New Investor here, have been researching properties and trying to run numbers for some potential deal candidates. I came across a house that is unfinished, where the owner started building and then got about 1/2 way through and decided not to finish it, but sell instead. The house has a finished roof, exterior windows and all of the weather wrap, but no siding and no interior pictures (assuming it would be at the most, dry-walled inside).
Is this something to look at as a good rehab option? Most of what I've learned thus far is targeting houses in bad condition and repairing, but my thoughts are that if I can get a decent deal on it, most of the work that was done, should have been done right, just unfinished. Thus, no surprises. I am still new, so my numbers are probably off, I'd need to put more effort in before I consider making an offer, but it's listed at 55k, just dropped from 60k. Best guess at ARV from comps in the area put it at 80-100k. Repair Costs (finishing costs?) at this point are unknown, since I haven't gone so far as to talk to the seller or any contractors. It is a 1500 Sq ft 3/2, likely with all interior needing finshed + siding & landscaping.
Am I on the right thought process?
Hey @Kyle Jones you are on the right thought path, but you have to think major discount. WHY would someone NOT finish a rehab. Probably because they ran out of money or they had no business doing a rehab to begin with because they did not have the skill set for it. It doesnt matter. They have an unfinished house that is marketable to a very small amount of buyers. Not everyone wants a house like that.
This is where the law of supply and demand come into play. Not much demand, price goes down.
Remember the 70% rule?? If ARV is 100k(I am being generous), you should buy at 70k minus repairs. If it is half finished it probably needs 30k? You should be buying at about 40k.
Right thought process about the type of situation, but wrong on offering what they are asking. Go lower and make sure that it is a deal. Get a 10 day option to make sure they have not pissed someone off at the city. Make sure permits have been pulled. Have it inspected by someone with plenty of knowledge.
@Rick Pozos Thank you for the response. Some very good points, I hadn't thought through why they would stop building, could be anything I suppose. Maybe their foundation was cracked and they are looking to pawn it off. I'll have to ask the tough questions and see if it is still worth pursuing.
Having spent 20 years in building in my younger days, keep in mind some points.
Sorry hit post by mistake
Costs for finish per square foot are great than roughing in.
So painting can be super easy and cheap, but is the finish work around doors and windows done?
Major components to view finish is 'how done are they'
Electrical, HVAC plumbing.
Big difference between just needing outlets switches and still need a portion of electrical done.
Keep in mind most banks don't like to lend on non move in houses to average buyer. They look for functioning plumbing, electrical HVAC etc. You cant get a certificate of occupancy when these items are non functional for whatever reason.
@Robert Schulmeisters Good points as well, I think I will try to do a walk through, and keep an eye out for those items as well. I read in one of the books to record the walk through as well, so if I forget or don't notice something I can go back and check. Also sounds like private/hard money is my only option to get going on this as well, don't have enough capital just starting out to do this on my own. Thanks!
This sounds like a unfinished new build. In my area if a new build doesn't have siding\brick it won't have sheet rock yet. At most it might have the rough in done ( plumbing and electrical). Another thing to think about is the HVAC system.The good thing about it is you know that everything in the house is new. You will want to know more about it before you jump in. Cost are hard to determine depending on the finishes picked. Good luck on the deal, and let us know how it turns out.
So I did a walk through today, it is only framing on the inside, nothing else is done, foundation & roof were in great shape. I did meet a lady who lives near it who happened to have the plans on her. 🙁 Apparently it's been vacant for 2 years. For the right price it wouldn't be bad, it's on the edge of an ok neighborhood, a street away from the good part. Regardless, there was an offer on the table already for more that what seemed appropriate. Still planning on sending a letter to the owner in case it falls through. Thanks for the advice on this though, really appreciate it.
To quote the late Yogi Berra, 'it ain't over till it's over
As for more money? He may be a contractor who can do those #s.
If you are going to look at partial construction or renovations, you need to solidify what #s YOU can do it for.
In construction guys often look at jobs in Linear Feet, Square Feet or unit of measure. Siding and roofs are usually done by squares, 1 square= 100 ft sq. Floor coverings are sq ft, carpet in yards etc..
It helps knowing this stuff when talking to contractors. And helps checking their work. If they charge by the sqft and their price per foot is lower, make sure their total sqft = your #s.
Some sheet rockers charge by the sq ft of the SR bought to do the work. So your paying for the waste as well.
Not that this is right or wrong, but needed to be on same page.
A good plan on these types of bids are;
What does this include?
What doesn't this include?
What are your rates for extra work?
Normal hourly rate is $ /man hour or per man day.
What is your OT rate?
Best to ok extra work rates BEFORE your begin.
Then when you find their day rates, ask how long to finish. This gives you their labor part of the job
$ per day, $ per man hrs should add up to what he expects to spend in labor on a job.
Then if you know the cost of materials you should be close to his bid.
Don't forget job cost usually are material + 10% overhead + 10% material profit is normal
Then add the labor total and maybe 10%-30% profit. If #s don't make sense, ASK WHY?
To minimize fluff or incidental mark ups, ask directly, What are you concerned will dirve up your costs?
Often contractors fluff because they have not worked with you before, afraid the job won't be ready for them, other trades undoing ect… when you can address his concerns, they go along way. The quicker he can get in and out, the more $ he will make on the job.
A lot of General contracting is juggling trades and understanding the issues while seeing the big picture.
If you want more info on this, hit me up directly
Hey Kyle, I agree with all the posts on here as to what to keep in mind, but one thing I didn't see anybody suggest is looking up county records to see what permits were pulled. Might also want to figure out if their are any liens on the property - this sounds like a situation where the original buyer/builder ran out of money for one reason or another, so I would be concerned about contractors who hadn't been paid for their work.
Otherwise this sounds like a great scenario to me - as long as the house is free and clear of any liens and there are general contracting permits for the property (insuring the foundation and framing were engineered and signed off on by the city) It might be a great place to pick up. Also, a big money item would be HVAC and Electrical if that hasn't been started. I also liked what @Rick Pozos had to say about purchase price - it all comes down to what you can buy it for that makes sense with the estimated completion costs. This is where I would get a GC to tag along with you to walk through the house to give an estimate.
Best of luck!