40-50k in foundation work....back out?

8 Replies

Hey all. 

I was looking for opinions on whether or not i should back out of this potential investment. Despite the numbers shown in the report and additional 40 to 50 thousand dollars of foundation and TLC would be needed. Seller and seller's agent have no intention of dropping the price.

Looking for advice or opinions.

Hey Gavin,

I think there are a few things you need to consider when such a big expense comes into the picture.
Are you sure your numbers are accurate for the foundation work? 
If that's an accurate quote and a structural engineer confirmed it was necessary, I would recommend you plugging it into the calculator as repair costs and see how big of an impact it has on your projections. Same for the TLC you mentioned. 

If the sellers won't budge on price, I think the foundation work would cost you about a third of your ARV without adding net value to the property. That's pretty significant, and it would likely take a while for your cash flow to wipe away that loss.

Another thing to consider is whether there are any other similar properties on the market. If you're willing to spend that amount of money on foundation for this particular property on top of purchase price, why not by another 4plex (if the deal makes sense) or even several 2plex or 3plex for the same price after repairs? That being said, I am not familiar with the market where you found this deal and it may not be an option.

Other than the price of foundation work, I assumed all your other numbers were accurate. This would be totally different if your ARV and purchase price have a much wider spread.

thanks Robin.

Market here is pretty hot. Hard to find properties at a good price. Generally speaking 1% cash flow is pretty normal here. Before the foundation work this would have been pretty good. I did have a Foundation Specialist, quote the work. That quote includes the foundation repair as well as additional flat work that would need to be done and parking lot replacement and striping. In addition there were several other smaller issues including structural and aging mechanical. All in all it looked good on the outside at first but after digging deeper it seems to not be such a good deal.

Question. With what I uncovered and have documented, when I back out of this deal is the seller and or listing agent required to forward on what I have found to any potential new buyer?

Did you hire an engineer/professional to look at this and give you recommendations or did you go straight to a foundation company? I am bias but going to an engineer (3rd party) who doesn't benefit on if you do the repairs or not is your best bet to give you options on how to move forward. If it's completely obvious cracked to hell, and crumbling then save the few hundred dollars you would spend on an engineer and go straight to a contractor but just remember they are in the business of doing repairs (sometimes not the most cost effective either) not giving you the best advice. Good luck! 

Kevin, thanks for the insight. The home inspector I use is a close personal friend how's many years that I definitely Trust. He first noticed the deflection from the outside before even stepping foot in the basement. Once we hit the basement we saw foundation wall cracking as well as standing water from a recent rain and evidence of water seepage over many years.

I did go to a very well-respected and well-known local Foundation specialists rather than an engineer simply because I knew one and I had less than 12 hours to make a decision on the property. 

All said and done, I wasn't up for the scope of the project nor did I want to get in at that deep off the bat.

You raise a good point though to do due diligence and it is a good idea to bear in mind that all of those experts are in it to make money as well.

Cheers.