Hello friends, I have an off market property under contract in San Antonio I need some insight on.
Out of state owner, wants to retire and cash out rental property in SA.
Under contract @ 125k. If we find a way to move forward, price will come down depending on amount of foundation work required)
Repairs, Literally just foundation. (AC is old, but running and under warranty)
House is updated and clean. 2 year old roof.
Currently rented at $1300/month. Max rent could be $1325.
House was briefly listed in January, but pulled after they received a foundation bid stating entire house is off, max of 5 inches and would require 26 total piers costing $8500, not including fixing the cracks and probably plumbing that would more than likely break.. Foundation did not appear to be as big a problem as it actually is. There is a slope on the outer wall of the living room, absolutely zero cracks in the floor, wall or ceiling and none of the windows/doors have any issues opening or closing. There is no visible slope anywhere else in the house. I am getting a second opinion this Friday, but I don't think it'll be that far off.
The problem here is, Foundation work of this magnitude cannot be completed while the tenant is in place. Especially with the risk of breaking the plumbing. The tenant is in place until March 2019. She has two daughters, they just rented the house 4 months ago.
I was going to wholesale this, but two of my buyers weren't interested because they would need to wait 8 months to do the work and cash out. I don't have the funds to buy it and hang on to it until then.
I realize I could offer cash for keys, but having interacted with this tenant, I don't think thats very viable, and if it is, it ain't gonna come cheap. I'm not disregarding this idea though, just putting that out there.
I was thinking perhaps trying to take this sub-2, inform tenant we won't be renewing lease in March, do the work at that point and list late spring. In order to get $159,000, it will have to be marketed to an owner occupant, doesn't make sense for a land-lord to buy at that.
What are your thoughts people? There's money in this deal, how do I get it?
@Lawrence Rutkowski If you really think the deal is worth it, you could always offer to place the tenants in a decent hotel and maybe even include a few dollars for meals and inconvenience. Just include this extra cost in with your budget before you make an offer.
@Mike Castellow The deal definitely is not THAT worth it lol.
@Jason Dillard That's on the table. Do you like that over a sub-2? I feel as though if we just wait, that will just bring more competition.
@Dennis M. I'm not planning on keeping it as a rental. I'm planning on wholesaling to a large investment club who leverages very discounted hard money rates and buys all sorts of value-add things, or treating it as a flip. The purchase price will be coming down at least the cost of foundation work, leaving a solid 25k net profit as a sale. Not a grand slam, but I wouldn't refer to that as marginal, especially in a highly competitive market. I keep my rentals in Buffalo NY, where the property values and taxes are low and the rents are high in comparison, as I imagine is the case in Erie. San Antonio's boom has inflated prices typically too high.
In my market, homes with foundation issues do not keep pace with market value trends. 26 piers, filled cracks in the foundation and sloping living room walls would only attract investors and would sell at a decent discount. Conventional buyers would be running.
Be sure to comp this house with other homes that have sold after having extensive foundation work.
If 159,00 is absulutely no problem then your idea to wholesale, in my opinion, is safest. But my real vote is for you to walk away... Because once foundation work begins...too many cans of worms and your numbers are way too tight.
You could record an option if seller chose to wait to dispose after tenant moves to kill your competition.
I can't answer your sub2 question without know all about debt.
Seriously, walk away. You're convincing yourself it's okay, when you know it's not.
Your seller is motivated BECAUSE he knows its a SH** SHOW.
You know that it doesn't matter if any of the floors are slanted, if any doors stick, or if there are any visible cracks.
So your seller has a quote for $8500 was it? Apply the 40% rule, which I totally made up myself a few years ago. Make everything 40% worse at least and then run your numbers. So 8K becomes 12K or more...run those numbers.
What if there's more? Why would a house in SA come off its foundation. What happened? Was there an earthquake? Did the Riverwalk suddenly start flowing backwards? The whole point of the foundation is that the house doesn't move, so why did it?
Everything you said about the tenant isn't necessary information. You're making a business decision, not a mother with kids decision. I don't hate the idea of putting her in a hotel IF she's a good tenant, but you wouldn't know that so DON'T. If you weren't walking away I'd tell her the property is not going to be rented again until you do major reno, but if she signed a big long lease you'd discuss a hotel for her and her kids.
That whole paragraph is reason enough to walk away.
Let me run the rental numbers real quick off of what your provided.......OMG. I'm not even gonna type it ;)
Please excuse my Thursday morning cheek. Based on your post it's clear you're very motivated to make this deal work, and I applaud that. Too many cons.
@Lawrence Rutkowski I hate to say it, but you will be doing no one any good by wholesaling a house that they are NOT going to make money on.
From 125k to 160k is 35k. Foundation repairs will be probably 10k by the end of it. If there is plumbing repairs, 4k. If that is the only issue, which I am sure that no owner occupant is going to think so, that leaves 21k. Realtor fees, closing costs, etc is going to be 10% or 13k. We are down to 8k. I am sure that the seller of a home is going to paint, put in flooring, something else. Lets just say 3k. Down to 5k.
We have not mentioned the buyers holding costs, taxes, cutting the grass, anything!!
And you want to make 3-5k also??
What is the buyer going to make?? ZERO.
This is only hurting a buyer. Dont be one of those guys. I know you are not the person that wants to hurt others. Dont Do IT.