Foundation Issues - FLIP or NO FLIP?

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Foundation Issues - FLIP or NO FLIP?

Hilary Stalder
Real Estate Agent · Winter Park, FL · Member since 2018 · 86 posts · 35 votes

Hello BP! I'm new to this world AND that of flipping. I've been in the construction industry for over 6 years though (residential for 3 and now commercial 3+). I came across a great investment property in Orlando, FL ($200k LP with upside of about $100k), I have a family friend that is interested in funding the deal, but I just found out the property has foundation issues. Apparently they have had the property pinned and there was a failure, so they re-pinned and now house is not level. I'm thinking of walking away from this because re-sale wise I don't think it will move. Has anyone had a similar situation? Foundation issues scare a lot of people away, so although I'm not afraid of hiring a professional, I think on the back end it may hurt us. Thoughts?

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David RobertsonBusiness Member
Flipper/Rehabber · Kansas City, MO · Member since 2010 · 755 posts · 778 votes
7y

Foundation issues don't usually scare me, but the fact that the property has already been pinned and re-pinned tells me there are some on-going issues there that may be hard to fix.  

Seems like this could be a future headache so I would walk away from this one.

As far as your numbers...

$15 to 20K for repairs is not much, so hopefully the rest of the property is in decent shape?  

Otherwise, the $15k in holding costs for 4 months seems way high...are you getting a HML?

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  • Brent Bridgman
    Real Estate Agent · Indianapolis, IN · Member since 2015 · 26 posts · 17 votes
    7y

    Foundations are always a major red flag for me! I would echo @Melissa McRay Johnson on having a solid quote (or two) on hand if you're proceeding with it for yourself or wholesaling.

    1Reply
  • Erin Legler
    Real Estate Agent · Orlando, FL · Member since 2014 · 231 posts · 130 votes
    7y

    Is it the house that is being sold on Hubzu?  That house I would run from.  I was going to purchase to flip than I started searching through official records and found out the previous owner walked away because costs were reaching $200K plus.  

    If it is not that house, than have someone evaluate it.  I was looking at house in East Orlando that one of the bedrooms was sinking.  It was quoted $23,000 to fix it.

    1Reply
  • Hilary Stalder
    OP
    Real Estate Agent · Winter Park, FL · Member since 2018 · 86 posts · 35 votes
    7y

    @David Robertson yeah I figured HML woth WCS terms after talking to another flipper in the area. A family friend is interested at maybe funding so this could go down. I figured light rehab with the numbers based on the state of the $295k comp. this is subject to change though! Definitely appreciate the feedback.

    @Abby Ruppert thanks for the reply! My mom is a realtor so I figured a pretty deep family discount. The comps pulled are within 3 months and 1 mi away (the $295k is actually the same house!). Good tip with holding for 6 months! I’ll change that going forward! All of it is great information, I appreciate you taking the time to reply!

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  • Hilary Stalder
    OP
    Real Estate Agent · Winter Park, FL · Member since 2018 · 86 posts · 35 votes
    7y

    Thanks @Grant Rothenburger @Brent Bridgman! I may have to walk away from this one, because of my lack of experience I don't have foundation guys on standby!

    @Erin Legler I looked at the attached documents, but didn't see that! I'm not sure if it's the same one... it's in Audobon Park, on Tanager. I haven't been able to get inside yet though, only see it form exterior.

    2Reply
  • Bo Goebel
    Rental Property Investor · Nashville, TN · Member since 2017 · 108 posts · 66 votes
    7y
    @Hilary Stalder I would never rule out a property for any reason (within reason). The seller must compensate you for taking on the extra risk/headache of a foundation issue. Simple as that. I recently bought a duplex that I renogiated after the inspection came back with some old foundation issues. I received three bids and the seller was willing to reduce the middle bid (the one I am going to use) from the purchase price. I was open, honest, and fair and he respected that. By the way, it’s typical that foundations in disrepair need “pillars” to fix the problem. I found each pillar cost right at $1000 each. (My duplex needed 18, and so purchase price was reduced by $18,000)
    2Reply
  • Mel Cosio
    Member since 2018 · 43 posts · 8 votes
    7y

    yeah, foundation issues are a no-no for me, unless I can negotiate a super steep reduction on the ask price. Good luck if you're pursuing this house,

    1Reply
  • Aaron Stuiber
    Real Estate Consultant · Milwaukee - WI · Member since 2018 · 142 posts · 73 votes
    7y

    Alot of various opinions on whether or not it's worth it. I'll never forget the day that I was taking a tour of a property that I absolutely loved on the outside and inside up until I got to the basement.... Bulging and cracking on two of the foundation walls that spanned almost 10 feet. I was in shock that the rest of the house was so perfect for a flip and that my hopes fell flat. 

    I call up my mentor and tell him about it and he stops me mid sentence and says 

    "Aaron... foundation issues are perfect! The more issues the better! It just means a bigger discount on the property." 

    That helped me to realize that with every flaw and imperfection the property has, the more potential opportunity that comes along with it. 

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  • Hilary Stalder
    OP
    Real Estate Agent · Winter Park, FL · Member since 2018 · 86 posts · 35 votes
    7y

    @Bo Goebel completely agree. I think I'm going to do just that, find someone that can see the property that's an expert and see what they think.

    @Mel Cosio hear ya Mel! I'm gonna see what the foundation specialists say first. May even be a possible wholesale to someone that's less new!

    @Aaron Stuiber completely agree, that's why I keep coming back to this one. It's the mindset... how CAN I make this work vs. why will this not work. I'm hoping I can come up with something!

    Thanks All!! SO SO appreciate the feedback :)

    0Reply
  • Elenis Camargo
    Property Manager · Jacksonville, FL · Member since 2018 · 514 posts · 470 votes
    7y

    @Hilary Stalder I am in the same boat!! We found a property we really want to flip but it has a foundation issue with an estimate of $36k. At first we thought we should walk away, but then thinking about it makes us want to move forward. Most flippers will walk away from this deal and the one who does it right can make some decent money. We are highly considering doing it!

    1Reply
  • Nick Rutkowski
    Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
    7y
    @Hilary Stalder I bought a house with a foundation issue. It would cost me $45,000 to replace one wall and stabilize the house. I reduced my cost by partnering with the contractor, I know him. I got a huge bargain off the work and a future partner to JV with on more deals. So that was the silver lining with that problem. I agree with you if you walk away from the deal. It’s not worth it.
    1Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    7y

    Honestly, compare notes with other investors in your area.  The opinion of somebody in AR, OK, NY or CA doesn't matter all that much (although they are all probably spot on) because their geology is not YOUR geology down in FL.  Your labor costs are not your labor costs in FL.  And Houston might be totally different as well, so I include myself in this comment.  All good advice here, as far as learning what questions to ask, but gather the relevant info there locally before you make a decision.

    Get referrals, obviously.  You didn't need to join BP to get that nugget of wisdom, but with foundation companies in particular, you want one that has been in business a long time.  And here is why:

    A couple people mentioned warranties.  Here, in my market, those are lifetime warranties, not just ten years.  Houston has a LOT of foundation issues, as you can imagine.  BUT the lifetime warranty only covers the cost of having that same company come out and fix it (again).  So it looks great on a sellers disclosure when you flip/resell the house, eg., hey LIFETIME warranty, yada yada, but it won't cover any of the other damage that happens as a result of the house shifting, so somebody is going to have to go back and patch, re-texture and paint and recalibrate doors, windows, etc.  At least that was my understanding with the local foundation folks here -- might be different in FL where you live.

    In regards to this particular house, it is probably worth asking to see if the foundation had been done in the past -- maybe it is already covered under warranty, and you just need to call up that company and have them make the fixes.

    2Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    7y
    Originally posted by @Grant Rothenburger:

    @Hilary Stalder I wouldn't do it as a beginner, but there are investors out there who look for foundation issues and other problems people usually run from. If they get it cheap enough, it's still a deal.

    Boom.  

    I do understand the initial trepidation, since I am not from Texas originally, and this really freaked me out until I got my head around it.

    Like I said, this was the easiest part of the flip project I did.  But in Houston, foundation problems are like traffic jams and taco trucks -- they are pretty much everywhere.

    3Reply
  • Chris Hayes
    Oklahoma City, OK · Member since 2016 · 54 posts · 15 votes
    7y
    @Hilary Stadler I would say it depends on the foundation issue. I just had 7 piers put under my foundation and it only cost me 4200.
    1Reply
  • Hilary Stalder
    OP
    Real Estate Agent · Winter Park, FL · Member since 2018 · 86 posts · 35 votes
    7y

    @Elenis Camargo I'm sending you a connection request! I want to know how it goes! :)

    @Nick Rutkowski that's a great idea! Sounds like this was a personal friend?

    @Mark Sewell Great tips, I've seen 15 years but yet to see lifetime. I need to find someone local that has taken this on repeatedly, the one guy I talked to has done one and I think got a 15 year warranty. Many of the local investors I know "walk away from foundation problems". I'm not sure what the current warranty is (if any), I feel like they would advertise that in the MLS listing if there was an existing warranty, but good question to ask. It is scary. I spoke to another investor today, again he hasn't personally done them, but he said "jump on this opportunity". I'm going to see if he can help me find someone reputable.

    Update: tried to see property AGAIN today after work, listing agent is being very standoffish. Only available at 3pm, when I'm at work. 

    To be continued...

    1Reply
  • Hilary Stalder
    OP
    Real Estate Agent · Winter Park, FL · Member since 2018 · 86 posts · 35 votes
    7y

    @Chris Hayes can you live in Orlando so I can use your contractor? :) 

    0Reply
  • Jared Maltbie
    Real Estate Broker · Orlando, FL · Member since 2013 · 57 posts · 15 votes
    7y

    @Hilary Stalder it’s always, typically, generally, most likely a definite pass on a flip if it has foundation issues. 

    I recently scoped a house out  in Winter Haven that could have been a big win but had a foundation verible. It’s not worth the gamble. There’s always other deals coming along. 

    1Reply
  • Nick Rutkowski
    Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Hilary Stalder

    Well, I'd say we're getting there. We do business in other industries together and we just met last summer. I'm his "retirement plan" and hes my "Get-er-fixed guy" (No pun intended) But then again, anyone who has 20+ years and is willing to jack your house for a bargain puts them to best friend status quickly.  :)

    1Reply
  • Hilary Stalder
    OP
    Real Estate Agent · Winter Park, FL · Member since 2018 · 86 posts · 35 votes
    7y

    Update : Was forced to pass on this one, and probably explains why the realtor was so sketchy about us seeing the house. They accepted an offer... decision was made for me because I couldn't move fast enough! May be a blessing in disguise. I'll keep an eye on her though! 

    Thanks for all the input guys :)

    0Reply
  • David RobertsonBusiness Member
    Flipper/Rehabber · Kansas City, MO · Member since 2010 · 755 posts · 778 votes
    7y

    Sometimes the best deals are the ones you walk away from...the last thing you want to do is waste 6 months of your time on a bad deal and potentially lose money!...

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  • Hilary Stalder
    OP
    Real Estate Agent · Winter Park, FL · Member since 2018 · 86 posts · 35 votes
    7y

    Agreed @David Robertson!

    0Reply
  • Shawn Ward
    Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes
    7y

    @Hilary Stalder foundation issues are not deal killers, as long as they keep your timeline and budget goals intact. 

    Many flippers run away, but that is why we get great deals with margins, because we are not scared. 

    Get 3 different quotes on the work, and make an educated decision on who does it and if the numbers work, do it. 

    All the best!

    sjw

    1Reply
  • Hilary Stalder
    OP
    Real Estate Agent · Winter Park, FL · Member since 2018 · 86 posts · 35 votes
    7y

    Thanks @Shawn Ward, unfortunately I lost this one. Didn't act fast enough, but I know this going forward!

    0Reply
  • Giuseppe PavonePro Member
    Specialist · Orlando, FL · Member since 2015 · 183 posts · 83 votes
    7y

    @Hilary Stalder sorry for the late response, didn't realize you mentioned me.  You had some great advice from several on this post... loved the discussion.  But I'll kind of echo @Bo Goebel and @Aaron Stuiber above... these are the properties where you can do really well on.  

    1Reply
  • Ross Kalmbach
    Rental Property Investor · Plano, TX · Member since 2016 · 65 posts · 54 votes
    7y

    @Hilary Stalder You can always get it under contract pending an engineer report and quotes from foundation repair companies - just think of it as a more expensive extra inspection.  I purchased a house that was leaning slightly sideways. The seller even agreed to pay for the engineers report.  Bad news is it was wrong and I still had to fork over $12,000 as it ended up dropping another 1.5 in on one side.  Also, since the engineer report was in the benefit of the seller and not me I had no recourse vs them (nice to know for future reference).  So be careful with foundation repairs as all others have mentioned.  It might cost a few $100 extra but well worth the cost to know how extensive the repairs might be.  Good news I still got it at a nice discount and didn't lose money (although I didn't make any either).  I would do it again now that I have one under my belt.

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