Are the REI Gods testing me?
Hello BP friends,
To give a little backstory, I've been a landlord (1 property) for about 8 years now. The 2/1 800sf house just turned 100 years old. When I lived in it 15 years ago, we remodeled the entire thing. It's been a fairly reliable rental for the last 8 years, with few problems occurring. I also lived in this house back in the early 2000s and new that it had some wonky foundation stuff. Not to dive too deep into the story, but it used to be an office for a lumber yard. When it got transformed into an actual home (no idea when), they added about 6 feet to the back side of the home. That back portion settled over the years, but it wasn't anything we were worried about.
Fast forward to this year, and we noticed some big gaps in the French doors going to the back porch, and a sagging window in the kitchen. Paid a structural engineer to come out and investigate the issue. Good news is the foundation is great, even after 100 years. Bad news is the 2 porches that were installed have been allowing water to migrate back toward the house. The plates have slowly been rotting away. That has also rotted some sub floors and a few small areas of floor joists. The contractor I had out yesterday, who specializes in structural work, had a very grim forecast for the repairs. He wants to do a full gut of the kitchen and bathroom, which are located over the affected areas. He asked me a few times if there was a figure that I had in mind which didn't make sense to continue moving forward. I resisted saying any numbers and just asked for the quote.
My goal for this property was to do some exterior cosmetic improvements, including a new roof because my insurance company was being extremely picky about seeing some "loose grit" on the shingles. I had hoped this structural repair and exterior improvements would top out around $35k ($20k structure, $15k exterior). The currently loan balance is at $30k and the home likely has a $175k ARV (this is on the low side). Once repairs were complete, I was going to refinance for $100k which would give me a nice starting point for growing my rental portfolio. I've been studying my *** off this year, building my team and ready to start making offers. The way this contractor talked, his structural work is going to exceed $50k. That's not including putting the interior back together, or the 2 porches that will be removed. If I go that route, I'm probably getting close to $100k in repairs.
I just can't see how these figures make any sense. If I were buying the property for $30k, and found out that I needed to do $100k in repairs, I'd likely pass on the deal. $130k loan would be close to $1k mortgage and rents in this area are 1100-1200. That just doesn't pencil out. I don't want to sell the house because I had plans to develop the back portion with more units (I also live next door and don't want to give up control over what happens to that property). I'm just not sure what the best plan of action is here, or what all my options are. To throw another wrench in it, I have good tenants in there and intended to put them in an STR while the construction was being done. I know I need to get more quotes on the repairs, but it's like pulling teeth to get contractors to 1. Show up and 2. Actually give me a quote.
Apologize for the long winded story, but felt like details were pretty important here. I appreciate any advice on this perplexing situation.