foreclosure opportunity advice - North Carolina property
Hello All,
I'm finally trying to get off "podcast mode" in my BP experience and get off the sidelines. I've learned a lot from listening to others (and some past experience including buying my own house at foreclosure) but worried that I'm so anxious to do a deal that I'll overlook red flags.
So here goes... I'm very interested in an upset bid on a foreclosure in a neighborhood which I'm very confident in. I've run the numbers on my own and on BP's fix and flip calculator, and I'm more than happy with the return if repairs stay below $150,000. That sounds like a huge, and thus conservative, number in my mind. But is it?? How do you know what structural problems lie in an old house (built in the '30s) which you've never been in? (I was lucky enough preview my own foreclosure/home before I bought it). Let's say I don't have time to read 3 books on calculating rehab costs before I have to make the call on this one. If you assume you've got to properly update a home for a nice neighborhood, how easy is it to spend $150k for a house less than 2000 square feet?
That's probably enough info, but here are other thoughts running thru my mind. If I get the house, open the doors and it's worse than I could ever imagine, I believe I can break even by selling the lot and walking away from the rehab. I suppose that's an effective way to mitigate risk. But is it? Am I just looking for reasons to go for it? Am I nuts to acquire a foreclosure without more experience in rehab costs, or do I have enough buffer to at worst learn and not lose my shirt?
The last paragraph notwithstanding, does anybody have any rules of thumb for worst case numbers on foundation issues, mold, outdated plumbing, electrical, etc?
My appreciation in advance to BP nation for your time!
Most Popular Reply
@Colin Perry Ok, you have more experience than I realized. A rental counts and I re-read your original post in which you stated that you bought your home from a foreclosure. Things to consider:
1. Be 100% sure that this a 1st position lien that's foreclosing. The $150k margin is huge and this might be because this is a 2nd and there's an underlying 1st that you have to account for. I've noticed that in some smaller counties, there doesn't seem to be much investor activity so it's more reasonable that you can find good deals but $150k strikes me as extreme. If this property is in a county with a lot of investor activity and the location is desirable (i.e. not remote or rural), chances are there's a reason that the other investors are passing up on this. It also could be that there will be more upset bids until it ends up at the market level for foreclosure sales, in which case your potential $150k margin goes away.
If this is indeed a 2nd, you'll have to adjust your numbers.
2. You have to find someone who can put eyes on the property and give you an experienced opinion of what it would take to rehab it. I'd prefer that you get 3 opinions from contractors. If their numbers come in fairly close, you can make a good judgment on what the rehab will cost. To be in the rehab game, you need to have a good idea of ARV and rehab costs. If you don't, you're flying blind and that's no way to run a business.
3. Have you and your partner solidified your agreement on how to do this venture? It's best to do so before you get into your deal instead of as you go. Make sure each party knows what their responsibilities are and be clear on expectations. When things go well, there'll be no issues and no need to refer to a written JV agreement if you go that route. You'll need that agreement if things go south