Would you pass a deal because of that?

Question

question for experienced flippers:

I’m about to take on a flip  the neighborhood looks solid and the comps support the deal.

The only concern is that the house right next door is burned and in rough condition.

Would this be a deal breaker for you, or something you’d factor into the numbers and move forward?

Curious how you’d approach this.

Ken M. · Answer

If the damage was contained on the inside and can be dealt with later and you can be sure someone is rebuilding or if you can buy it for a decent price, I'd consider that.

Kevin Sobilo · Answer

@Ben Bertola, a few thoughts:

1. Have you spoken to the owner of the house next door? Perhaps the insurance payout is coming and it will be torn down soon? Or even rebuilt!

2. If the owner is inaccessible, have you contacted the municipality about it? With an absentee owner of a (likely) condemned property they may be working towards a plan to tear it down on the municipality's dime and bill-back the absentee owner.

3. Even without the details from #1 and #2, I think the details matter. If you are talking about a HIGH end flip, then purchasing that property could make sense but with a typical flip maybe/maybe-not.

4. However, if this is a more modest flip and they are on generous lots AND the neighboring lot is being mowed etc so that it is not creating an neighborhood issue with pests then living next to it is much less impactful and I think most people realize that situation will eventually be resolved.

5. If however, that burned house is close to the property line, the yard is a jungle harboring pests, etc then that would be an issue of concern for sure because the current situation would impact someone's enjoyment of your flip property.

Jeremy Horton · Answer

Can you buy the burned house as well?

Usually solid neighborhoods don't have a dilapidated burned down house next door

Of course it will effect the value unless it's a super luxury neighborhood (which it sounds like it isn't)

Would you live next to a trailer? Next to people who park their cars in their front yard?  Next to a tent with crackheads? Next to a house with 20 immigrants living in it? I'm guessing no. About the same case here

Ben Bertola · Answer

Thank you for your response, Peter!

The area in Texas looks very strong, and the deal numbers work well. The house across from the burned property was also sold without any issues, which indicates solid demand in the area.

The only concern is that there’s currently no way to get in touch with the owner of the burned house, which creates uncertainty about its future status, so I’m not sure how buyers will react to that.

Marnit Brown · Answer

Before going deeper, check:

1. Rebuild NOI from scratch with market rent comps, not seller's numbers

2. Run debt service at current rates + 0.5% as a stress test

That gives you a realistic floor

Richard Golding · Answer

I would not automatically pass, but I also would not underwrite it like a normal comp set. The burned property next door is not a repair item inside your house, but it can still affect buyer confidence, days on market, appraisal, insurance perception, and exit price.

I would adjust the deal in two ways. First, verify whether your comps also had similar external negatives. If your ARV is based on clean neighboring properties, discount it. Second, build in a longer hold and a wider resale range. A buyer may love your finished product and still hesitate because of what they see next door.

The key question is whether the neighboring issue is temporary or structural. If it is already in process with permits, ownership clarity, or city action, maybe it is just a timing discount. If it has been sitting for years with no resolution, I would assume it remains through your sale.

I would also talk to a local agent who sells that exact pocket, not just the city. Ask: “If this house were fully renovated, how much would the adjacent burned property reduce buyer interest or price?” If the deal still works after that haircut and extra hold time, reprice it. If not, pass.

Ben Bertola · Answer

Thanks for the input, I get your point about legal and insurance delays in burnouts.

Just to clarify the burned house is actually the neighbor’s property, not the one I’m under contract for. The subject property itself is clean, and based on my analysis there’s potential for around $60K profit on the flip.

I do agree in general about time vs. money, but since I don’t see many opportunities like this in the metro I’m working in, that’s what makes me consider it seriously.

What would you do in this situation  would you walk away because of the neighboring property, or try to structure it carefully and move forward?

Ken M. · Answer

Texas is a big state with lots of opportunities. If the status of the property can't be determined, I'd move on.  (There could be a lot of delays for various legal and insurance reasons, you’d be surprised in buying a “burn out”).

You have lots of money, you don't have lots of time, relatively speaking. If you want to be profitable, move on.

Peter Mckernan · Answer

I would get some details on the stuff going on with that burned house and maybe talk to the owner/agent. I would get as much info, because if this property is in a community that does not really want to do much about it or the owner is not motivated to do anything then you might be really in a pinch if buyers ask what is going on and there is nothing to give them. I have a buddy in an area that this has happened to currently, the lady that owns it is older and the house is burnt down. There is a person that is homeless that is living onsite and the city has sent fines to her and her family, and they have nothing about it for about a year and a half. MY friend has been to the city, called the owners son and much more, and there is still no movement. You do not want to be stuck in this trap.

Would you pass a deal because of that?

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