Thoughts on rehabbing fire damaged properties?

Question

What do y’all think about flipping properties that have a sizeable amount of fire damage?

Are there too many unknowns? Does it require pulling permits?

Thanks!

Jason Bott · Answer

We have a lot of clients do this and you definitely need to know your construction costs before you commit to it.  If the city comes back with a bunch of code upgrades that you did not plan on, that could quickly eat up all your margin.

Most insurance carriers will not pick it up a fire damaged property until the fire and water damage is remediated and the structure is stabilized.  Once that is complete, you can set up a Builders Risk policy and get traditional financing in place.

Brett Deas · Answer

I think depending on where it can be a great strategy. I am here in CO where we had the Louisville fire that wiped out entire neighborhoods. I have worked with some people who are working on those and it is long with the permitting process but can be very worth it depending on the lot. The one thing I have found is doing a few at a time all next to each other helps mitigate risk. Obviously, depending on the area, it is hard to find more than one lot, but it really helps when determining the ultimate sale value and is sort of an insurance policy.

Jack Tulloch · Answer

I have seen people do this successfully and have also seen the inverse. Definitely a high risk high reward type of project. I think Michaels advice is excellent as far as going by the book.

Michael K Gallagher · Answer

of course this will depend on your local governments but in my market you are 100000% required and need to pull permits and do it all by the book.  There are many inspections that need to happen along the way.  I've not done a project myself but I've helped clients purchase homes that had been fire damaged and flipped.  As a buyers agent once we know its been fire damaged we immediately go to the building records office and make sure all the permits and inspections were don't correctly.  So if you want to get top dollar for that flip I'd highly recommend doing it totally by the book.    But they can be great deals!  and being something difficult means there is opportunity for a niche operation here.

Steven Barr · Answer

@Jason Bott I imagine you can’t use hard money to buy fire damage properties then? As they would want insurance coverage

Jason Bott · Answer

@Steven Barr yes, many times they will have too.  May only be for a week or 2.

Right now we are in a tight insurance environment.  When this happens underwriting will tighten up and will not allow things they may have been able to slide just a year or 2 ago.

5 years ago many insurance carriers would write these properties from day one without an inspection.

Thoughts on rehabbing fire damaged properties?

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