Immediate Signs to run away (Rehab projects)

14 Replies

I am sure this will be helpful for many looking to try some rehab projects. What are some key signs that you should run for the hills regardless of how cheap the price is for a rehab project. What are some problems that just cannot be fixed or will be to expensive to harvest a decent return.

Thanks all

- Really trashy looking neighbors (and their yards and houses).

- Houses that are way out in the boonies.

- Houses that will be hard for an end-buyer to finance (i.e. manufactured homes, and those crappy places where someone has taken a single-wide and added onto it, and basement houses).

- Houses where the bedrooms are small and/or the closets are small (this can sometimes be corrected though).

Thanks Bryan,

Yea an agent tried to sell my brother a manufactured home at one point in time, they are pretty shoddily built.

Apprecaite the feedback

Sam

Originally posted by @Bryan L. :
and basement houses).

What's wrong with a basement house?

When the listing says built on land with a sinkhole.

I'd have to say that really the only thing that can't possibly be fixed on any home no matter what is the location. OK, I suppose people do occasionally move a house to another location, so its possible but of course no one's going to do that on a flip project! The house I have for sale now had major basement problems, or at least one wall was ready to fail, two other walls were bowed but could've lasted fine for years and the fourth wall was fine. Also, the floor had some big cracks and looked bad and this was a home built in 1904 with a brick basement, common for the area which is a hot area of higher priced older homes here, so I had the three walls removed and replaced with new block walls, a drain tile and sump pump system put in and a new floor poured on top. Now, when you go down there, it really looks like a new basement! Its a real plus in an area of all older homes where most of the basements are pretty dark and dingy looking and many either have issues now or will sooner or later.

The house was an REO that sat on the market for several months, despite having a low price for the hot area and when they dropped it lower I bought it. No one wanted anything to do with that basement and the rest of the house was in good shape. It needed some updating here and there and I ended up taking the useless and tiny 4th bedroom and combining it with the 3rd bedroom to make a master bedroom with a full master bath. Now, this is an area that doesn't have too many families or the families that are here often aren't big ones, if it was out in one of the burbs where a 4th bedroom is a big plus, I'd probably never get rid of a bedroom. In this area though, a 4th bedroom is really superfluous.

Its been on the market now for almost two weeks and I have had at least 8 showings and have feedback from several brokers that their customers are very interested, including one the other night that showed them six houses and this was their definite favorite, but they all want more info on what was done to the basement, which I've been providing (I'm also the listing broker) as well as giving them the contact info for the contractor. Hopefully a good offer will be coming soon!

Other than location, I can't see much being enough to make a house "unfixable" but of course the price has to be adjusted accordingly and also always keep in mind that big problems need big fixes and that usually takes a lot of time as well and time is money in this biz!

I have to agree the number one thing to always consider is location. Also what should be high on any flippers list should be the margin of profit. In our preservation side of our work we see many homes that the cost to gut and rehab are more than the property would ever bring on the market. Especially on larger structures where the rehab costs would run considerably high. leaving no room for error or any unseen issues.

Even some that could be demoed and a new home put onto the land, the numbers would have to be weighed out as to the market value and the location. Some counties around us allow for one wall of origanal structure to be left standing allowing for the permits to be eisier to obtain and inspections to be a lot easier to pass.

So once again if in the right location, and if the numbers make sense, anything could be possible. Getting several bids on structual issues from reputable firms would be a great idea to help weigh out the profit potential of a property that is not a sound structure. The rehab costs should also be bid by several contractors even if you are planning on rehabbing yourself, unless you have done a lot of rehabs.

@Sylvia B. - Basement houses are hard for an o-o to finance. I'm not talking about "houses with a basement". I'm talking about "basement houses". A basement house is one where the house is built below grade or partly below grade.

Originally posted by @Bryan L. :
@Sylvia B. - Basement houses are hard for an o-o to finance.

Really?? Why is that?

@Sylvia B. - You'll have to ask the underwriters and the mortgage investors about that.

I've been told many times by the best mortgage person in my town that "just because something or someone meets the loan guidelines, that doesn't necessarily mean that the mortgage investors will fund it".

I have only seen one of those basement houses before. It was kind of like a hut. You drive down the driveway and just see grass and then pull around and see the entrance to the house.

Something about being built into the hill helps with heating and cooling etc. I could imagine a nightmare to insure though.

One thing to keep in mind is what stays online about a house that buyers could see later, such as "DANGER MOLD, DO NOT ENTER" or unflattering pictures in a listing. In NJ (and probably everywhere else), the old expired listings stay on the MLS for agents to look back on & show their clients. So even if you bought the place and cleaned / fixed the mold, or whatever the problem, will you be ready for all the questions about it? Chances are most buyers will drop interest and move on, instead of chance that you did things right. You might end up with a beautiful home all fixed right, but how many people wont even bother with looking because of the old listing? It could lead to a longer sell time and or a lower sale price to unload it.

After a certain time the old listings were locked, so even the original lister couldn't go back and change anything, so it looks like they may be there forever.

That's a very good one George C., both the mold issue as well as the idea of whatever is on the net or in old listings will likely be around for years and will likely be discovered, either by the buyers or their agent when they do a little googling of the address or look at the old listings on the mls.

I was in just that exact situation last fall and-no surprise!-got some good advice here on BP about it. I was partners on a rehab/flip house, well really just all cosmetics as the house was just built in 2001 or so, so it didn't need any major renovation work but it did need A LOT of cosmetic work, basically everything because apparently the former owners weren't big on upkeep! It was a nice home too, 3000+ sq feet in a very nice neighborhood in a nice suburb. So, we did ALL the cosmetic work inside and out, HWF on first floor all sanded and refinfished and all new NICE carpet in the rest of the house, everything painted inside and out, all new light fixtures because former owners took every one but left the 2 drawer fancy dishwasher that no longer worked at all and the expensive brand drop in range that still worked I think, but was so unbelievably beat up and totally caked and coated with grease that we just scrapped it and replaced it with a new one!

The issue came in though because the house had apparently been abandoned by the former owners when the foreclosure had gone through (and on a side note, I found out they owned several gas stations and were apparently doing fine financially but they'd somehow borrowed basically TWICE the current value against that house and figured it was worth the credit hit to just walk away from it!) and once the bank took it over after buying it back at sheriffs auction, someone came and secured the house and made sure every last window was tightly shut and sealed and this was late spring, so the house sat all sealed up through the summer and a teeny tiny bit of mold popped up in the master bath because those casement windows were rather beaten up and didn't seal 100%, a just a tiny amount of moisture got inside and made the tiny bit of mold and the REO agent who was listing the house mentioned it in the listing, but he put something like "NOTE-mold issue is master bathroom!!" Believe me, I'm 100% for being both upfront AND honest about any home I list for sale, but this guy made what was basically two spots of mold, one maybe 2 inches at most and the other 1 inch at most into something that sounded like the whole bathroom could be covered in mold!

When we looked at it, we were of course totally relieved to see that this "mold issue" was a tiny bit of mold and we got a great deal after it sat on the market quite a while and I'll bet it was all because of that line about the "mold issue"! Just as George mentioned though, when it came time to sell, sure enough the "mold issue" came up with nearly every buyer! A former partner of mine was running that project and didn't take any pics of the original problem, which was a big error because then we had no proof that the "mold issue" was really two tiny spots of mold. We did do our research on it though and besides following the steps for getting rid of it, we also had new windows put in (they weren't cheap!) so it wouldn't happen again, as well as totally repainting the whole bathroom, etc.

So, when the whole house was all done and I listed it, we started getting showings right away, it was priced right in a popular neighborhood and the house looked great as it should have, it was just totally refreshed inside and out! Yet, I think that nearly every interested buyer soon found the old listing with the "mold issue" soon after the first showing and sometimes before it and they all were certainly concerned about it and just my explanations (I'm the listing broker as well) of how we totally followed the mold removal instructions, how it was really two small spots (but we had no proof of that!) then the whole bathroom was primed and painted AND we spent I think $1500 on new windows too, all that didn't do much to reassure anyone! That's when I went on BP and got some good advice and ended up hiring someone to come and take samples to show no elevated mold levels in the bathroom or anywhere in the house and then I had that to show interested buyers, which was certainly better than just me telling them what we did but it still sent a couple away I'd say. It was on the market for a while and we did sell it but for less than I think it should've sold for and I'd say it was likely due to the "mold issue" in the old listing. We definitely had a bunch of otherwise very interested buyers at first that weren't satisfied with just me telling them how we did everything required to remove the mold, it was tiny and all that and I never heard back from any of them! Probably cost us at least $20k, as the house ended up selling for I think $460k or so when it should've fetched closer to $500k!

Nothing really.

Everything is just a price adjustment as long as there is potential for money to be made.

It just goes to how big of a discount you need and what you risk and more likely you BS tolerance is.

That being said there are some things that are a lot tougher to deal with than others.

- Title problems. Actually this can be a great source of deals if you can fix them. However know what the issue is and how to fix it before getting into the deal. Even if it is basically incurable I'd still buy it if I decided to keep it as a rental with no hope of ever selling it and it would cash flow like crazy.

- Hard to finance places. I'll agree with Bryan on that one! Don't have much of the stuff he described here. What we do have are lots of condos. Don't like complexes that aren't FHA approved. Will buy and flip them though but want them cheaper than the same place that would qualify for FHA. Bigger issue is in a complex with less than 50% owner occupants. That takes out conventional financing too. At that point you need someone that will hold it in a portfolio. In this case super huge discount needed. Also would either sell with owner financing or rent it the same way as I said above.

- Location. The only thing that is generally impossible to change in a place. That being said people buy homes (to live in or to rent out) in lousy locations every day. Just don't expect to get a premium price for your steak served on a bed of dog poop. Buy it cheap, don't over rehab it and then sell it for a lot less than it would fetch in a nicer area.

Last year I made over $33K flipping a house that was literally across the street from a sewer plant, had train tracks running through the back yard, was in the flight path of the municipal airport and while in a nice town itself was less than a 1 min drive (Unless you had to wait for a train to go by:) ) drive from arguably the worst city in the state.

Sold it for about $100K less than I would have if it was like a mile away. However I BOUGHT it knowing that was the selling strategy. I got it super cheap since nobody else wanted to touch it (for obvious reasons!).

Location my a$$! :)

Oh, I'd still say location because we have city owned houses in certain parts of Milwaukee that literally sell for $1 and I've heard about lots of $1 houses in Detroit, or that they will sell for $1 and other cities too. When you look at what you could get for a house in that location all fixed up and then look at what the $1 house needs (and they're not total disasters-then they just bulldoze them, but certainly need work) in THAT location-you're NOT going to make any money no matter what!

-Actually looking on the mls, banks have been selling some for $1 too, not just the city and its all in the same location.

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