Bringing neighbors in for foundation repair on townhouse

Rehabbing & House Flipping
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Bringing neighbors in for foundation repair on townhouse

Michael S.
Rental Property Investor · Beaufort, SC · Member since 2013 · 82 posts · 7 votes

Hi, I am evaluating a flip and wanted to get thoughts from the community regarding a negotiation strategy.

There is a foreclosed townhouse with significant foundation problems (40-60k based on 2 estimates). It is an end unit on a slab, and the adjoining unit is also experiencing some foundation problems as it's being "pulled" by the empty house. Contractor believes either rotting plant debris or underground water source is causing the sinking.

Stats:

Built-2007

Arv- 115-130k

Foundation repair- 40-60k

REO list price- 60k

Foreclosed- dec 2013

In my mind, this deal only makes sense if I negotiate the price down below 40k, AND I get the neighbor on board for some amount of the foundation repairs, maybe 10k. Does anyone have experience with this type of strategy? Basically, the neighbor can't repair his house until the end unit is fixed. He has a vested interest in the end unit getting fixed, rather than just watching it get worse and worse as the foreclosure sits for years.

The neighbor tried to file a claim on the "structural guarantee" provided by the builder but it was denied because the structure didn't fail, but the earth below it did.

Thoughts? Maybe I try to get the HOA on board for some repairs? They remove some blight from the community and everyone's home values should improve once the "sinking house" is fixed.

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  • Michael S.
    OP
    Rental Property Investor · Beaufort, SC · Member since 2013 · 82 posts · 7 votes
    12y

    Bump...

    Wondering if any of you guys have ever tried this before. I am trying to set up a win-win for all parties.

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  • Andy Luick
    Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
    12y

    You're a brave man for even pondering this one. You would almost have to get the unit for free for this to make sense. Estimates on foundation repairs as serious as these are just that.....beginnings. I walked away from a property once that had an underground aquifer under it.....it was unfixable and the best we could ever do was install a system to "manage" the water. I bought it during a long period of drought so the symptoms never showed until we started getting heavy rains. The seller hid the defect so at least here you know what you are potentially dealing with up front....that's why you should RUN!

    If you're still into this deal....not sure why you would be...but have a chat with the neighbors and try to track down the original owners to get more background on the house and its issues. Improper soil compaction is a big deal but it's solvable....though expensive. I faced similar issues....a $50k ticket for solutions that might not actually solve the problem....just make it easier to live with...and then I was still stuck with a home that would always have a defect. I decided it was better to just walk away from it. Think it through carefully.....being an investor mean making sure that what you are planning to do it profitable! Happy Investing

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  • Michael S.
    OP
    Rental Property Investor · Beaufort, SC · Member since 2013 · 82 posts · 7 votes
    12y

    @Andy Luick

    Thank you for the information. You are right that I would almost have to get the place for free to make the deal work. Either that or get other interested parties (neighbor or HOA) to put some money into the repairs. The problem is I have no idea how to go about doing that. Do you just have an attorney draw up a contract? What would you do if they later backed out?

    Oh well, I have a feeling this one will be sitting for a long time. I am just going to let this one go and watch whoever jumps in (if anyone does). I live walking distance from the unit.

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  • Andy Luick
    Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
    12y

    Just for fun, find out which bank has the mortgage. If it is one of the big 4, then you probably won't get anywhere with them. Get multiple bids for a turn-key repair and present the highest one to the bank. Let them know the seriousness of the problem and you just might get your wish of a free or pretty cheap house. Some of the smaller banks will be happy to just get rid of it. To me, it's only worth a peek because it is within walking distance for you. Let us know if you end up doing anything with it!

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  • George C.
    Involved In Real Estate · My City, NJ · Member since 2013 · 181 posts · 81 votes
    12y

    Years ago I used to work for a Redi-mix concrete company, we did big projects down to small jobs. I remember a new big condo townhome project that a couple buildings in the first phase already had to have concrete pumped underneath the footings because of soil issues...while they were still building out the complex. I even saw a couple of single houses had to have this done. This is a very rare thing in northern NJ with it's hard soil. This is such a specialty job, I would imagine it would cost a fortune & you'll never know when your done till time passes and it does or doesn't sink any further.

    I doubt this would make a good flip project. Who can guarantee that the first pumping will fix it for sure? Won't you have to disclose this to an end buyer? This will be a huge buyer red flag.

    If you got it for next to nothing, it might be a good buy & hold long term rental.

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  • Michael S.
    OP
    Rental Property Investor · Beaufort, SC · Member since 2013 · 82 posts · 7 votes
    12y

    @Andy Luick

    It is owned by First Citizens Bank. I have 2 bids, one at $40k and one at $40-60k. The second bid gave a caveat that if the problem is an underground spring, it might never be 100% repaired and will need constant work, though they claim the underground spring is "unlikely."

    The bank knows about the first bid, which is why they have it listed of $40k, with an ARV of about $130k at the high end. Unlike most banks, they aren't completely clueless about the local market. The problem is that the deal is still way too thin.

    @George C. the estimate was for helical piers with concrete or mud pumped in underneath. You are right though, that it would be a big red flag for a buyer-- this isn't your standard $10k foundation repair with a couple piers.

    Still curious... has anyone ever gotten a neighbor to bite off on paying for some repairs?

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  • Andy Luick
    Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
    12y

    Develop a relationship with the asset manager you are dealing with at 1st Citizen. Ask them what other REOs they have and maybe they would consider doing a package deal with you and even providing the financing. Smaller banks will do a lot of things the big boys would never think of. A tanked loan costs them more in reserved funds that they can no longer lend against. Might be worth a shot if they had one or two more that made more sense than this one...then blend this one back in at $10k or $20k......might be fun to play with the numbers. Another good group to hunt from is Springleaf Financial.

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