Trouble analyzing this possible "deal"

7 Replies

There's a property that's for sale on a FSBO. The guy is an investor and former structural engineer and had originally purchased this property in order to build a new home for his family. When a major illness prevented him from continuing he ended up letting the property sit and now he's ready to just let it go and move on.

The house is on 10 wooded acres in a semi-rural area. You can't even see it from the road. The basement (with 10' walls) is in place and was poured with foam-insulated forms to it has massive R-value. The house is framed, roofed and sided with windows and doors in place. The 6" exterior walls were built with a product that sandwiches hard foam between sheathing boards so, again, massive R-value. Interior is studded out and electric has been run but that's where it ends. The house itself is huge...4500 sq ft upstairs with a 3200+sq ft basement ready to finish (including an 800 sq ft storm shelter under the garage). One big problem is the house has been sitting unfinished for about 10 years and raccoons, squirrels, etc. have destroyed parts of the siding and the foam insulation in the walls as well as parts of the roof. I'm guessing it would take at least $150,000-$200,000 minimum to finish this house but it would be beautiful when done.

The biggest problem I'm having is figuring out an ARV before I even try to put it under contract. Like I mentioned, it's a semi-rural area with few houses and fewer sold comps. A friend of mine lives about a quarter-mile from there and built a brand-new house on 11.5 acres that recently appraised for around $350,000 and it's only about 3,500 sq ft. There's also a 1200 sq ft house on 10 acres that sold in 2013 for $140,000. Then there's the question of finding a buyer (I'd be wholesaling this). I'm not sure if I'd be able to find someone that would want to take on a project this big even if I could offer it for under $150,000.

So what say you, BP-ers? Should I proceed? And, if so...how? He's had it listed on postlets and craigslist for close to 90 days already and hasn't sold it or lowered the price so I think there may be some room for negotiation.

Thanks!

@Jim Viens , I bet getting comps is tough!  What would be your exit strategy with this property?  Finish and flip? Rent it out?

Let's see.  Rural area.  Specialty property. Size of your buyer's market?  Not really a bread and butter 3/2 for the masses. Honestly sounds like a high risk venture with high cost of capital.  Others may not be so amazed by pre-fabbed r-values or wooded acreage. Someone is and I'm sure it will be great. Not bashing your vision at all. Just not sure if $150k reno expenses plus purchase price for a no-comp, specialty property is worth it.  I couldn't do it.  You may be at a stage in your career where a $400k oops can be absorbed.  Please keep us posted!  

Originally posted by @Jim Viens :

There's a property that's for sale on a FSBO. The guy is an investor and former structural engineer and had originally purchased this property in order to build a new home for his family. When a major illness prevented him from continuing he ended up letting the property sit and now he's ready to just let it go and move on.

The house is on 10 wooded acres in a semi-rural area. You can't even see it from the road. The basement (with 10' walls) is in place and was poured with foam-insulated forms to it has massive R-value. The house is framed, roofed and sided with windows and doors in place. The 6" exterior walls were built with a product that sandwiches hard foam between sheathing boards so, again, massive R-value. Interior is studded out and electric has been run but that's where it ends. The house itself is huge...4500 sq ft upstairs with a 3200+sq ft basement ready to finish (including an 800 sq ft storm shelter under the garage). One big problem is the house has been sitting unfinished for about 10 years and raccoons, squirrels, etc. have destroyed parts of the siding and the foam insulation in the walls as well as parts of the roof. I'm guessing it would take at least $150,000-$200,000 minimum to finish this house but it would be beautiful when done.

The biggest problem I'm having is figuring out an ARV before I even try to put it under contract. Like I mentioned, it's a semi-rural area with few houses and fewer sold comps. A friend of mine lives about a quarter-mile from there and built a brand-new house on 11.5 acres that recently appraised for around $350,000 and it's only about 3,500 sq ft. There's also a 1200 sq ft house on 10 acres that sold in 2013 for $140,000. Then there's the question of finding a buyer (I'd be wholesaling this). I'm not sure if I'd be able to find someone that would want to take on a project this big even if I could offer it for under $150,000.

So what say you, BP-ers? Should I proceed? And, if so...how? He's had it listed on postlets and craigslist for close to 90 days already and hasn't sold it or lowered the price so I think there may be some room for negotiation.

Thanks!

 The size of the renovation isn't the issue.  Anyone that you'd wholesale the deal to, is going to analyze what they could sell it for & how long would it take to move it after the renovation is complete.  A sale from 2013 usually can't be used to determine value so this would be considered a high risk play for someone.  This is one of the reasons doing deals like this in rural areas is tough. 

W/ that said, nothing ventured, nothing gained, so there's nothing to loose by having the conversation w/ the owner & find out his bottom line. Rather than guess on what it would take to renovate it see if you can get a real estimate. Rather than guess on the ARV see if you can get a realtor to give you an evaluation of the potential value or a BPO. (You may have to pay for it but this is a business so just include this as part of your costs) W/ a real estimate of the potential value & cost to renovate in hand you'll be in a better position to have a discussion w/ the owner about the his price, get it under contract, then market the property.

As luck would have it, my Architectural practice has specialized in energy efficiency for over 30 years...and I have designed quite a bit using the materials mentioned in the house.  When finished, this will be an incredibly energy efficient house.

However, as a house to live in, I would buy it in a second, as a REI...I don't see how you can make money at it. Too many pluses (land, size limiting market, rural area, etc...) don't help you sell, add to the cost, that will be very hard to recover.

Before I flip a house I must believe that I can determine ARV within 7% and rehab cost within 20%. I plan on making 20%.

Obviously,  You can use any parameters that you want but I don't like to lose money.

If it is too difficult to come up with valid numbers go to the next property.

Good Luck.

Bill

@Joe Villeneuve I would do this house for my family without batting an eye...if I had the $300k+ for the purchase and to finish building it. It really is a beautiful property. But I may just have to pass on it as an investment as there are just too many variables and, while the property isn't exactly unique it's different enough that it may well be a tough sell on the back-end. I've even speculated that it would make an awesome bed-and-breakfast. Maybe I could wholetail it? I just don't know. I hate to see a property like this go to waste.

What you have here Jim is what I refer to as a "shiny object of distraction".

**Camera shows Jim's face in the toy store. His expression changes suddenly to one of delight and excitement. Cut camera to full-screen shot of "Toy of the Century".**

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