Motivated Seller-Insurance Claim- Historic District | Deal?

5 Replies

I found a seller that lives in a Historic District in a huge house. His kids are grown and gone so it's only him and his wife. He has already purchased a new house and is living in it. This house is free and clear and the ARV is around $390- $450. A tree from his neighbors' yard fell and damaged one side of his roof. He is waiting on the insurance to give him an estimate on the repairs. He says he already had another wholesaler offer him $320,000, of course, I ignored this statement. I will get a better assessment went I go take the tour of the house after the holidays.

He mentioned something about the insurance claim affecting the taxes and that's another reason he wants to wait after the holidays and until he gets the estimate. I can already see from the outside of the house that it will need quite a bit of work on the outside. He said he was a contractor and gave me an estimate of about $60k to renovate. It may need that much on the outside alone. There are houses on this stretch of road that have been renovated and sold for $550k - $800k. 

My questions are: What effect, if any,  will this house residing in a historic district have on doing a wholesale deal? Is there a possible unique reason behind him wanting to get the repair estimate for tax purposes? 

Let me first state that I am not a CPA and you should consult one directly, but this is my experience as a former claims adjuster. Typically, the insurance proceeds are not considered taxable income.  However, if a profit is made, that is a different story.  When did he purchase the home & what was the original purchase price?  Since this home is in a historic district, there is a high probability it was purchased much lower than even the cost for repairs. 

If he purchased the home for $25K and is receiving an insurance settlement for $60K, he is making a profit.  The insurance settlement exceeds the original cost of the damaged property.

In addition, if the owner has not received an estimate from his insurance adjuster, he most likely only received a partial payment to start the claims process.  That may be another reason why he is waiting on an estimate from his insurance carrier and their contractor. 

I hope this information is helpful.

@Jose Linares He has been in the house for over 30 years, he raised his kids there. I don't have the amount he purchased it for but the area has always had high-end Mansion size properties.  And there is plenty of home and commercial development in the area, plus they just built pubs and entertainment spots less than a mile from this property. So the pricing is about to skyrocket. 

The fact that you mentioned the insurance claim could exceed want he paid makes sense. So will the insurance company cut him a check for the estimated cost and allow him to find a reputable company or will they provide a company for the job? 

He also said he is a contractor himself so it would be easy for him to pocket most of the repair money. I told him that the investor that buys it will do the repairs but that may not be in the plan. He can get paid for the roof and for the sale of the house. 

I can't be mad at him.   

@Michael Williams The insurance carrier will issue a payment based on the estimate completed by the adjuster.  The owner has the right to choose any contractor they wish to complete the repairs.  The insurance adjuster may provide referrals to contractors, but the choice is ultimately up to the owner.  

If the owner is a contractor, he may choose to complete some or all of the work himself.  And yes... if he is planning to sell the home, he may indeed keep the funds and sell the home without any repairs being completed.

You might check what restraints it being in a historic district will have on any renovating you may want to do. Usually there are strict historic guidelines for any work done including windows, paint color, etc etc etc 

Originally posted by @Mary M. :

You might check what restraints it being in a historic district will have on any renovating you may want to do. Usually there are strict historic guidelines for any work done including windows, paint color, etc etc etc 

 
Thanks Mary, that does make sense. I will check on this Monday.