" that should tell you all that you need to know.
3.) Assuming zoning wouldn't get in the way, if the business next door just passed on the property it *probably* means that: Cost-to-demo > Value of raw land. Otherwise you'd take it for free, scrape, and even if you didn't put in a parking lot (capital intensive) you could fence off the lot and use it for storage of some kind. I can't imagine you're going to have massive property tax bills on a scraped lot.
Bottom line: Everyone has had a shot at the property. The constituents who should want the property (charities, the next door business, etc.) have no desire for it.
So maybe here's a way that I'd think about it... Have you ever randomly been at a gas station at around 3:00 a.m. and seen that one odd-looking shriveled hot dog left on those automated rollers under a heat lamp? It's been there for hours...hundreds have customers have walked by it...they might have bought other hot dogs...but that's the one that's left. If the kid behind the counter said "Hey, I just want to turn off the heat lamp, you can have that hot dog for free!" would you eat it?
HAHAHA...what HE said! LOL. If it's free, drive your a$$ by it ASAP and find out what's going on. Because either 1) it's really awesome and you need to jump on it now or 2) your "friend" is making you into a sucker. Either way, I would want to know...and soon.