House flip gone horribly wrong. Need advise.

Rehabbing & House Flipping
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House flip gone horribly wrong. Need advise.

Vince Campbell
Flipper/Rehabber · Indianapolis, IN · Member since 2019 · 13 posts · 0 votes

We started out just adding a room addition to a house. We're now looking at a $60,000 loss and 9 months to completion.

We got the permits and built the addition. When the contractor started to tie into the existing house he found the foundation was crumbling and the studs were rotting in some parts of the house. He suggested demolishing the house and building new from foundation up. So we gave the go ahead to tear it down but we didn't have a wrecking permit or any building permits to do that.

Obviously we got a stop work order and had to begin the permit process. Now we're facing a variance if we rebuild in the existing footprint of the house and a likelihood they won't approve our proposal.

We're in the house $100,000 total so far. The plan was to build a 1600 sq ft house 3 bed 2 bath. ARV $190,000. We are at least $125,000 away from doing that. We are estimating a $60,000 loss right now after closing, realtors fees holding cost ect..

Does anyone have any suggestions of what we could do to minimize our loss?

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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
7y

He found that the entire foundation was crumbling, and there was no indication of this prior to your purchase?  Did you have an inspection before you purchased?  Are you sure the current contractor is being honest with you?  Have you had an engineer look at the house?

And if this contractor actually knows what he's doing, how could he possibly think that you could demo a house without a permit?

I'm not convinced this contractor knows what he's doing...perhaps get a second/third opinion?

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    7y

    He found that the entire foundation was crumbling, and there was no indication of this prior to your purchase?  Did you have an inspection before you purchased?  Are you sure the current contractor is being honest with you?  Have you had an engineer look at the house?

    And if this contractor actually knows what he's doing, how could he possibly think that you could demo a house without a permit?

    I'm not convinced this contractor knows what he's doing...perhaps get a second/third opinion?

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  • Will FraserPro Member
    Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    7y

    HI @Vince Campbell.  I'm sorry to hear about the tumultuous path that this project has been!

    Without knowing more nitty gritty details on the project here are the first things that come to my mind:

    -  If zoning allows for multiple units, build as many as possible (if it happens to be a residential area that allows for duplex, triplex, or fourplex then build the best layout your space can allow, refinance it and keep it or sell it to a house-hacker.

    - If zoning and covenants/deed restrictions allow, put a mobile home on the lot once you get it cleared.

    - If zoning/covenants/deed restrictions are very restrictive and a SFR is all you can do, consider clearing the lot, procuring an architectural plan and BoxBrownie it and sell it as an empty lot and a plan. You'll likely do so at a hefty loss, but you'll be out of it faster.

    Good luck in the process!

    2Reply
  • Account Closed
    Rental Property Investor · New Castle, DE · Member since 2017 · 95 posts · 102 votes
    7y

    Get another opinion, that's not adding up. 

    2Reply
  • Vince Campbell
    OP
    Flipper/Rehabber · Indianapolis, IN · Member since 2019 · 13 posts · 0 votes
    7y

    @J Scott I feel like I'm about to line up for a firing squad, lol. No inspections. Only 1 opinion. 1 city inspector did unofficially tell us the existing foundation we hadn't tore out yet would grandfather in if we didn't modify it.

    To clarify, the house is already gone and we have a wrecking permit finally so we aren't in violation anymore.

    Just not sure what direction to take.

    0Reply
  • Vince Campbell
    OP
    Flipper/Rehabber · Indianapolis, IN · Member since 2019 · 13 posts · 0 votes
    7y

    @Will Fraser We are zoned for single or double family residential. When we run those numbers it seems we're still in the negative a couple hundred dollars a month. I guess that's better than loosing all at once.

    0Reply
  • Will FraserPro Member
    Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    7y

    @Vince Campbell Duplex for the win!  Perhaps you could do a duplex with an "overly functional garage" that could be used strategically to recoup the "few hundred dollars each month"!

    4Reply
  • Alex G.
    Eastern Mass & Central Maine · Member since 2009 · 252 posts · 135 votes
    7y

    If I were in your shoes, I would spend $400-500 on an engineering foundation report outlining the project's scope, get quotes from three foundation contractors (excluding the one you are working with) and then decide how to proceed.



    Engineering Foundation

    , you can hire a structural engineer

    2Reply
  • Jared W SmithBusiness Member
    Architect · Westchester County, NY · Member since 2018 · 682 posts · 476 votes
    7y

    I second @J Scott, this doesn't seem like the right approach. Depending on the type of foundation, you do realize there are ways to replace sections or reinforce weak areas of a foundation without tearing down the entire home. Where is your addition  architect/engineer when this condition came up at the existing home? 

    It is not uncommon for existing homes to be non-conforming to existing building and zoning codes. Therefore once you torn down the home, all grandfathered construction was negated. There's little that you can do now. I feel as though your contractor is reaping all the benefit on building the addition and now an entire new home. Get a new contractor and retain a new architect/engineer for permit plans and maximize ARV as best you can. @Vince Campbell

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  • Brian Pulaski
    Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    How many rotted studs? It better be a lot to tear the house down. Post up some photos of the foundation and stud issues. 

    1Reply
  • Carrie K.
    New to Real Estate · Sacramento, CA · Member since 2015 · 104 posts · 33 votes
    7y

    Sounds like the house is down now. If you're only a couple hundred dollars out of the money, maybe you could close the gap. Build a large duplex with a bunch of bedrooms in there -- rent them out individually, maybe furnished (e.g., AirBnB or to traveling nurses)? Also, I don't know what your lot size is, but another option might be to split it (front facing and alley facing?) or build two condos instead of a duplex. Good luck!

    0Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    7y

    Based on your info provided, I have to agree with J Scott. First off, you should have paid for a home inspection before you purchased, that is now a very costly mistake on your part. As far as the contractor, a few rotten studs is NO reason to tear the house down and some crumbling foundation areas is also no reason to tear it down. You could have avoided all the added permit fees and such, not to mention the demo by simply repairing like for like which would not incur plan check fees or heavy permit fees. Based on the info provided, sounds like your contractor gave you a story to make more money. I cant be 100% sure as I don't have all the info or any photos to view but that is what it sounds like.

    What can you do now? - Eat it and don't repeat the mistake next time.

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    2Reply
  • Clint G.
    Rental Property Investor · Corpus Christi, TX · Member since 2019 · 306 posts · 176 votes
    7y

    How much is the land worth? If not much, then maybe you could put a modular home on it? It should be cheaper than a ground up build.

    0Reply
  • Bryan Devitt
    Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
    7y

    You are entirely too far gone now to get any good news out of this. See if you can build a duplex to try and get more money out of it and maybe break even. Find a new contractor, yours screwed you. Any contractor that just talks you into tearing down a house and rebuilding it without permits is a hack and he did it to get more work out of you or they're an idiot. Both mean you lose. If you need to use them to finish, find someone competent to be a baby sitter. For future reference, if you're this inexperienced, don't do additions of any sort. Find a pig, put on lipstick and move up one step at a time to do additions and full renovations. There are too many variables (as you know) that will cause massive losses. I could beat you up on how you got here but with losing that much money I am sure you know your mistakes and won't make them again. 

    0Reply
  • James Vance
    Investor · Indianapolis · Member since 2019 · 2 posts · 1 vote
    7y

    Where you building at Vince? Bates or Fountain [Solicitation Removed by Moderators]

    0Reply
  • Josh H.
    Contractor · Indianapolis · Member since 2019 · 17 posts · 1 vote
    7y
    Originally posted by @Vince Campbell:

    @J Scott I feel like I'm about to line up for a firing squad, lol. No inspections. Only 1 opinion. 1 city inspector did unofficially tell us the existing foundation we hadn't tore out yet would grandfather in if we didn't modify it. 

    To clarify, the house is already gone and we have a wrecking permit finally so we aren't in violation anymore.

    Just not sure what direction to take.

    [Solicitation Removed by Moderators]  The city has been very strict the last year in regards to old Foundations and existing framing. If the framing is worse than what’s typical, then the inspectors are inclined to issue stop work order so you’ll have to deal with permit office on trying to change scope without them making you tear down completely. If large amount of framing is degraded, they won’t consider existing, existing anymore because the need to use new framing to replace or stabilize. 

    Remember 10ft separation between neighboring structures/houses. Variance can at least get you to 6ft. Sometimes less. 

    If you only have existing foundation left, the city will most likely require an engineers report to sign off on condition. 

    Need survey, engineers report, 1/4 scale prints of existing, 1/4 scale new, and you’ll be prepared to take on city and receive permits faster. 

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    This is exactly someone in Silicon Valley did. Every successful flipper walks out with obscene net profit. My friend bought it at a peak. The market here slowed down. He was buying some time to get the price up but no avail. He is projecting a break even by doing min amount of upgrading such he will break even at best scenario. In the mean time each month he is losing a 5 figure PITI. It will be 3 years when it is on the market.

    0Reply
  • Steven Lowe
    Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
    7y

    @Vince Campbell Was the condition of the foundation verified by a structural engineer? Did the contractor also propose repairs to the foundation (underpinning) as an option? Sounds like you were taken for a ride by an unqualified contractor.

    0Reply
  • Vince Campbell
    OP
    Flipper/Rehabber · Indianapolis, IN · Member since 2019 · 13 posts · 0 votes
    7y

    @Steven Lowe the foundation was formed concrete and was cracked in about 18 or 19 different places. Most of them around where a massive tree was growing. When I started grinding the cracks to fill with crack filler, it was like grinding on a sand castle. And when they tore out the foundation, it went about 12 inches below grade and had 12 inch diameter rocks as footers. I think the house was built in the 1920's. And we never saw any rebar or anything to strengthen the concrete which is probably why there were so many cracks.

    0Reply
  • Vince Campbell
    OP
    Flipper/Rehabber · Indianapolis, IN · Member since 2019 · 13 posts · 0 votes
    7y

    @Steven Lowe Also the contractor isn't licensed in Indianapolis where the work was being done and was unfamiliar with Indianapolis permit process. We didn't think it was a big deal because he's a custom home builder in 3 other counties in Indiana for 25 or so years. He thought (and we thought) he was doing us a favor by telling us the foundation sucked and the right thing to do was tear it out and build a new one. In the other counties where he builds the inspector would have called him and told him to get the right permits before he continued. Indianapolis dropped the hammer on us.

    0Reply
  • Vince Campbell
    OP
    Flipper/Rehabber · Indianapolis, IN · Member since 2019 · 13 posts · 0 votes
    7y

    @Bryan Devitt It turns out we aren't zoned for multi family so a sfr is our only option without a big headache. Yea that's what it seems like. Were just trying to minimize the loss obviously.

    0Reply
  • Vince Campbell
    OP
    Flipper/Rehabber · Indianapolis, IN · Member since 2019 · 13 posts · 0 votes
    7y

    @Clint G. My investor turned his nose up at the modular idea for whatever reason. The land is probably worth around $15k or $25k. That would put us at a $115k loss so that's not an option obviously. I'm just trying to design a house that looses us as little as possible.

    0Reply
  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    7y

    Sorry to hear @Vince Campbell,

    Once the decision to rip the house down was made it really kind of removed all of your other options. Jacking a house up and putting a whole new foundation under it would have been costly but most likely nowhere near the cost you are dealing with now. So all you really own now is a lot. Did you buy it under an LLC that doesn't own anything else?

    0Reply
  • Vince Campbell
    OP
    Flipper/Rehabber · Indianapolis, IN · Member since 2019 · 13 posts · 0 votes
    7y

    @Brian Pulaski The front porch was angled into the house so all the studs in the front were rotten where that was going on. Unfortunately we never took any pictures. We honestly thought it was only a 4 week set back and didn't think is was a big deal. I'd give $30k to go back in time lol

    0Reply
  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    7y

    If you sell the lot for 25K you will lose 75K

    If you go through the process of building a SFR you will lose 60K (Assuming everything else works out well and there are no more surprises). Figure out the tax it will take to hold it that long plus other tie ins and overages. Is 15K (before tax/realtor fees/time/activity worth continuing with this project?

    0Reply
  • Vince Campbell
    OP
    Flipper/Rehabber · Indianapolis, IN · Member since 2019 · 13 posts · 0 votes
    7y

    @Mike Cumbie The LLC owns 3 other rental houses and 1 rental house we're renovating now. And we paid cash for this house and cash for the stuff we've done to it so far so we can't foreclose or bankrupt it. We're in it about $100k total as of now. The comps in the area are going for around $100/sq ft and the immediate area have 2000ish sq ft houses

    0Reply
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