Rehab and Flip Fire Damaged Properties - Deal or disaster?

Question

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 · Answer

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.

Guillermo Kennedy · Answer

@Greg Dickerson, @Eric Michaels - thank you both for your advice and insight! I have some research to do. Thank you!

Eric M. · Answer

The answer is they can absolutely be both diamonds in the rough and money pits. It all depends on your expertise. Become and expert in them and you can probably get a lot more diamonds. Try to wing it before you know what you are doing and you will get more pits.

Gotta invest time and money to become an expert.

Guillermo Kennedy · Answer

@Greg Dickerson - thanks for the speedy reply! Makes sense to have seasoned professionals who are well versed in fire damaged properties on the team or in tow if dealing with these type of properties. Is this something that should be left to battle hardened real estate investors and not for the newbie? Or if you are able to secure the right contractor then dive right in? What are the top 5 or 6 things that an investor should be aware of if investing in fire damaged properties? Sorry, but I think I've got a bee in my bonnet over this one! I am rather curious about this.

Thanks again for providing a helpful response!

Greg Dickerson · Answer

These types of homes require serious experience and expertise. You can lose a ton of money on these if you don’t know what you’re doing or have a contractor that specializes in these types of properties

Rehab and Flip Fire Damaged Properties - Deal or disaster?

Rehab and Flip Fire Damaged Properties - Deal or disaster?

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