To Contract or not?

Found out about a vacant distressed property in need of COMPLETE rehab. Investors-Owners want to wholesale it. Sent friend who is a contractor to check it out. Contractor said property could not be ‘rehabbed’ in that EVERYTHING would have to be replaced - rotten walls, sunken floor, hole in roof, foundation issues, etc. He said if a building inspector stepped inside, he/she would immediately condemn the house. Would really have to demolish house and start fresh. Suggested that the lot itself would be the only thing of value at the property.

Considering wholesaling the property ourselves, but are there investors out there who purchase lots with ‘condemned’ homes, demo the homes, and start all over?? Worst case would be that we’d own the property outright if we couldn’t wholesale it. Would really prefer not to ‘own’ it though.

Suggestions or creative strategies?? Or, should we walk?

I would pass on this deal. It sounds to me that it’s worth LESS than the land value, because the house needs to be demolished (which will cost money).


There are rehabbers who will work on completely shot properties. It depends on “The Bones” - if the foundation is good - and the primary load bearing wall studs/beams are mostly in gtood shape, then there possibly could be something there.

The trouble is, you are talking generalities with no numbers. The numbers are the key. If they add up, it is a deal and you can find someone who will do it. However - it is always better to have contacts in the rehab community - local REI Club or whatever - so you know who does what type of rehab.

Numbers are simple

Purchase Price +
Buying Selling and Holding Costs+
Cost of rehab=
70% of After Repaired Value (ARV)

If purchase price, soft costs and rehab equal a realistic 70% or less of what the property would be valued at (and in this market Saleable at) then there is a deal.

There are many rehabbers that will do a “shave and a haircut” rehab - carpet, paint and update fixtures - and fewer that will do a more involved rehab, and fewer still that do a full gut rehab. Still, the full gut rehabs are what major players like Steve Cook specialize in. If the numbers are there, then there is a potential deal. That is because they know there is less competition for the gut-rehab houses - and normally, more potential profit if you know what you are doing.

In your case - rotten wood, holes in roof, etc wouldn’t deter the gut-rehabber. The main thing would be the foundation issues. If they are minor - then it could still be do-able. If it is significant - then it is a “Blow-it-upper” and time to move on, unless you can get it for a deep enough discount of the land value to make it worthwhile.

Owner-Investor is asking $6500 for property (no, this is not a typo). Tax value on the lot is $6000. Thinking of starting my offer at $100. :slight_smile: House would probably need to be torn down completely (about $5000 for demo and disposal). Comps range from $65K-$87K. Rehab costs per contractor are ~$45K. Not too far from local college and golf course; mostly rentals in area. Do these numbers even make sense for a possible assignment if we decide against rehab?

This doesn’t seem like it would be worth doing as a rehab. If the taxes are cheap and you have some extra cash to purchase this thing cash I would consider making a super low offer, like $1000 and just buy it and hold it. I would probably knock the thing down to keep you from having to insure the thing and keep your liability to a minimum. Then just forget about the land and let it sit for 10 yrs, sell it when it’s worth it to do so.

Things to consider though- Is this an area that could in the future be a good place for a home to be built or is it in the middle of cracktown? What’s the neighborhood like? Is the lot size sufficient to build a home on using current city code? Keep in mind it may have been grandfathered in on a small lot and if you scrape it you may not be able to build something new so that’s a concern. Definitely educate yourself on local building code before moving forward.

I certainly agree with that. I’ve heard that people in downtown Atlanta have to keep part of the foundation and call it a renovation to avoid all the hassles that come with doing new construction. Learn what the red tape is in your locale.

I know another investor who had to tear up a driveway because his home was in a historic district. The driveway was in a style they didn’t approve of and he had no choice but to tear it out.

I’ll give an example of what I’m talking about also. Around where I work (rural area) there is a restriction of I think at least 2 acres for new construction. An old house down the street from here rather than being knocked over and rebuilt has been completely rebuilt piece by piece due to not being able to build new construction on it’s small (probably 1/2 acre lot). I am not kidding when I say this…

They ripped off the exterior, replaced the roof, jacked the entire house off the foundation and replaced the foundation completely, set the house back down on the new foundation, gutted the interior and when I say gutted I mean GUTTED including new STUDS and new electrical and plumbing. Basically they did the same thing as knocking it over but had to do it in a slower, much more costly way to avoid the laws. Ultimately it was a bad idea it seems as the project stalled about 6-8 months ago and no progress has been made. I assume the budget alligator got the best of them. I’m gonna look at buying it if it sits any longer.