Fourplex with severe foundation issues. What would you do?

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Fourplex with severe foundation issues. What would you do?

Jean G.
Investor · Las Vegas, NV · Member since 2015 · 173 posts · 46 votes

Hello,

so I recently got under contract the following property located in Southern Utah (well, we're still waiting for the bank to countersign, but they gave their verbal approval):

- Fourplex built in 1996, 5400 sf total (so each unit about 1350 sf)

- 2 stories - 2 units downstairs and 2 upstairs

- Short Sale

- Contract price: $51k

- 3 units rented at average of $550/month (market rent, if fixed up: $600), 4th unit unhabitable

- ARV if there wasn't a foundation issue (which needs to be disclosed to a future buyer) would be somewhere between $250 and $300k

- Value of the land (about 0.25 acres): $10k

The property was apparently built on soil that is rich in gypsum, and the proper procedures were not followed at the time (the proper procedure is apparently to excavate the soil down to a certain depth, then replace it with new soil that does not contain gypsum).

Poor drainage around the building caused water to get into the ground, which washed out the gypsum and the property started sinking. In 1999 piers were installed on one side, and in 2006 on the other side. It now seems that the perimeter of the building is stable due to the piers, however there was some sort of plumbing leak under the slab in the one downstairs units, which washed out some more soil, and the slab collapsed by as much as a foot, rendering the unit inhabitable.

There is a quote on hand for $22k from a foundation repair company to take out the collapsed slab, add some new soil, compact and pour new slab (all of which they supposedly can do without vacating the other 3 units), and another quote for about $130k to redo the inside of the affected unit, and correct other inside and outside cracks around the building and the other units. There are also 2 cracked windows because the building moved so much!

The $130k seems a bit excessive to me. I know that I can rebuild the inside of the affected unit (new kitchen, bathroom, flooring, drywall, painting etc) for $30k to $40k. And fixing some drywall and stucco cracks throughout the building can't cost all that much (even if we would restucco the entire building, we're talking +/- $10k).

So my question to you: what would you do?

I know that some will say "run", which I'm considering doing, and I would like to see how many people on the other hand would go ahead with this, or have had similar situations, and what your strategy would be?

One possible strategy would be to fix the slab for $22k, so that the building doesn't end up collapsing, but not fix the unhabitable unit, and just keep collecting rent from the 3 other units (tenants are paying slightly below market to account for any cracks they may have in their walls).

Demolishing the building and starting over is not an option, because the demo would cost more than a vacant lot nearby.

Thank you in advance for your ideas.

Jean

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Skyler Smith
Real Estate Agent · Logan, UT · Member since 2014 · 222 posts · 102 votes
10y

I would make sure that $250-300k figure isn't starry-eyed. If the ARV is really that high for the rents you're getting, and If it is really that affordable to fix the foundation issue (I was expecting you to say about $100k) then I would go through with it. If you don't want to deal with the headache, or don't have the cash for the rehab, for sure don't run from this deal. Just wholesale it to me. Do you realize how many Utah investors would love to have a 4plex under contract for $51k? Sign me up!!

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  • Jean G.
    OP
    Investor · Las Vegas, NV · Member since 2015 · 173 posts · 46 votes
    10y

    @Shaun Hunt

    I'm not sure yet if I'll do to the place what you think I'll do because I'm not sure if it's worth it. I might just do the bare minimum. I do have time right now, trusted contractor an hour away, and some cash. But I don't want to throw good money after bad either...

    I'll let you know how it turns out!

    Jean

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  • Shaun Hunt
    Cedar City, UT · Member since 2014 · 113 posts · 30 votes
    10y

    Hey Jean, first of all, how do I "tag?" I tried @Jean G. But that doesn't seem to work.

    Short story, walk away.

    Long story,

    I just bought a house in April. It was in fair condition. I replaced windows, carpet, painted both inside and out, replaced two sinks, installed sprinkler system with 1500 sq ft of additional grass, replaced base board and a few other things. Rehab costs were right around $15-18,000.  My guess is that you would spend that much, or double, just on the worst of the four doors. 

    I should have taken more pictures, but just looking at it convinced "me" not to do it, as mentioned before. The area is neither A or B, in my opinion and is closser to C- or D+.

    If you kept the rent at $600/door for three doors, and if they were made safe to live in, and if you could have no more than $120,000 invested, it might work. Houses for $600 or less are getting hard to find.

    I would rent this place to dog owners and smokers. They have a real hard time finding places in Cedar. I wouldn't be too tough on background test either, just have a solid contract. I am sure someone would rent the bad place after minimal repair for $4-500 per month.

    If you trust your contractor, and he thinks you should do it, then go for it. My hold up is that I try to do 80% of the repairs myself and this project was above my skill level by a lot.

    There are a few more fourplexes i. This area that are heavily compromised due to the same issue.

    If you plan on selling this place within a few years, you will have to disclose all of the repairs, etc. that will chase some buyers away.

    Hopfully, that helps. To to profound. :)

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  • Jean G.
    OP
    Investor · Las Vegas, NV · Member since 2015 · 173 posts · 46 votes
    10y

    @Shaun Hunt

    You're trying it right for the tagging, but I noticed before that it doesn't work on cellphones (at least not on mine) so who knows...

    By "doing the minimum" I meant fixing the foundation to make the building safe (for which there is a $22k quote), not fix the inside of the bad unit (just leave it empty), and not do anything in the other 3 units since people live there. Maybe do some cosmetic rehab in them when people move out.

    If I can drop the price to $30k, then I would be all in somewhere around $50k+ and collecting $1600+ per month. I can live with that. But still waiting to see if the bank will accept the price reduction.

    When you say D+, is there really such a thing as a D area in Cedar City? I recently listened to a podcast where someone was defining these A, B, C and D and I think D was somewhere where you would absolutely not live. We have plenty of D areas in Las Vegas, but that area where the fourplex is didn't strike me as D?

    Jean

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