Is a property that is underwater a red flag?

Question

I am considering buying, renovating, renting, and refinancing (BRRR) a property in the Albuquerque area and have found a single-family home that appears to be condemned. My real estate agent sent me a report that shows it is valued at $ 324,000, but the mortgage loan balance is $415,000.

I am not aware of the issues with the property, but I plan to investigate them soon. What do you think? Should I run like hell, or is there an opportunity here? The home is located in a much sought-after, popular neighborhood in ABQ.

Thanks!

Ryan Rominger · Answer

That definitely sounds like a property worth digging into, especially given the location. Condemned properties can sometimes present great BRRR opportunities, but the key is understanding why it's condemned—structural issues, environmental concerns, or legal/title complications can make or break the deal. The upside is the neighborhood, but the current loan balance being higher than the reported value is a red flag. If you're able to negotiate with the lender or buy it through a short sale or auction, there might be room for upside—but only if renovation costs and holding time are reasonable. I’d say don’t run just yet, but proceed cautiously and bring in a good inspector and contractor early.

Theresa Harris · Answer

I agree with Jaycee.  Could be the person who bought it wasn't great at handling their finances.  Find out what the story is.

Jaycee Greene · Answer

Hey @Matthew Villegas, welcome to the BP Forum! I'm not a real estate attorney, but you'll need to understand where the lender is on this property. Sounds like this might be sold as a "short sale", which has its own requirements. And if it's condemned, I would expect there are a lot of repairs that need to be made AND the city/county will need to inspect the property before anyone can occupy the property. I wouldn't necessarily run at this point, but you'll need to really feel good about your numbers (ARV, rehab costs (if any) and the rents) before you make any offers. Also, I wouldn't necessarily put a lot of stock in the $324k value either.

Matthew Villegas · Answer

Thanks for the feedback so far!

Is a property that is underwater a red flag?

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