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Ok, so I'm new to the real estate game and I'm looking to make my second purchase which is a 1700 sq ft foreclosed split level in a good neighborhood. My plan is to fix it up, live in it a few years and then sell. The house was priced at $85k, $69k (went under contract for a month) and then $59k. The day it dropped to $59k, I put in $56k and it got accepted. After the inspection, I lowered my offer to $50k and they accepted. However, I'm still not sure about the deal and I'm hoping I can get a little insight here (I know its hard to give concrete advice without seeing the house).
As far as comps, there are about 5 split/tri level homes within a 0.5 mile that have sold for $115k+ within the last 1.5 years. All are pretty well maintained family homes (nothing too fancy) with simillar square footage and lot size.
The house needs the following (prices are estimates based on going to Lowes w/15% discount and me doing a lot of the work):
vinyl siding/windows and trim wrapped - $3500 installed by someone else
interior doors (closet doors are fine) - $1000
two toilets - $300
two windows (the rest are newish replacements) - $500
hot water heater - $300
updated light fixtures/fans - $1500
a little landscaping - $300 (I will do this)
carpet/vinyl floors in kirchen and bathroom (plan on painting the 600 sq ft of slab flooring) - $3000
two bathroom vanities/faucets - $1000
all walls sealed and painted - $2000
rear storm door - $300
10x10 kitchen cabinets (ikea)/sink/appliances - $5000
two sides of roof redone - best roofer in town wants $2500
total = $21200 - let me know if I'm way off.
There is also a leak behind the wall in the master bedroom which is likely from a valley in the roof, so some underlayment will need to be replaced. The heat and air work fine aside from needing the vents cleaned out and a new filter. The plumbing seems to be ok too.
If I tack on another $15k for other stuff that pops up or things that run over budget, that puts me at $36,000 in renovations or $86,000 including the cost of the house. Does this sound like a wise investment? After commissions (my agent will do 1% on his side) and tax, I'm thinking $15k profit sounds realistic.
Since the house basically needs to be gutted, I'm worried about things running way over budget and not leaving any room to make a profit.
Perhaps I should start with a house that needs minimal repairs/updating before tackling such a big project?
Any feedback appreciated.
Last edited by eddiehaskell; 11-16-2012 at 04:20 PM..
Like you said, it's nearly impossible to give any advice without seeing the house or knowing the neighborhood...but, offhand, it sounds like the house needs quite a bit of work for the potential payoff. Is it really a house you want to live in for a couple of years or more? Of your expenses, I'd say your painting estimate may be a bit high if you're going to paint it yourself, but your roofing estimate is very well on the low side. Since "2 sides" need to be done (not sure how many "sides" you have), you might be better off just to do the entire roof at once. Of all the repairs, the roof repairs are the most critical.
Painting, of course, will easily give you the most return. I always tried to buy solid houses with good roofs that primarily just needed cosmetic repairs. The more extensive the repairs, the more likely there will be cost overruns--and more time required to fix the house up. Good luck.
Ok, so I'm new to the real estate game and I'm looking to make my second purchase which is a 1700 sq ft foreclosed split level in a good neighborhood. My plan is to fix it up, live in it a few years and then sell. The house was priced at $85k, $69k (went under contract for a month) and then $59k. The day it dropped to $59k, I put in $56k and it got accepted. After the inspection, I lowered my offer to $50k and they accepted. However, I'm still not sure about the deal and I'm hoping I can get a little insight here (I know its hard to give concrete advice without seeing the house).
As far as comps, there are about 5 split/tri level homes within a 0.5 mile that have sold for $115k+ within the last 1.5 years. All are pretty well maintained family homes (nothing too fancy) with simillar square footage and lot size.
The house needs the following (prices are estimates based on going to Lowes w/15% discount and me doing a lot of the work):
vinyl siding/windows and trim wrapped - $3500 installed by someone else
interior doors (closet doors are fine) - $1000
two toilets - $300
two windows (the rest are newish replacements) - $500
hot water heater - $300
updated light fixtures/fans - $1500
a little landscaping - $300 (I will do this)
carpet/vinyl floors in kirchen and bathroom (plan on painting the 600 sq ft of slab flooring) - $3000
two bathroom vanities/faucets - $1000
all walls sealed and painted - $2000
rear storm door - $300
10x10 kitchen cabinets (ikea)/sink/appliances - $5000
two sides of roof redone - best roofer in town wants $2500
total = $21200 - let me know if I'm way off.
There is also a leak behind the wall in the master bedroom which is likely from a valley in the roof, so some underlayment will need to be replaced. The heat and air work fine aside from needing the vents cleaned out and a new filter. The plumbing seems to be ok too.
If I tack on another $15k for other stuff that pops up or things that run over budget, that puts me at $36,000 in renovations or $86,000 including the cost of the house. Does this sound like a wise investment? After commissions (my agent will do 1% on his side) and tax, I'm thinking $15k profit sounds realistic.
Since the house basically needs to be gutted, I'm worried about things running way over budget and not leaving any room to make a profit.
Perhaps I should start with a house that needs minimal repairs/updating before tackling such a big project?
Any feedback appreciated.
You didn't mention location. What's the location worth in two years? Also, you didn't mention if you are paying cash out of pocket for these renovations, or are you planning to finance the renos ? Are you doing the renos yourself? or hiring people to do it? Add your labor costs, interest and expenses into the equation and see what you come up with. Personally .... I'd look for something not so "needy".
In addition to the above concerns (all valid...) I would want to know WHY the place needs so much work -- BIG difference if the foreclosed owners just went nuts and sabotaged the place vs if the neighborhood sucks and people have been vandalizing it for years or maybe it is was just a sad neglected house that you are maybe trying too hard to upgrade...
btw I have done more than a few kitchen do-overs and if you want to really help sell a place there is no way on earth that you can get by with $5k for cabinets & appliances. Further I have seen the kinds of bathroom vanities that $500 will get you and there is no way that will impress buyers or even hold up for two years of actual use. Unless you will be happy living in this home with bottom of the line junk for much longer than 2 years I would give some serious thoughts to getting stuff that is not disposable. While you say that comps have sold for $115k that tells me nothing about the trends in the area -- is this a run down part of town that is going to end up attracting more crystal meth cooking losers or some whack jobs that are looking to rent out places to grow marijuana or there people with good jobs and solid values nearby?
btw I have done more than a few kitchen do-overs and if you want to really help sell a place there is no way on earth that you can get by with $5k for cabinets & appliances.
I've done many Ikea kitchens and $5k will get you pretty far. And they are warrantied for 25 years. You do have to build each cabinet, which takes time, but they are very inexpensive, and people love the organizing systems. I've never had any issues with the quality of their cabinets even after years of use.
Ok, so I'm new to the real estate game and I'm looking to make my second purchase which is a 1700 sq ft foreclosed split level in a good neighborhood. My plan is to fix it up, live in it a few years and then sell. The house was priced at $85k, $69k (went under contract for a month) and then $59k. The day it dropped to $59k, I put in $56k and it got accepted. After the inspection, I lowered my offer to $50k and they accepted. However, I'm still not sure about the deal and I'm hoping I can get a little insight here (I know its hard to give concrete advice without seeing the house).
As far as comps, there are about 5 split/tri level homes within a 0.5 mile that have sold for $115k+ within the last 1.5 years. All are pretty well maintained family homes (nothing too fancy) with simillar square footage and lot size.
The house needs the following (prices are estimates based on going to Lowes w/15% discount and me doing a lot of the work):
vinyl siding/windows and trim wrapped - $3500 installed by someone else
interior doors (closet doors are fine) - $1000
two toilets - $300
two windows (the rest are newish replacements) - $500
hot water heater - $300
updated light fixtures/fans - $1500
a little landscaping - $300 (I will do this)
carpet/vinyl floors in kirchen and bathroom (plan on painting the 600 sq ft of slab flooring) - $3000
two bathroom vanities/faucets - $1000
all walls sealed and painted - $2000
rear storm door - $300
10x10 kitchen cabinets (ikea)/sink/appliances - $5000
two sides of roof redone - best roofer in town wants $2500
total = $21200 - let me know if I'm way off.
There is also a leak behind the wall in the master bedroom which is likely from a valley in the roof, so some underlayment will need to be replaced. The heat and air work fine aside from needing the vents cleaned out and a new filter. The plumbing seems to be ok too.
If I tack on another $15k for other stuff that pops up or things that run over budget, that puts me at $36,000 in renovations or $86,000 including the cost of the house. Does this sound like a wise investment? After commissions (my agent will do 1% on his side) and tax, I'm thinking $15k profit sounds realistic.
Since the house basically needs to be gutted, I'm worried about things running way over budget and not leaving any room to make a profit.
Perhaps I should start with a house that needs minimal repairs/updating before tackling such a big project?
Any feedback appreciated.
Pretty confusing post. You list what the house needs, with an estimate of 21,000. Then at the end of the thread you say that the house needs to be gutted?? If you are going to have a decent house, in a good neighborhood for 86,000 sounds feasible to me. To just flip it doesn't sound like such a good investment....You invest 21,000 plus realtor expenses, and w/ an estimate of possibly 15,000 for surprises....all to make a profit of only 15,000....I'd walk away if your flipping it.
I don't know the real estate market in your area, but assuming all of your numbers are right I wouldn't want it. There isn't enough of a window to make that a good investment. We buy houses to renovate and sell for a living and most of the time require that there is a 30K window of what we think we can make, more or less depending on the amount of work. This one sounds like you may be lucky to break even. Planning on selling it in a few years makes it even riskier.
1. The neighborhood is very solid. Quiet, low crime, few foreclosures, several homes north of 200k. This particular street has a 20+ year policeman on each end and two teachers across the street. Neighbors to the left and right are around 60 yrs old. Almost all homes have well maintained lawns. One lady across the street is from Romania and she was shocked when I said $50k because she paid $135k (in '07) for the same house albeit in much better shape. I have no doubts that this will continue to be a great neighborhood for 10+ years.
2. I will be paying cash for the house and all repairs.
3. As far as the amount of repairs, the house looks to be almost 100% original from 1974. Thus, it has builder grade cabinets/vanities from '74...cheap stuff. Many of the light fixtures are original too with the ugly gold trim. The last owner bought it in 1998 for $110k. The neighbors said he went through a divorce and had it sold 2-3 times but his wife wouldn't sign the papers. The only things that look like they were replaced are the carpet (stained), windows and roof. This doesn't really suprise me though because I see many nice homes that look mostly original on the inside.
5. IMO, everything I listed pretty much means gutted...cabinets, vanities, floor coverings, paint, doors, 2 windows, toilets, popcorn ceilings scraped or painted, etc. Is there anything else? lol.
6. no carpet in the bathrooms.
On a side note, I have been looking in this neighborhood for 2 years and this is the cheapest house I've found. I could also live in the lower part of the house (~700 sq ft - 1 br, den, 1 ba, kitchen) while I fixed the upper part (1000 sq ft).
As a last stab, I had my agent tell them I could only come up with $46k, but they said "no way". I will need to make a decision by tuesday or the deal is off and it goes back on the market. Does anyone know if I could rebid on the house later on if it's still on the market?
Again, without seeing the house and neighborhood it's difficult for any of us to be of that much help...but simply based upon the numbers it still sounds questionable. I guess it really depends upon your objective. If you're primary objective is to make money, then this may not be the best house since it needs so much time and money to repair relative to its ultimate value. But if you're just looking at it as a place to live, with the potential for some gain, then this might easily fit the bill. On the plus side, it's better to buy a cheaper house in a good neighborhood than the other way around.
What concerns me, though, is that you say the "same" house in much better condition sold for 135K in 2007. That is definitely not a good year to try to make any comparisons since it was pretty much near the peak of the housing bubble. What is that house worth today? (Has your agent been of any help in this regard?) If it's only worth about $80,000 or so, I would definitely walk.
Coincidentally, I bought a house last year which had sold for $225,000 in 2007. I paid $75K, and the house didn't need that much in repairs, primarily just some bathroom remodeling. So don't be too swayed by what a house may have sold for in 2007--it's a different market today. (My purchase was of a foreclosed house, too.)
And, yes, if the house is still on the market down the road, you could probably re-submit an offer. But, why prolong the agony? Re-evaluate your objectives and make a decision. And remember: you can always make your best deals when you're willing to walk away. If this isn't the place for you, there's always another deal out there somewhere.
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