MOLD!!! What to do NOW!!

11 Replies

Hi guys, so my tenant was on vacation for 2 weeks and when he got back; all of the floors were buckled and mold growth was on 2 walls of the garage.  During further investigation, the kitchen supply line shark bite connection failed and was spewing for 2 weeks.  The crawlspace was flooded, all the floors were pulled, partial drywall and crawlspace insulation.  More into it.....

Mold remediation was completed $2800; all crawlspace remediated.  Kitchen cabinets destroyed etc, etc.....

After all remediation completed and labor costs the total came to $20500....So far insurance is covering but have not received complete estimate yet. 

Also, the Restoration aspect is being litigated as well and will probably run about another $20-25K. My deduct is $1K

Now MY QUESTION

I bought this property at $65K and owe $50K; I already have $22k into it when I bought it (DP & Rehab). The ARV is in the range of $100-110K. It rents for $925mo.

Do I rehab it with ins money with the restoration company (or my contractor) and put on the market and worst case scenario sell at $95-100K and I come out with about $20K after my previous rehab/DP and sale costs. 

Or Keep and continue to rent? The cash flow on this property is $250, COC 13%

After complete rehab I could push $950mo.
I just feel this is a lemon of a house right now, especially with the previous rehab I had to do when I bought. BAD MOJO

Thanks in advance

Rob

I agree with @Dena Schrimsher , but I'd find your new property first before you sell it outright to an outside buyer.  If it's causing you stress and annoyance it's time to move on.  Depending on your structure, you could see if the renter wanted to be the buyer w/out having their rent go up if they can fork over 10% and then charge them 10% having another company service that loan.  If they agree, it's not your home or issue & you can get a company to service that note.  There is more than one way to get out of it & if your fear is that it might be hard to sell or be on the market a while. 

what does this mean "the  Restoration aspect is being litigated as well" . 

It is all about what you want.  Do you want a rental or a flip?  If you are going to buy a rental this one has a lot done new already, despite the MOJO. You could do water alarms if you think the risk of flooding remains.  Also run the numbers on this vs a new rental that is what really decides the better investment. If you want to get a different rental do a 1031 exchange. 

If you prefer flips you could finish it for the market which is probably a little better then rental unless you are selling direct  to another investor.

@Robert B. contact a public insurance adjuster. They are sort of like a lawyer for insurance claims. They represent your interests and can negotiate with the insurance company to get you everything you're entitled to. 

@Colleen F.

I mean the restoration costs have not come in yet but the remediation has; the adjuster is still working on it

I agree with the “rental vs flip”; it’s part of the “business”!

Thanks 

@Brian Phillips @Dennis M.

I don’t understand what you two mean

Overpaid and didn’t run the numbers?

It is a $65k house that has $7k rehab with 20% DP that rents for $925 with 25% expenses & PM; CFs $250 mon. ARV $110k

I guess you didn’t see my question really so- I was asking if I should keep it or sell it after the remediation/restoration. And come out with $20k 

Well thanks for listening anyway

 

Originally posted by @Robert B. :

@Brian Phillips @Dennis M.

I don’t understand what you two mean

Overpaid and didn’t run the numbers?

It is a $65k house that has $7k rehab with 20% DP that rents for $925 with 25% expenses & PM; CFs $250 mon. ARV $110k

I guess you didn’t see my question really so- I was asking if I should keep it or sell it after the remediation/restoration. And come out with $20k 

Well thanks for listening anyway

 What happened to the 22k you referenced earlier ? Your deal just isn’t that great based on numbers I see but hey that’s subjective . If I had over 70k in a house I’d want a lot more than 900 bucks rent for a return 

 

@Robert B. Hard to say whether to keep it or not, depends on your long term investing goals and other details of the property such as overall condition, is it in an area with appreciation potential etc. If it’s in good condition overall after the rehab, low expected capex and repairs/maintenance after the you’ve done so much work and suffered brain damage so if it cash flows nicely in an area with high demand for rentals/low turnover and vacancy rate, with a chance of appreciation I’d hold it personally. The way I’m reading it is the initial $22k was down payment AND initial rehab, so the purchase numbers and rent/price ratio look pretty darn good to me. Sounds like just some bad luck with that plumbing issue when the tenant was on vacation. It’s been a hassle so far but that doesn’t mean it will always be a hassle, and selling is also a hassle and just puts you back to square one. Factoring in all the expenses involved with selling, it may actually be closer to a wash or even a loser really if you sold right now so I would probably hold. Location would be the deciding factor for me though. If you think the area has upside potential with increasing rent and appreciation then take the lump and hope for the best down the road. This doesn’t help you now, but for next time don’t use a restoration or insurance as they’re both not worth it in the long run, especially just for a run of the mill plumbing leak and some mold that can be taken care of in a weekend. The whole restoration company doubling the price because they know insurance will negotiate them down racket is something I try to avoid. I’ve had so many plumbing leaks like this over the years, I’ve found it saves a ton of money to just deal with it myself: fix leak, pull everything out, use an air handler, big old dehumidifier, fans to dry it all out, wipe off the mold, spray some bleach, replace drywall, put it all back together and I can usually get it done relatively quickly for a couple grand and move on without having to mess with getting completely gouged by sketchy restoration companies or insurance (who just raise your rates or drop you). If you want to stay in the game it’s best to save your insurance claims for only really major events like when the place burns to the ground. That’s how I roll anyway and I’ve heard the same from many long term investors. If you can’t DIY, just paying a handyman out of pocket to take care of it is probably going to be a better option than using restoration companies and insurance. If you plan to do that for every plumbing leak I’d honestly just sell and exit the rental game as that will not be profitable. Plumbing leaks happen fairly often I have about one a month (usually the tenant reports it so it doesn’t get this bad of course though). Sorry you’re dealing with this and good luck!

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here