Buying a bank owned SFH with foundation issues

20 Replies

Hello BP! I have almost made my first offer on a foreclosed property!

Needless to say the property has foundation issues..the home is on a hill in Huntsville, AL and was built in 1971 - 1,860 Sqft (Tri-level home)

It has cracks throughout the home. On the top of the window seals there is cracking on the corners on almost every entry way.

There is also a big crack going up the stairway on the ceiling, almost looking like the house is separating apart.

There is another foundation issue that scares me is near the fire place, it looks like the fireplace (wall) and the connecting wall to it is coming apart....

Has anyone dealt with foundation issues like this? I know some of this issue could be because of settling issues but I think it is far more than that.

They want 95k for the bank owned property and the comparable properties average $176k so if the foundation issue isn’t so expensive shouldn’t this be a good deal??

Has anyone dealt with foundation issues that can spare some knowledge?

Please and thank you,

Asa

Oh man is that the house off Mountain Gap with all the wallpaper?  It needs a toooon of foundation work.  Estimate a pier per crack, 3-3.5k per pier.  Then, once the houses is jacked back into to place, you'll need to fix all the now cracked drywall and potential plumbing leaks.  

Not enough info to say if this is in play or not. What is your estimate of rehab excluding foundation?

Foundation issues don’t scare me, especially on a foreclosure as you are dealing with a bank and not a “person/homeowner”. I would get an inspection if the numbers are worth while based on your rehab plus guestimate of foundation work.

Per the reply above, don’t forget you will have drywall repairs, possibly plumbing repairs, and likely door jambs to fix. Based on just a guess of rehab and foundation, you need to get this for well under ask price. I would use a foundation expert to draft a report for every worst case scenario and use that to negotiate the best price. Do keep in mind you will also have more holding costs for time involved in this scope of work plus permit fees, etc.

Promotion
BiggerPockets
The one-stop-shop for REI
Find Local Home Improvement Pros!
Check out our network of trusted, local contractors for all of your home improvement projects.
Find a Contractor

@Peter McDonough thanks for the reply!

haha, you hit it right on the head!

I looked at this property yesterday and it had a ton of cracks. I was estimating a few piers but not several like how you’re talking.

I want to get an estimate on the property with some contingencies, if I can get it well under asking price maybe it can work.

Do you do any investing yourself? I'd love to talk the BRRRR strategy some.

@Will Barnard my rehab estimate would’ve been $30k for a 90k house, that was before I figured out about the foundation...

Now I’m thinking 30k would just be for foundation itself.

I would have to take this property well below what they’re asking considering all of the repairs needed.

Thanks for the feedback!

So if your rehab is $30k plus another $30k for foundation, I would tack on another $10k to that for cushion for a total budget of $70k. If your exit can easily get $175k with the finishes you have in your rehab budget, then your max offer amount should be $61k giving you a 75% deal. It’s not a home run or triple by any means but it is better than a walk. That will give you enough room for holding costs, resale costs, financing costs and profit. Anything below that offer is even better.

Just make sure that the 60k and $10k cushion are accurate as is the $175k exit price for a quick sale and not the “best case scenario”.

@Peter McDonough - I believe I walked that house too a while back.  Every room had the worst cracks I had ever seen in my life.  It looked like the house had sustained earthquake damage.

@Asa Ifill - this is not a simple repair, if it is the house I walked before it went to foreclosure. Sure, you can put piers in. But I think the issue with that property is actually the soil it was built on. There is a realistic chance that the piers will slide down in the soil as well with time. It would be worth your time and money to meet with a structural engineer and do soil testing before you close on it. Its possible the reason the bank owns it is because the owners realized how underwater they would have been on the house performing the repairs. This is the type of property that can end someone's REI endeavor very quickly.

@Michael S. Thanks for the reply! I believe I have come to my senses from all of the comments that were left on my post.

Since it being my first deal I think I got really eager into thinking about actually going thru with the deal. Of course I would have contingencies before buying but for my first deal this should’ve been a no from the jump for me.

The last thing I want to do is get discouraged from a bad deal especially it being my first one.

Thanks for the help!

Originally posted by @Michael S.:

@Asa Ifill - this is not a simple repair, if it is the house I walked before it went to foreclosure. Sure, you can put piers in. But I think the issue with that property is actually the soil it was built on. There is a realistic chance that the piers will slide down in the soil as well with time. It would be worth your time and money to meet with a structural engineer and do soil testing before you close on it. Its possible the reason the bank owns it is because the owners realized how underwater they would have been on the house performing the repairs. This is the type of property that can end someone's REI endeavor very quickly.

I believe you hit the nail on the head here.  You can do underpinning and use a house jack to level everything but if the soil itself is causing issues you will have to spend a lot more than $3K per pier.  This does not sound like a simple fix even for an experienced rehabber.  Especially since this is a first deal situation I would walk away from this one.  Keep looking, you'll find a better deal, just be patient.

@Asa Ifill LTV should always float around 65%.. offer 44k. That leaves 70k for reno. Still leaves you tons of room for mishaps. Remember. NO SUCH THING AS A BAD HOUSE. just make sure your nunbers are good, and you're all set.

HI @Asa Ifill

Great job on hustling and finding this deal. Reading your post I feel that there are tons of foundation issues with this house and the thing with foundation issues is that you will get different quotes that will range from 15k - 60K! And there can be many hidden issues that might not show up in the inspection as well!

As a investor who is just starting out I would recommend either pass this opportunity or really lowball the heck out and have 20k-30k of margin of safety. 

My personal principle of investing is that I don't touch any property which has foundation issues as there is no easy way to estimate the repair.

All the best and do keep us posted on what you decide!

-Gorden

Thanks for all of the help team! 

I believe I was getting wrapped up into it being my first deal and wanting to jump on something in a hurry. My goal is to have several single family homes rented out before the end of next year so I need to stray away from this specific deal as it could end me before I even start.


I will continue to do my due diligence on SFH and look for the best deals that can comply with me, my team and my goals.

Thanks again for the advice team, 

Asa 

This is a great thread.  I love this!  It proves that excitement doesn't improve returns.  Making good decisions and being informed improves returns.  The BP Community really helped here. That's what it's all about!  

Good job @Asa Ifill and best wishes on the next one!

Originally posted by @Gorden Lopes:

HI @Asa Ifill


My personal principle of investing is that I don't touch any property which has foundation issues as there is no easy way to estimate the repair.

All the best and do keep us posted on what you decide!

-Gorden

Everybody is entitled to their own opinions and strategies, but, food for thought on this comment:

If it were easy, everybody could do it, the difficulty is where the profits are for those who can get through it. Most of my profitable deals were not “easy”. Foundation issues can easily scare away most of the buyers and there lies an opportunity. In this specific case, it sounds like there are soils issues as well and I don’t see a deal here, but I personally would welcome other opportunities with foundation issues as the scared decrease the competition! 

I have a bit of experience dealing with foundation issues and, in fact, just made an offer on a property that has some. Here's how you do it:

  • hire an engineer to examine a crumbling foundation and write a report specifying the requisite updates. This would cost you ~$500.
  • with the report in hand, get estimates from 3 or more experienced contractors.  

If you are unable or unwilling to do this, walk away. 

@Michael S. I was also going to suggest the the hillside mentioned may be unstable, in which case $100k + to dig down to stable earth and pour cassions isn’t out of the question (with engineering, geotechnical, etc)