How distressed is too distressed?

Question

I looked at a property today that was listed in the MLS for 35K.  I knew it would be a fixer upper, because comps in that neighborhood are selling for ~105K.  The roof has a big hole in it,  and had obviously been leaking for  while.  every wall in the house had mold on it,  and every ceiling in every room was either coming down, or already down.

I was thinking if I had  a mold remediation company gut the place, I might be able to get a new roof, drywall, and flooring,  and get it rentable.

I'm wondering if anyone has ever taken on a totally moldy house,  and what their experience was.

Mitch Coluzzi · Answer

Sam & Heather Jones I wish you the best of luck.  We just picked up a 20k+ sq ft building that was condemned plus has the big 3... and lots of each!  Going to be an exciting project.

NA Jones · Answer

@Mitch Coluzzi Your post stands out to me because the deal I'm working on has all 3! ;)

Mitch Coluzzi · Answer

No problem.  A word of caution on using contractors:  they are not all made the same. Some a GREAT for small rehabs, very cost effective quality work.  That same guy may be horribly overwhelmed with a full rehab.  Just something the chew on, always have a redundancy plan and never put all your eggs in one basket...

Tim Lindstrom · Answer

Thanks for your insight @Mitch Coluzzi .  I planned to pay cash for the property,  and use a 401k loan to finance the rehab.  Then cash out refi in a year to pay off the 401K loan.

But, now i'm thinking I will look at less distressed properties until I am more seasoned.

Tim Lindstrom · Answer

Thanks for your insight @Mitch Coluzzi.  I planned to pay cash for the property,  and use a 401k loan to finance the rehab.  Then cash out refi in a year to pay off the 401K loan.

But, now i'm thinking I will look at less distressed properties until I am more seasoned.

Tim Lindstrom · Answer

This would be only my second property if I purchased it.  My first required very little work,  but the contractor I used said he could re-insulate, rehang all the drywall, and replace the subfloors for about 28K.

I'd like to stay under 80K total for the house and repairs. I WAS  thinking after a new roof, and flooring added in,  I'm looking at about 5K left over to remediate the mold.

After reading your post @Shawn Thom ,  I'm NOW thinking this is a pass until I get more experienced.   I didn't even think about the fact that I probably need to replace the kitchen cabinets and bathroom vanities as well.

Mitch Coluzzi · Answer

Mold, Lead, and Asbestos are expensive words in today's market.  As a rental, ensure you understand the abatement costs and what local regulations require insofar as additional inspections / permits.  Do it right, if people get sick and the neighbors mention "that house used to be moldy" it will cost you double down the line.

We have done several full-gut renovations, they are our most profitable projects but we have a very established team.  Unless you are experienced and can estimate the costs within reason, I suggest avoiding them.   (per your profile, I would suggest avoiding unless there is NOTHING else out there)

When all else fails, take out the emotions and look at the cold hard numbers.  In a ~100k neighborhood, whats YOUR maximum investment on a rental?  Do rough numbers get you anywhere near there?  If so, get firm prices during your due diligence / inspection periods.

Also... a side consideration:  if you are not yet seasoned, how are you establishing financing?  Some lenders are hesitant to do construction loans on large rehabs without a previous track-record.