Am I on track with this property? (Inspection report inc)

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I just need a place to live right now, not looking to flip so much. Just trying to get into a place where I can have a few roommates, keep my costs down, and bank as much as I can so I can do flips in the future. It's also worth noting that I really want to move as soon as possible due to a pretty miserable current living environment.

Super long doc but wondering if someone wouldn't mind skimming it? Comps in the area are at 275k. Here's my current target, I have a contract on it until Monday:

https://drive.google.com/file/d/0B7R6k93WIBwYZnZCW...

The seller had the property at 285k, no one would touch it except for a low ball investor (good try, whomever on here did that). I offered 265, the seller put out 270 and I settled on it. This being before this crazy inspection report. I spoke to my stepfather who is pretty knowledgeable about construction work like this and he was quick to respond DO NOT BUY. Being the investor mindset that I am, I was more apt to the phrase "it's not about whether you buy something or not, but how much would make it worth it to you", so we talked and he thought a minimum of 50k less would suffice, but I went down 40k so the offer was at 225. No dice, the seller countered at 260k.  Here's the rationale I was working with:

  • Completely new siding: 10k. The inspection report guy said that he would firmly need the entire siding redone because of the water damage that came from having an incorrectly installed roof (no lips on the ends, no sealant) and no gutters on the majority of the ends. There's obvious insect damage in a few parts.
  • Completely new roof: 10k. Patching if possible, probably at least 4k. I have no roofer that can come on such short notice to verify so it defaults to 10k. There's also some demolition that would need to be done to get rid of the incorrect materials in the back porch.
  • Interior walls have major insulation problems, most likely from insect damage. This was confirmed with the heat mapping. Another 5k because changing out interior insulation isn't cheap.
  • Unknown insect damage and insect proofing. They didn't have any insect work done the entire time they lived there. (Wtf?? It's Austin! Come on!) Active red ant colony going *into* the house that you can see clearly in the inspection pictures: 5-10k
  • Electrical work: 500 just to get current, probably another 500 behind the walls if there is water damage.
  • Code violations. Easily another 10k to remove that attic if that's the only way to fix it. The problem is that the windows are too high up and aren't suitable for fire escape. If I end up making this into a homeaway rental, that's going to need to be fixed for sure.
  • Lots of other stuff that would be considered "negligent" by the seller, but it's hard to put a price on.

The last thing I want right now is to be put in a position where I'm taken advantage of because of my lack of knowledge. Can anyone give me some advise?

I used to own a house 2 doors down at #11510. It's a good neighborhood, though rent model doesn't work unless you're able to rent out bedrooms separately or do HomeAaway type rentals. 

In my view there is no reason to buy a house with a number of known problems (and likely plenty of unknows) that are expensive to fix without getting a price adjustment that is higher than the cost of repairs. If it costs 40K to fix,  you got to look for at least 60K, or better yet $80K in price reduction. I assume the list price wasn't adjusted for condition yet. After all, this isn't 2013-2015 when you could hope for further growth. The market is slowing down, all the indications are here.

You'll be managing the work. You got to pay yourself for that. 

You have to come up with a bunch of cash out of pocket in addtion to downpayment & closing costs for repairs. You won't easiliy be able to get that cash out of the property for a long, long time UNLESS you buy the house very cheap. Lenders will only do LTV cash out. That same extra cash could be used to buy another property.

If your plan is to do HomeAway and AirBnB rentals for your rooms - that clientele will want a nice looking house in good condition. If you have to rehab it first while living in it, you'll lose a bunch of time on the rehab and all rental income during the rehab. If AirBnB rentals is your ultimate goal, buy a house in a reasonably good condition, just negotiate harder on the price. Perhaps, look for vacant homes that's been sitting on the market for a couple of months to test seller's motivation. 


Good luck!

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