Hello BP family!
I am new to the investment world and came across a situation that I'm not familiar with. My husband and I saw an advertised burnt property for $50K with $300,000 in equity. The adjacent homes in the area run around $500K.
Here's my question: How would you invest in a property like this or can you?
What is the extent of the damage? If they are asking 50k for a property surrounded by 500k+ homes I would assume its a total loss
Thank you for replying . Yes , the house is about 70% damaged.
The roof and both second and first floor has extensive damage.
Being that its a total lose , what could you do with the 300k equity if so?
The "$300K in equity" is total BS unless lots sell for something like $400K. If houses in the area are about $500K, then there's no way lots bring that much.
The real value is the value of the lot minus the cost to clear the damaged structure.
I have a friend who works several niches, including a specialty involving severely damaged properties. Although he owns a real estate company, he also owns a very active contracting business and understands the numbers.
Unless this is a niche you intend to work and develop expertise, I'd probably pass on it.
Rule #2 of investing (after the guy who's got the gold...):
"Never play the other man's game".
It sounds like to me the seller took the insurance proceeds and doesn't want to rebuild so is selling for lot value at 50,000.
I guess maybe they are saying 20k to tear it down and 50k to buy it with another 130k to build a new house giving you a value of around 500k or 300k equity.
I would think that the cost alone to build would run 200k to 250k but I am not a builder and I do not know what it costs per sq ft there or the size of the new build. So it sounds like there could be equity there but not 300k after it's all said and done.
They could also depending on how bad the fire is be saying buy for 50,000 and keep the house and fix and rehab it for 150,000 for the 300k equity.
As usual Jon and Joel nailed it. I would look at the cost to build a house like that and tear down cost to see if it is worth while. The next question is if it was, why hasnt the owner decided to do that?
Thanks for the response Jon.
Now I have a better understanding of what to look for. I didn't know where the value was in this particular situation and it left me puzzled. Thanks for the insight.
Thanks Joel! Your post shed some light on me. I questioned why the owners would walk away from $300K in equity for $50K. I wondered what happened to their insurance money and if this situation was a scam. Thanks again Joel.
@Rick H. : You said it best, "Never play the other man's game".
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