Rehab and Flip Fire Damaged Properties - Deal or disaster?

[Guillermo Kennedy]

Hi BP Community!

Certain markets in the northeast have become saturated with investors with the larger, better financed ones snatching up the best deals through inside contacts and greater access to capital. I am always looking for the "road less traveled" which in my view tends to be more difficult but provides more opportunity since there tends to be less competitors. I notice that many investors (and even some contractors) skirt or totally avoid fire damaged properties. I wanted to get the BP community's thoughts on investing in fire damaged properties. Are these "diamonds in the rough" that have the potential to turn sizeable short term(rehab and flip)/long term (buy and hold) profits OR money pits waiting to suck the financial life out of all those who dare enter? Would appreciate any input on this as I saw a few fire damaged multi family properties that were selling at a deep discount (~37% of ARV) which piqued my interest. Thanks!

[JD Martin]

If you start with the premise that everything beyond the land, utilities to the site and foundation is a total loss, you might be able to make some serious money. The problem most people will get into is thinking "Oh it's just some damage right here" and then find out they're replacing entire framing & mechanical systems. If you approach it as a foundation on a lot waiting for construction, and price it accordingly, you could really make some money if some of the systems can be salvaged. Never assume the damage is limited to what you can see, and don't forget to account for the water damage, as the process of putting out the fire can leave more damage than the fire itself.