Failed septic system - but alot of potential?

Question

Hi all,

I am writing to ask for some advice on a property I am looking at. The property is in Groton, MA...great location. The most similar comp in the area sold for $377k in August...but the house I am looking at is a bit larger in sqft. The house I am looking at is 139k through the bank. It seems that everyone has passed up on it (it is going to auction for the SECOND time) because it has a failed septic system which costs about 25k or more to fix. Kitchen also needs to be gutted. However, I am thinking because it's a bit bigger and it's in Groton I could sell it for $399,900. What do you all think? I am going to go view it this Saturday with a contractor. But based on my preliminary research I have rounded rehab cost up to 110k. And rounded up to $50k for interest on loan, closing and holding costs, and other costs. Even at 160k for expenses selling at $399,900 would give me a profit of 100k. I am assuming this would be too good to be true so I am willing to entertain that I may have 30k more in rehab and bring down the price to $379,900 which would give me 50k profit. Seems like a no brainer right? Any advice here...thanks in advance!

Sarah

Sarah Bate · Answer

Thank you Joseph! I did not do a title search so that's something I needed to hear. I will also look into the home inspection. Thanks!

Sarah

Joseph Cox · Answer

Yes, following up on what Account Closed wrote above, usually the city/county inspectors will tell you about the code requirements, and they will be the ones inspecting the work after it's done. Give them a call and find out the best time to pop into the office for a quick chat. My own county inspectors are very helpful!

Account Closed · Answer

the other information you may need is a soil test for that area. You may have to get one or possibly my neighbor may have one to use as an example for the licensing department

Account Closed · Answer

I would recommend taking a close look at the septic requirements.different septic systems cost different amounts and can significantly impact profitability. You may need to talk to someone responsible for enforcement of the code to determine the system requirement. Based on those requirements the contractor can give you an estimate that is meaningful.

Sarah Bate · Answer

Whew. This is definitely an undertaking. I will take both your suggestions and hopefully I will get some positive information that will convince me I should consider this investment. Thank you George and Joseph!

Joseph Cox · Answer

I'm a Realtor, so my advice might not be the best from a rehabbing point of view. but if I was looking at it as if you were my client I would entertain the following:

It could be that the people who have passed up on it know something you don't. Do you know any of them? Ask them even if they are strangers. They might be kind enough to tell you.

Have a home inspection before you offer. If it's that good, then the cost will be offset (by the potential profit you mention) if you buy, if there's bad news in the report it might be the best $300 you spend on this house.

There may be liens on the property, so have a title search done. There could also be clouds on the title that need clearing up. Not as bad as a lien, but could be a problem down the road when it's time to sell. The title company can advise you.

I'm hoping some experienced rehabbers have more ideas than me, but at least this is a start.