Yes, I just finished rehabbing a fire damaged place. As a rule of thumb, you need to check to see if the fire torched the wood so bad as to render it brittle and structurally unsound. If so, you need to replace all that wood. Which may mean replacing many support walls, joists, roof rafters, etc. This can get very expensive quick and requires lots of cash. These are not minor rehabs. If you have done only a few rehabs, don’t try this. It’s advanced. I was too green to do this one, and I really lucked out on some things. I’m lucky I didn’t get hammered. Knowing what I know now, I would be very reluctant to do another. The fire and heat, for example, can destroy the soldering joints on plumbing and gas lines… replace all those too. Then theres ripping all the sheetrock out, replacing the roof, etc.
If you are real experienced, I think these can make sense. Then again (not to be harsh, but real world), if you were real experienced, would you be asking the question? Your answer is: if you can purchase the property at a price cheap enuf to cover repairs, purchase and sales costs, holding costs, contingencies, and profits, you can make $$$. But isn’t that true with all rehabs?
Fire damaged properties are just an advanced rehab. Beware. If you don’t really know what you are doing, you can get burned real bad (sorry; I coulden’t resist).
I made a call on a house that was borded up in my neighborhood. It wasn’t on the house and therefore I made the call to the assesors office to get the owners info. I looked the phone number up in the phone book and made the call. The gentlemen called me back after I left the message and needless to say he was a bit surprised. He stated that the house caught fire last November by a intoxicated evicted tenant who broke into the basement and lit a candle and somehow turned on the gas and left forgetting to blow the candle out. The house is a 2fam w/3brs+laundry room. The first floor and basement has the worst damage. The fire department put two holes in the roof to extinguish the fire.
The owner did not expect to sell the house and did not have a $ amount in mind. I am the first/only to call on it. What type of deal can you negotiate with a fire damaged house and has anyone ever dealt with these type of properties?
If you can get the property at the right price, it is possible to sell it (make it a flip deal) with the idea that the buyer can get an FHA 203K loan. This allows the buyer to have the house repaired after buying it – the amount of repairs are determined before hand (has to be at least $5K) – and is held in “escrow” – this is great program, and I have arranged these kinds of loans for homes that were just burned out shells. You make your money by picking up the property for nothing, determining what the repairs would be, then selling the home with the idea that the new owner would qualify for an FHA 203K loan. Remember you can gift the closing costs – and the loan would be based on the value of the property after it is repaired. You need to find a lender experienced with the 203K program – this might be your toughest part. Most realtors know about the program, but never completed a transaction using this form of financing.
As a mortgage banker, I have used this program quite successfully for clients and myself. It really can work! With this kind of deal, you can usually always make the property turn a real profit for you.
Did the owner have insurance to pay for the damage? I buy houses with fire damage, but you really need to watch out. Do you know any good contractors to get est. from?
I would calculate…
Buying cost, holding cost, selling cost, PROFIT margin and a hedge factor, plus repair cost ALL subtracted from the FMV after repairs. That may be a good offer amount.
BUT remember, fire damage, many times, has hidden repair cost that the contractor didn’t see or est. for. So, that needs to be taken into consideration, too. My hedge factor is much much higher with fire damage.
Many times, if fire damage is extensive, I pay for the lot, only.