Concerns about rehabbing a flood damaged house?

Rehabbing & House Flipping
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Concerns about rehabbing a flood damaged house?

Greg S.
Real Estate Investor · Forked River, NJ · Member since 2011 · 96 posts · 10 votes

Hello everyone. I am a beginning real estate investor from NJ and am currently mailing to probates and out of state owners. The area I live in was pretty heavily hit by Hurricane Sandy. I'm about 5 miles from Seaside, where the roller coaster still juts from the ocean (if you've seen it on the news).

Many of the houses I'm receiving calls on have flood damage. I have an appointment to see a house this Wednesday. It is an inherited house, currently vacant, and had about a foot of water in it during the storm. The owner is starting to feel motivation, since they do not plan on making any repairs, and know they will have to take a cash price for the home.

I plan on taking pictures and/or video of the home on Wednesday, so hopefully I can get some assistance with estimating the repair costs. If it is a deal that I plan on pursuing, I will bring in multiple general contractors to give me quotes on the work. I also am going to give my realtor a call so she can provide me with some comps .

To be proactive, I wanted to get everyone's insight as to what I should be aware of with flood damaged homes. Is there anything in particular I should look for as I'm inspecting the property? Also, I assume this property will require flood insurance, which from what I've read is pretty expensive. In your experience, how will this affect my ability to sell the property?

Thanks in advance for all of your help.

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y

J. Scott did it, I would not. Depends too on how long it was flooded and with fresh or salt water, that makes a difference.

Check the subfloor carefully, glue in the plywood isn't that water proof in exterior ply, much less interior ply. Joints will seperate, nails will "pop" and loosen giving you a squeaky floor. Even in untreated lumber, like joists, you may get twisting and lose structural integrity.

Electrical connections don't like water, especially salt water, that includes low voltage circuits as well, HVAC controll, security wiring, door bell, cable and phone.....all wiring. Salt water and humidity play on sheetrock, even the ceilings if water stands for some time.

Hollow core doors can hold water and retain moisture, get rid of them.

These issues were found with flooding along the White River in Branson and the Mississippi floods, fresh water, but also contaimnated water.

You have no idea what chemicals were in such flooded waters, how they will effect materials even if they appear clean since wood can absorb chemicals and dry out, like petrolium products.

While some of this may not be a problem for the seller, it can increase liability issues especially if not disclosed. You don't know what you don't know or what you may have missed. If water was standing for weeks, I might buy the lot and factor in debris removal from the foundation up.

So, yes, I'd say you would have some marketing issues, your buyers could have some lending issues as well. For that reason I'd probably pass. Just me.....

'

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y

    Starting with the last question first -- future owners may or may not require flood insurance. Flood insurance requirements are based on FEMA flood maps, and it's up to FEMA (and the local water management departments) to determine if and how the maps are to be changed.

    We had some major flooding in my area back in 2009 and the results were that some of the flooded areas got reclassified into flood zones that required insurance and some did not. The interesting point to note is that the entire remapping took over 2 years, and we bought and sold several properties in that time that weren't remapped (did not require flood insurance) but might have ended up remapped after we resold them.

    For this reason, you'll want to keep in touch with local departments to determine if remapping is in progress and what the likely outcome is for the areas where you have property. Once the recommendations for remapping were out (even though the actual remapping was a year away), we stopped buying in areas that were likely to get remapped, as we'd have to disclose the potential remapping to buyers, which is just as bad as after the remapping is done.

    As for other things to be aware of:

    - Mold. You'll want to get an air quality test to determine if you have elevated mold levels -- you won't necessarily see the mold. This can be expensive to remediate and you'll want to know what types of remediation and testing will be required by local jurisdictions.

    - Electrical. If outlets, wiring or the circuit panel were under water, they may need to be replaced, even if they appear to be in decent condition. This is something else your local building department can tell you, and they may even create new rules for these recently flooded houses.

    - A/C Compressor. If the outdoor A/C unit was under water, it may not work (or at least will need a new motor). So, even if it looks fine, factor in replacing it.

    - Duct Cleaning. If you find that mold levels are elevated, budget for getting your HVAC ducts cleaned.

    - Disclosure. You will be required to disclose the flood to potential buyers when you resell. In my area, there was a stigma associated with the flood houses for about 2 years, after which is started to subside. In the third year, nobody really seemed to care anymore, unless they needed flood insurance, in which case they only cared about the extra money they had to spend.

    If you want to see some rehab numbers on the two flood houses I've done, check out Houses #19 and 35. Here are the budget breakdowns on both houses to give you an idea of what I spent here in Atlanta (and you can look at the pictures to get an idea of the size/condition of the house):

    http://www.123flip.com/house-19-budget-recap

    http://www.123flip.com/house-35-budget-recap

    Personally, I think all these flood houses are a great opportunity for investors who aren't scared to jump and take some calculated risks. Good luck!

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  • Greg S.
    OP
    Real Estate Investor · Forked River, NJ · Member since 2011 · 96 posts · 10 votes
    13y

    Thanks, J Scott! A quick look at the FEMA web page looks like it is in a flood zone (it appears to be in zone AE). I am still going to take a look at it on Wednesday, if for no other reason than to get some experience expecting properties.

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  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y

    From my understanding about flood insurance is if the house has no mortgage then you aren't required to have flood insurance on it. That is why so many people are running into problems finding money to fix their damaged homes.

    With a foot of water it touched all the outlets running around the bedrooms, living room ect. And they have to be replaced. You will need to have the floors ripped up and sub floor gone. You need to bring it down to the studs. You can go 4' up on the walls which is one board of sheet rock. And to the same to the insulation on the wall, as long as the mold hasnt gotton any higher then the water. Any ducts in the crawl should be replaces as well as the unit outside. All appliances that got hit with salt water replaced, as in stove hit water heater ect. All doors and trim and so on. It might be easier to take all the sheet rock down to the studs so you have everything open to air out and mold is taken care of.

    Any questions shoot me an e-mail or call me. Be very careful of out of state companies and unlicensed and uninsured hacks.

    2Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    J. Scott did it, I would not. Depends too on how long it was flooded and with fresh or salt water, that makes a difference.

    Check the subfloor carefully, glue in the plywood isn't that water proof in exterior ply, much less interior ply. Joints will seperate, nails will "pop" and loosen giving you a squeaky floor. Even in untreated lumber, like joists, you may get twisting and lose structural integrity.

    Electrical connections don't like water, especially salt water, that includes low voltage circuits as well, HVAC controll, security wiring, door bell, cable and phone.....all wiring. Salt water and humidity play on sheetrock, even the ceilings if water stands for some time.

    Hollow core doors can hold water and retain moisture, get rid of them.

    These issues were found with flooding along the White River in Branson and the Mississippi floods, fresh water, but also contaimnated water.

    You have no idea what chemicals were in such flooded waters, how they will effect materials even if they appear clean since wood can absorb chemicals and dry out, like petrolium products.

    While some of this may not be a problem for the seller, it can increase liability issues especially if not disclosed. You don't know what you don't know or what you may have missed. If water was standing for weeks, I might buy the lot and factor in debris removal from the foundation up.

    So, yes, I'd say you would have some marketing issues, your buyers could have some lending issues as well. For that reason I'd probably pass. Just me.....

    '

    3Reply
  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y

    Bill G. It was salt water and went out as fast as it came in. As I mentioned in my post before yours the doors and floor are garbage as with fixing electrical ect. As far as sheet rock he mentioned it had 1' of water and by FEMA they want you to go 1" above water but its easier to just go a full board at 4'. Unless the mold grew higher then that which its been cold and in the houses ive been in here the mold hasnt been growing very rapidly. But I also mentioned he might need to take down all the sheet rock and just replace it. Its not much more money and will take away any future problems.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    I suppose with disclosure and adhearing to FEMA requirements you would limit liability issues, if you trust FEMA. Not sure what the absobtion rate or extent would be for nasty stuff in the water, water wicks and I would suppose it could go higher in studs in wall cavities, but I'd doubt 4' would be a concern, but then they usually don't replace any studs from what I understand, just dry it out and new rock. Future marketing issues still exist as well as collateral concerns for some lenders. Such properties will be common in the area, that might be a good thing.

    0Reply
  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y

    Bill G. No studs are required to be replaced unless they are rotten from previous damage or age ect. same goes with the floor joist. I have been renovating properties from the storm and I've done both 4' up if they didn't get much water into the home and full tear out to the studs if they got higher water or mold grew fast.

    Greg Smith The longer the home stays untouched the more likely it will have to be torn to the studs but its not much more of a cost. You just need to account for it in your offer.

    The year the home was built will matter too. Check the sill plate of the home. I recently went to one that the sill plate was rotten from age and flood damage as well as most the joist. I will be tearing down the whole home and building them a new one. They got about 5' of water in their home but it was old and is worth the tear down.

    1Reply
  • Don Hines
    Investor · Little Rock, AR · Member since 2010 · 628 posts · 251 votes
    13y

    I will chime in towards J Scott' s reply...
    I recall homes in New Orleans after Katrina were condemed alng with the whole neighborhood making it impossible to insure after the rehabs. I heard horror stories about homes rehabbed with cash that are still sitting because insurance companies will not touch them.
    Don

    0Reply
  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y

    @Don Hines its a mess down there and I believe still it but here on the Jersey Shore they haven't condemned neighborhoods or anything. There is to much revenue to lose. If they did that whole towns would be lost and such. Most of the towns along the ocean make their money in the summer from people traveling down to hang out, rent out homes for a week or so ect.

    1Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    My point was contamination of the studs, bottom plate, joists, rim joists, etc, the sheetrock is replaced over the .....what could be contaminated framing, we don't have a good history to assess the issue or what chemicals could have been in the waters.

    The homes here were torn down due to the unknown, not because they couldn't be made to look pretty again.

    But, since we don't know, well....

    0Reply
  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y

    @Bill G. I see what you are saying but unless they mandate everyone to demo their homes it just won't be done. I agree there is no true way on knowing what was in or not in the water.

    0Reply
  • Greg S.
    OP
    Real Estate Investor · Forked River, NJ · Member since 2011 · 96 posts · 10 votes
    13y

    Thanks to everyone for the replies. Based on the comments in this thread, this sounds a bit too high risk for my first rehab. There are just too many unknowns and I am too new to the business.

    I am still going to view the property, and see if maybe I can wholesale it instead of taking on the project myself. At the very least, I'll get some experience inspecting a property and making an offer.

    Thanks again for all of the help.

    0Reply
  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y

    @Greg Smith good idea on still taking a look at it. Never know as it could lead to money still for you. Do you know the size of the lot it's on? For the right price I might have an investor that would put up a new home in it to sell. Then again if you bought it and rehabbed it there is good money to be made on summer rentals.

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y
    Originally posted by Greg Smith:
    Thanks to everyone for the replies. Based on the comments in this thread, this sounds a bit too high risk for my first rehab. There are just too many unknowns and I am too new to the business.

    Didn't realize it was your first rehab...

    Given that information, I'd suggest looking (consider it research) without buying. Once you get a few rehabs under your belt, a flood house really isn't that big of a deal, but as a first rehab, it would probably be a bit more work than you want. The learning curve in this business is steep (you learn quickly) -- you'll feel 100x more ready to tackle something like this after one or two projects under your belt.

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  • Steve Wilcox
    Investor · Cranford, NJ · Member since 2012 · 303 posts · 153 votes
    13y

    A flood in itself is not htat big of a deal, I live in a flood area.
    The issue at the shore will be how resale prices will be affected by other flooded homes. Also I know many towns like ortley beach, have not even begun to issue permits to rebuild as they are not sure what new building codes will allow, and they re considering making everyone build up a few feet off the ground to make properties insurable. It would really suck to sink a ton of cash into a home to find out it was not up to current codes

    0Reply
  • Greg S.
    OP
    Real Estate Investor · Forked River, NJ · Member since 2011 · 96 posts · 10 votes
    13y

    I went to see this property today, and it wasn’t as bad as I expected. I took a video of my inspection and uploaded it here (http://youtu.be/OfMRMK_IxYI). I feel that one of the main things holding me back right now is my repair estimates. I took my best guess at creating a repair estimate for this house, which is detailed below. However, when it comes down to it, these numbers are not based in reality and are mostly guesses pulled out of thin air.

    I also think I’m probably over-improving it with these repairs, and maybe should cut out the hardwood and granite and instead use carpet and corian. It’s hard to say since properties on one side of the road are waterfront, and are fully upgraded. On the mainland side of the street, properties are much older. I decided to go with a worst case scenario for the budget, and calculate it with the upgrades.

    I know that these repair costs are dependent upon the local market, but I’d love to see what these would cost in your market. Also, as a side note, this is not a project that I plan on taking on, due to the reasons discussed in this thread. However, I am going to try to wholesale it if I can get it cheap enough.
    I’d really appreciate any input I could get!

    Roof – In good shape (about 5 years old). Appeared to be some water damage on bathroom ceiling…might need a patch where it meets the addition or at the chimney. ($100)

    Exterior paint/siding – Asbestos siding…Paint or replace with vinyl? I figure paint ($4000).

    Windows – Needs all new windows (I wasn’t quite sure how to count them, since some are side by side, some are smaller, and some are 3 panel…I counted 25 not including the middle portion of the 3 large pane windows) $6000

    Foundation – Looked okay

    Landscaping – Remove trees and shrubs, tear down and remove shed, bring in landscaping rocks, power-wash sidewalks and driveway, remove fence in front and back, put new fence in back, new mailbox, plant new shrubs/flowers for curb appeal. ($3000)

    Exterior – New exterior and screen doors ($1000) Change exterior light fixtures, new shutters ($400)

    Interior paint/carpentry – Remove all wood paneling and add/replace sheetrock where necessary. Gut property to the appropriate height (1 foot? 4 ft?) and replace insulation and sheetrock. Paint walls and replace baseboard trim. Replace or paint all window and door trim to match. Replace all interior doors ($7000)

    Heating/Cooling – New Furnace ($3500), new baseboard heating ($1500), New A/C ($500), does water heater need to replaced? ($1000?)

    Electrical system – Water did not seem to hit the outlets. What needs to be repaired? Add overhead lighting to all bedrooms ($500)

    Plumbing system – No idea, should have checked faucets, under sink, etc.

    Flooring – Hardwood downstairs in common areas, kitchen, and stairs ($5000) Carpet in 4 bedrooms ($1500)

    Kitchen – New cabinets ($4000), new appliances ($2500), new sink and granite countertops ($3000)

    Bath – Gut. New tile, vanity, tub with tile surround, fixtures, etc. ($5000)

    Septic/Oil/Well – I don’t know…

    Mold removal - $1000

    Miscellaneous – additional 10%

    Total – around $55k, which seems too high. I figure a fairly conservative estimate for the ARV would be $175k.

    Thanks in advance for the help!

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y

    The prices associated with most of your line items seem reasonable.

    The interior paint/carpentry might be low. Consider that painting will be $1-2 per square foot of interior space, insulation will be $1 per linear foot of batt, sheetrock will be $1 per square foot of sheetrock. That could be $7K right there.

    Then you have any doors that need to be replaced (if they were hollow-core and got wet, they may all need to be replaced). Plus any subfloor damage. You didn't include Demo and a Dumpster, which could be another $1500. You didn't mention the cost of permits, which could be a couple hundred. Then you have little stuff like mirrors, mini-blinds, new registers, etc. Will you update the lighting and plumbing fixtures?

    For HVAC, you mention $3500 for furnace and $500 for A/C. It's probably the other way around -- $1000-1500 for furnace and $2000-4000 for A/C compressor and coil. What is baseboard heat if you have a furnace?

    Also, keep in mind that if you'll pull permits (which you likely will), you'll face repairing anything that the inspector points out is not up to code. While they shouldn't make you bring everything up to code, oftentimes they will, just because they can. This is always a risk when a building inspector enters your property.

    Overall, I would guess that $55K is probably not too far off for a decent remodel...

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  • Rob K.
    Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    13y

    I didn't read through all of this, so maybe it was already mentioned. I just wanted to add that if you remove drywall from a flooded house, I would spray all of the studs with Killz before adding new drywall. It will be cheap insurance against a possible future problem.

    1Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y
    Originally posted by Rob K:
    I didn't read through all of this, so maybe it was already mentioned. I just wanted to add that if you remove drywall from a flooded house, I would spray all of the studs with Killz before adding new drywall. It will be cheap insurance against a possible future problem.

    Good point, Rob...

    THAT was the other point I meant to mention in my post above. You didn't include anything for mold remediation. You'll at least want a couple air quality and surface tests (about $100 a piece) and given that there will likely be a couple months between the flooding and your taking possession, it's quite reasonable to assume that spore counts will be elevated. So, there will likely be at least minimal remediation required.

    I would factor in between $500-3000 for that as well, depending on the scope of the problem and the recommended solution.

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  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y

    Painting the outside is fine. Depending on shape of the house you estimate is slightly high but not so far off.

    Windows - materials 100-150, more on those big ones. 50-75 a window for install so you 6000 is a great guess.

    Landscaping seems like a fair price with the fence in there. Depending on how much fence is getting installed how how much stone it might run 2500 but good guess.

    Exterior - depending on the doors you choose that could be high but then again you could blow that on one door. Shutters run about $60 a pair and should be cheap install so depending on amount you need your high or low

    Interior/paint carpentry - you need to go 1 foot above water. You said it got one 1' so you could go 2' but its faster and less labor to just go 4'. You didn't mention about the doors. They need to be replaced as the got wet. Not seeing the job it's hard the say but is that's just labor it's way high but with materials you could be low.

    Heating/cooling - if th water heater got wet then it needs to go. The a/c unit will run at least double just for the parts no labor

    Electrical - at 1 foot of water I would think they got hit and need to be replaced. Depending on the amount of rooms you will get charged more for the electrical labor. Then add fixtures.

    Plumbing - the baseboard heat that got wet your replacing would be done by the plumber not hvac. Any plumbing finishing fixtures you replace he can install too for you.

    Your hardwood price is way high and carpet should be a lot cheaper too. You should really get it all done for your 5k budget or slightly less

    Kitchen - you seem pretty close on it all. Granite can be higher or cheaper.

    Bath - just one? Depending on size your not so bad on price give or take

    I don't think they have septic over there so no cost. Depending if they converted ir not it could be oil or gas heat and shouldn't cost you anything and should be public water.

    I've been using mold control on all the houses I've fixed and its working great. You could easily do it yourself or whoever did the demo would do it and would cost them under 300 in materials and not much time.

    Adding 10% isn't a bad idea to cover things you can't see.

    0Reply
  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y
    Originally posted by J Scott:
    Originally posted by Rob K:
    I didn't read through all of this, so maybe it was already mentioned. I just wanted to add that if you remove drywall from a flooded house, I would spray all of the studs with Killz before adding new drywall. It will be cheap insurance against a possible future problem.

    Good point, Rob...

    THAT was the other point I meant to mention in my post above. You didn't include anything for mold remediation. You'll at least want a couple air quality and surface tests (about $100 a piece) and given that there will likely be a couple months between the flooding and your taking possession, it's quite reasonable to assume that spore counts will be elevated. So, there will likely be at least minimal remediation required.

    I would factor in between $500-3000 for that as well, depending on the scope of the problem and the recommended solution.

    He put $1000 for that. Good point of the dumpster and demo. In NJ he's easily at $600-800 for the container and another 1500 for labor

    0Reply
  • Greg S.
    OP
    Real Estate Investor · Forked River, NJ · Member since 2011 · 96 posts · 10 votes
    13y

    First off, thanks to everyone who replied. Considering this was my first time making a repair estimate, I'm pretty pleased with how I did. It was a good learning experience and I really appreciate everyone's assistance.

    To give an update, I called the seller today to present my offer. I figure an ARV of $175k, so 70% minus $55k repairs would put me at $67.5k. From speaking with them, I know they recently turned down an offer for $60k. I ended up offering $62k, which kept me above the other investor and left some room for a wholesale fee, but not much opportunity to negotiate. As I expected, they weren't interested.

    Overall, I feel like I made some big steps forward in the past few days.

    @Steven Del Prete, the water actually didn't come up to a foot. It only came up about 4 to 6 inches. It may have gotten lost in my earlier (long) post, but here is a short video of the property which shows the water line around the 2:35 mark.
    http://www.youtube.com/watch?v=OfMRMK_IxYI&feature=youtu.be
    Sorry for the shakiness of the video

    @J Scott, I'm not sure about the baseboard heat/furnace. It definitely has baseboard heat, and I saw what I thought was a small furnace in the utility room. However, I'm new to this, and on second look it is very small, so maybe it's not a furnace. It does appear to have a venting chimney...It's in the video right around the 3:00 mark if you're able to take a look.

    Thanks again!

    0Reply
  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y

    What you call a small furnace is the water boiler for the baseboard heat

    0Reply
  • Greg S.
    OP
    Real Estate Investor · Forked River, NJ · Member since 2011 · 96 posts · 10 votes
    13y

    That makes more sense...thanks!

    0Reply
  • Steven Del Prete
    Contractor · Brick, NJ · Member since 2011 · 86 posts · 12 votes
    13y

    No problem!!

    0Reply
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