Cash Flow Problem on Rehab due to hidden Damage

3 Replies

We just rented a house to sublet for use as a group home.  The owner was good enough to advance money and allow us to renovate the house to move-in ready condition.  Initial contractor inspection and quote was $11,000 for this 3 Bedroom Bath and 1/2 Home.  The house is near 100 years old and a prior owner did a good job covering up foundation problems, termite damage, to include electrical and plumbing problems.  As we work toward an end to renovations we keep finding additional hidden damage.  We have removed and replaced the roof, replaced all ceiling sheet rock and finished, to include replaced all enterior doors to date.   After the owner has invested near $20,000 to date, he has indicated we are on our own.  However, we have found another $10,000 is still needed to finish, which we don't have.  Thus we are now suggesting to owner that he sell to an investor and contractor that could purchase "as is" and complete the project for the comparable $50,000 market value in the area, the owner has refused to sale and is holding us to our lease. Any idea what our next move should be.? 

Originally posted by @Alex Hamilton :

We just rented a house to sublet for use as a group home.  The owner was good enough to advance money and allow us to renovate the house to move-in ready condition.  Initial contractor inspection and quote was $11,000 for this 3 Bedroom Bath and 1/2 Home.  The house is near 100 years old and a prior owner did a good job covering up foundation problems, termite damage, to include electrical and plumbing problems.  As we work toward an end to renovations we keep finding additional hidden damage.  We have removed and replaced the roof, replaced all ceiling sheet rock and finished, to include replaced all enterior doors to date.   After the owner has invested near $20,000 to date, he has indicated we are on our own.  However, we have found another $10,000 is still needed to finish, which we don't have.  Thus we are now suggesting to owner that he sell to an investor and contractor that could purchase "as is" and complete the project for the comparable $50,000 market value in the area, the owner has refused to sale and is holding us to our lease. Any idea what our next move should be.? 

 Yes, fulfill your end of the agreement.

I don't think there is much you are going to be able to do.  I'm pretty sure the contract was for "as is" condition besides the repairs to be made via the quote.  Unless there was possibly a disclosure filled out by the owner, but even still they could say they didn't know about the damage since it was "hidden".  

A.  Your contractor either does not have a good electrician to catch the electrical issue.  

B.  The contractor did not do a good enough thorough inspection of the house.

C.  You are under contract and need to do what you can to get this rent ready.  

I am assuming this is falling under some kind of guideline because you are using it as a group home.  I would take a step back a really prioritize what needs to be done and take it down one by one.  

I had this issue with a bond for deed property here in New Orleans.  Hidden termite damage that she knew about.  But you are taking over the house "as is", nothing that can be done.  

Thanks  Paula, it feels good to know that I'm not the only one who has put to much trust in a Contractor.  Will take a loss on this one, without more hands on board

Create Lasting Wealth Through Real Estate

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

Start here