Would you buy a quirky property like this?

Question

I'm curious what the biggerpockets community here thinks of quirky properties like this one:

youtu.be/KnGzTe-CaYQ (video tour captured by GC)

Quirks & problems include (but not limited to):
-exposed (and unsightly) piping (can't be to code, right?)
-furnace in master bedroom (again a code issue?)
-two layers of drywall in bathroom (why would that be?)
-bump in flooring where living room meets kitchen
-sink supply lines cut short
-needs virtually all the essentials

Here's the upside:
- priced around 100k with comps of same sq ft going for 180-220k (most of which could use updating). fwiw, it sold for 350k at peak of market
- up and coming area
- strong rental area (close to a college)

Is this worthy of buying to rehab, rent, and resell in a couple/few years (after the area has gentrified further)? Or is there too much risk with the potential code/permitting issues?

Rob C. · Answer

John C. I can't tell you how much I appreciate those two cents. Sincere thanks!! That kind of educated professional opinion is priceless. And it's exactly what I needed to hear while weighing whether I should move forward on this deal or not.

If there's something I can do to repay the favor, let me know. Can I buy you dinner the next time I'm out your way?

This biggerpockets community continues to amaze me. Thanks again all

John C. · Answer

Rob,

I was able to drive by today. Interestingly enough on the way there they mentioned on the radio that Dekalb Public Schools had been put on probation. Looks like they still have a lot of problems. Go figure.

The weather was pretty nasty so not much street activity. I did not go in. I was able to confirm my first impressions. The following are my thoughts:

I just don’t see how this could pencil out as a retail project. It would take a substantial amount of work to make it appeal to your limited target market. It just doesn’t have the “bones” and would require a major facelift. Of course your target market is even more limited because of the car repair shop next door and since the home is on the edge of the community. You can change the house but not the location. Even in 30030. I mean come on! A few blocks over new 2800 sq. ft. Mcmansions are selling for 1/2 million. Welcome to the ATL. It's really whacky here.

I’ve seen people get trapped over and over again where they are working off of rental repair estimates and expecting retail ARVs.

For rental I’m thinking you would be able to get around 900-1,000/month. Everybody has a different tolerance level of value based on rents so that is certainly subjective but 120k for $1000/mo doesn’t appeal to me in today's market. You can do much better in decent rental areas in the Atlanta area right now if you are looking to buy and hold.

I still feel your maximum retail value would be about 170k-180k (maybe even 160k due to the auto garage next door) but that is actually gross not net so you would still need to take out purchase price, renovation, realtor fees, and of course holding costs. I also believe it would take longer to sell than a similar product in the middle of the community so that would increase your costs even more. The only way I would do this deal is if I had some sort of insider information that something big was going to happen that would increase the value substantially no matter what.

Just my .02. Good luck and be safe!

Rob C. · Answer

John C., Wow thanks for the offer to drive by and give me your feedback! I really appreciate you looking out for a newcomer like me.

I admit I may be underestimating the importance of schools in Decatur. Ironically, it is the main thing I look at in my search for property in Gwinnett County (i.e. good schools). However, I figured Decatur was more of a young community, so schools would be less important. Maybe I'm wrong on that.

Apparently the bank has just sent the paperwork back to me to sign. Needs to be signed by tomorrow with earnest money going in within two days from that point. 7 day due diligence period. I welcome any criticism/wisdom/suggestions that will help steer me in the right direction.

John C. · Answer

Rob,

Please slow down. You seem like a nice guy and I understand that compared to what you are seeing out in Cali everything here looks like a steal. I've got a couple of meetings downtown today. I'll try to do a drive-by when I break free. Don't get me wrong I've always liked 30030 (back in the old days it was too pricey for me). But I think you are underestimating the importance of schools in Atlanta and more particularly Decatur 30030. Remember it's virtually street by street here until you get North of College/Dekalb Aves. I Just don't want you to make the same mistakes I made when I first got started in this business. How long is your free look?

Rob C. · Answer

Some really good responses here. Thanks all. I was trying to keep my initial post concise, but realize now based on some of the questions and suggestions that I ought to have provided the backstory:

I called the listing brokerage on this place a few weeks ago when it came back on the market. I was put in touch with one of their buyer's agent. He mentioned he thought the property would go WAY over listing price because the BPO was ridiculously low. He figured it would end up north of 150k and it probably wouldn't serve the purpose I was looking for (which was to buy and hold long term as rental). But we kept in touch, and he gave me some leads on a couple other properties we tried to chase. Fast forward to a few days ago and I get a call from him with news on this Dalerose Rd property -there were multiple offers, but from what he gathered he didn't think they were all that far off from list price. Since highest and best was due the next day, he encouraged putting in an offer sight unseen with a due diligence period (note: he hadn't seen the property either). I bit the bait realizing that maybe it wouldnt pencil the greatest as a rental, but could be worth pursuing based on its upside. We put in an offer at 105k. He called the next day really excited and told me it was accepted. Started talking about how much of a great deal it seemed to be. The next day though he goes and takes a look at the property. He called me back afterward and his tone had totally changed. He was almost discouraging at this point, suggesting that maybe this isn't the property for me after all. We had talked about how I wasn't hoping to spend all that much on a rehab. And so perhaps when he saw it needed a good amount of work (in his opinion) he probably thought it was better not to waste time on it. So that's where I'm at now. The more I learn about it the more it seems catered to a flip than a long-term rental. And I'm wondering now if it's worth pursuing in that regard even though it wasn't my original intention.

A few of you suggested bringing a GC into the loop to help with estimates. I probably should have clarified that the guy who took the video was a GC that I recently started working with. This is the first property in about four that he has looked at for me where he has been enthusiastic about its potential. He really likes the area, and says it's perfect for renting to a group of roommates. He noted a few hybrid cars in the neighborhood, and talked to a couple women neighbors who loved the area. He didn't think there were any code issues in the property to worry about. That came as a major surprise to me. He has given me an estimate of 14-18k for a rehab that would bring it to rent ready condition. After seeing the video myself that seemed much lower than I expected it would be. Granted, that figure is not to make it look beautifully renovated, but still. The problem is I'm wondering now if I should spend the money to beautifully renovate it if the best exit strategy is in fact to resell in a short period of time. If I could find someone to fund the deal I probably would do it, but I don't know if I have access to enough cash to make it happen personally.

Thanks again for all the responses.

Marc Bodinger · Answer

Rob Condy the only way to find out if something is up to code is if it fails inspection. Other than that being near a school can make any property look good because students just want a place to live with so much demand outweighing the supply on many college campuses. Developers can't get the apartments/dorms up fast enough.

Account Closed · Answer

The house doesn't look all that unusual to me.  There doesn't appear to be anything that can't be fixed or dealt with if you buy it right.  The bigger concern for me is your ARV valuation.  $180-220K is way too broad. The property's bubble price isn't worth anything so no need to ever mention it again. :)

The property isn't at all quirky to me.  I can show you quirky. Pin down the real ARV, pin down the repair costs and then make an offer that works for you.

John C. · Answer

Quick thoughts:

As far as the rehab goes there is nothing there I see that could not be dealt with.

Under contract right now. Asking price 99k. Lots in 30030 used to sell for more than that. Now they sell for about 50k-60k. Depending on school district. And location.

Looks like it used to be a Duplex. Decision would have to be made. Make a real retail bungalow "front" and go with higher-end retail finishes to try to sell this year for maximum retail or convert to a rooming house for cash flow while waiting. Market rent as SFR not very exciting at that cost basis. What would maximum retail be this summer? This is not in a good school district so families would most likely not be interested. Your “best chance” demographic would be young professional couples or a single professional looking to pick up a couple of roomies to pay their mortgage for them. Oh and it looks like it is next to a car repair facility so that limits appeal even more. Actually the more I think about it the neighbor could be a real problem for a retail buyer.

You have a new construction bungalow that just went on the market for 275k just down the street (more “inside” the neighborhood and not on the fringe). Looks like they bought the lot for about 56k. If everything goes perfect they'll come out net around 250K minus land, construction, and holdings costs. If everything goes perfectly. Take off at least 50k in value for a remodel (of that particular brick ranch) vs. new construction. So I would think your maximum retail net return would be about 200k minus retail conversion (at least 40k-50k) and holding costs. Actually more like 170k-180k tops minus, minus due to the factors previously described.

It is definitely a solid rental market. I believe the retail value suffers from bad schools and being on the "wrong side of the tracks" with no real ability to get to the cool stuff in Decatur without driving. Of course the Marta station is right there so that is a plus. In other words this feels more and more like a working class support community than a college community.

This area is next to several really great areas and 30030 is a hot zipcode so it’s “value” comes from its proximity to better areas. A rising tide raises all ships. The closest college is Agnes Scott. If that is the college you are speaking of it looks like they already have plenty of housing. I’ve remodeled and rented in this area before and out of 1000s of calls over the years I think one or two were from people that worked at Agnes Scott. Not students. Plus this area is not walking distance and would not be considered “cool” anyway. Agnes Scott students seem to stay close. So if I had to do this deal (not saying I would at that price for that location) I would convert to a rooming house with top notch landscaping out front (looks like it’s next to commercial so as long as you weren’t too crazy with it you would be ok) and let it cash flow for a few years hoping that the neighboring areas continue their uptrend. Which I'm pretty sure they will barring any major national/international catastrophes.

John H. · Answer

House seems fine to me.

Are you sure that was  GC who did the video, and not a wholesaler?

The bathroom was likely rocked over because its quicker to hang new rock on old in a room than to gut it.

Rich Weese · Answer

Sometimes your estimate can prove to be very low. When you start ripping things apart, many times you will find additional items that need to be replaced. Code issues are one thing, but there are so many other items that you might find that simply are not adequate and must be replaced. As stated by the previous poster, in my opinion, it would depend on how much of a spread there was percentagewise compared to total investment. Rich