Advice On Calculating Structural Issues

14 Replies

OK. I've found a property that I am interested in putting an offer on. This would be my first rehab so I am out of my comfort zone. I had a contractor look at it yesterday. It had the obvious issues of needing new roof, new gutters, updating everything, etc. That's fine and expected.

The part that is worrisome is the basic building of the house. The exterior siding is exterior siding. There are warps in several areas and the siding is discolored. The contractor said I could just fix the parts in need of repair and paint the rest, but the issue would need to be addressed at some point. Since doing things right the first time is important to me, I would replace the house with new siding. However, looking at the house further, we saw no sheer wall in the garage (which was a red flag #1) about the rest of the house. 

Looking at the two bathrooms, one looked like it could use updating so that looked fine. The second  bathroom had black shadows under the linoleum and the show pan was shallow. We won't know if there is an issue with water intrusion and how much of an issue it may have caused.

How do rehabbers deal with these unknown situations?

Using the formula on what to offer (and I'm going to stick close to it since this is my first crack at a rehab) my offer is going to significantly lower than asking and I am thinking of keeping in the inspection contingency and offer all cash. 

It would be appreciated if I can get some pointers.

Thank you!


The part that is worrisome is the basic building of the house. The exterior siding is exterior siding. 

The exterior siding is MDF siding.

You never can know for sure what you're dealing with until you get into it. Therefore, you must base your estimated costs on 'worste case' scenarios.  In this case, I would just assume that the floor in the 2nd bathroom needs to be replaced.  

I applaud your desire to "do things right".   Good luck!

@Art Allen

Not knowing the extent of the damage is the scary part. I guess The overall quality of the construction when it was first built needs to be considered. Than you for your input. :-)

art is right, you can't know everything so plan for the worst, within reason. It's a balancing act, you want to do things right but you also don't need to do more than necessary but at the same time it's often easier, faster, and actually cheaper to just rip things out and start from scratch. 

Ask yourself, whats the most I'd spend to fix this if all my unknowns are worst case scenario? Then what's the lowest price I "know" I could sell this house for? Can you live with that number? 

@Christopher B.

@Art Allen

@Bill Gulley

Thank you all for your input. I put in an offer today based on the formula in @J Scott 's The Book on Flipping Houses. 

The amount offered was based on MPP= ARV-Fixed Costs-Profits-RehabCosts. This brought the offer to 43% of asking.

 It was an all cash offer with an inspection and free and clear title contingency, but no loan contingency, no appraisal contingency, 8 day inspection with 14 day close. The scope of work by a known local contractor and verification of funds from my bank was attached to the offer. It felt like a reasonable offer based on my goals which is fix and resale (plan A) or fix, rent, and hold until it made sense to sale (plan B).

In the past, I would have been embarrassed to put forward such an offer. However, real estate investing, it is about the goals you have for the property as well as the money you put into the project.  I can reasonably discuss with the listing agent how I came up with the offer price. (Relationships are important so I would want the reputation that my offers may be lower than wanted, but logical, and I am a serious buyer that can and will perform.)

Because housing is tight in this area, I believe there are people who would like to own in this area and willing do whatever is needed to just get into a home. 

It is also possible that a contractor may purchase it because s/he would have the skills that decreases the labor and materials cost for this kind of project. What do you think?

There were 18 offers and it will be interesting to see what happens.

I anticipate the house will go closer to asking. What happens to this house will be tracked to learn from this experience.

I learned and used the formulas for flipping houses. The information gave me enough confidence and courage to make an objective, non-emotional offer. 

I am also motivated to learn what kind of conditions make for a good working relationship with contractor(s). 

Any comments or suggestions?

@Christopher B.

@Art Allen

Wow! I just found out the offers submitted are up to 24 and 1.10% above asking.  The area I offered in is a marginal area. This is nuts!

San Francisco is driving these markets crazy! I am going to check in with folks on BP investors in San Francisco Bay Area. 

@Bill Gulley I think it's good to be a listing agent in this market.

You are on the right track, get scope of work and quote from contractor to backup the offer, the owner will not like the offer, but at least you tried.

Originally posted by @Manolo D. :

You are on the right track, get scope of work and quote from contractor to backup the offer, the owner will not like the offer, but at least you tried.

 Yes, I tried and I'm glad I did it. 

The market in San Francisco is driving middle income workers out and into neighboring counties. I believe this is why there were 24 offers on the house I put an offer on today at 1.10% over asking. Properties are definitely appreciating here.

Is this a market for the Big Dogs that can stay ahead of the curve with the ever increasing appreciation here? 

Originally posted by @Patty C. :
Originally posted by @Manolo D.:

You are on the right track, get scope of work and quote from contractor to backup the offer, the owner will not like the offer, but at least you tried.

 Yes, I tried and I'm glad I did it. 

The market in San Francisco is driving middle income workers out and into neighboring counties. I believe this is why there were 24 offers on the house I put an offer on today at 1.10% over asking. Properties are definitely appreciating here.

Is this a market for the Big Dogs that can stay ahead of the curve with the ever increasing appreciation here? 

 hey I have a cash buyer that still gets great deals in the bay area and he will buy anything thats under $2 million cash, not on mls in these counties Santa Clara, San Mateo, Alameda, San Francisco, Contra Costa... He has bought 11 so far this year and non have been on the mls.. 

Originally posted by @Marcus Wallace :
Originally posted by @Patty C.:

Is this a market for the Big Dogs that can stay ahead of the curve with the ever increasing appreciation here? 

 hey I have a cash buyer that still gets great deals in the bay area and he will buy anything thats under $2 million cash, not on mls in these counties Santa Clara, San Mateo, Alameda, San Francisco, Contra Costa. He has bought 11 so far this year and non have been on the mls.

     Perhaps you mean he will consider anything under $2M? Sophisticated and experienced investors analyze opportunities very carefully. It has to bring in enough money to make their time and the risk they take make sense. 

Originally posted by @Patty C. :
Originally posted by @Marcus Wallace:
Originally posted by @Patty C.:

Is this a market for the Big Dogs that can stay ahead of the curve with the ever increasing appreciation here? 

 hey I have a cash buyer that still gets great deals in the bay area and he will buy anything thats under $2 million cash, not on mls in these counties Santa Clara, San Mateo, Alameda, San Francisco, Contra Costa. He has bought 11 so far this year and non have been on the mls.

     Perhaps you mean he will consider anything under $2M? Sophisticated and experienced investors analyze opportunities very carefully. It has to bring in enough money to make their time and the risk they take make sense. 

 yes he normally gets his deals from agents

Unfortunately, there's only so much you can figure out about a rehab before you start ripping walls open and what not. That's why you should always factor in a contingency for unforeseen expenses and change orders. I usually go with about 20%, but if it's a project with a lot of question marks, bump that up a bit. And if there are serious structural issues, consider getting a structural engineer to look at it. If big problems come up, you can walk, or use it to retrade on the price.

Originally posted by @Manolo D. :

You are on the right track, get scope of work and quote from contractor to backup the offer, the owner will not like the offer, but at least you tried.

 Yes. SOW and VOF were included with the offer...that was a clean offer. Obviously many others also saw the potential in the property.

Originally posted by @Patty C. :
Originally posted by @Manolo D.:

You are on the right track, get scope of work and quote from contractor to backup the offer, the owner will not like the offer, but at least you tried.

 Yes. SOW and VOF were included with the offer...that was a clean offer. Obviously many others also saw the potential in the property.

Yeah, SF is one of the cities where foreigners who has their millions park, they don't really care about cash flow, they are betting on appreciation. Another one is NY. You can't compete with gamblers. They're not really investors.

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