Suggestions on possible deal - Posted by John STL

Posted by Eric C on February 18, 2001 at 13:07:58:

Hi John -

I have to agree with Ed about passing on this one, primarily because of the numbers, and his observation about the people involved.

Nevertheless, houses with cracked foundations can be profitable.

I know at least one investor in Houston, one in Dallas, and one in Austin who specialize in these houses.

Sometimes they fix them; sometimes they don’t.

While most significant flaws can impact a property’s retail value, not all flaws (including cracked foundations)affect the rental income that the property can produce.

In fact, all of these guys look for significant “flaws” because they realize that the majority of investors, realtors, bankers, and homebuyers will pass on these properties.

Heck in Dallas/Ft. Worth, half the radio commercials during “drive time” seem to be for foundation repair companies. Would it surprise you to discover that some of these folks own significant numbers of properties themselves?

I used to partner with a guy who was in the “biz”. He did the work, I put up the money. We both did very well.

Just another viewpoint to consider.


Eric C

PS - and yes, these houses can be insured.

Suggestions on possible deal - Posted by John STL

Posted by John STL on February 17, 2001 at 15:50:21:

I called a seller in the paper and he sounded to me to be very motivated. The propery is a duplex built in 1982. Has a mortgage of $88’000 with fleet mortgage that is assumable at 8%. His payment is $980 per month including taxes and insurance. He said to assume the loan you need to be an owner occupant. Its been appraised at $135,000 recently. One problem, the foundation is cracked or something and he got an estimate of $20,000 to fix it. He said he just wants someone to assume the loan and give him $500. Also said rents could be higher by $50 or $100 each. He is a financial planner and said he is just to busy to mess with it and doesn’t want the problem. I thiught about trying to tie this up in an option or puchase contract and flip it. Any suggestions. He doesn’t want to get the loan and fix the foundation. I’ve been out beating the pavement looking for the deals. I think I’m getting closer. Any help or suggestions would be greatly appreciated.

Re: Suggestions on possible deal - Posted by phil fernandez

Posted by phil fernandez on February 17, 2001 at 18:41:29:


I agree with Ed.

He might be motivated due to the cracked foundation that will cost $20,000 to fix. Presently this duplex is his problem. Don’t make his problem your problem.

The knowledge about the cracked foundation is a material fact and will have to be disclosed to all of your prospects, which should turn them all off.

There are easier deals out there.

Also as Ed points out about the seller telling you the rents could be raised. maybe they can and maybe they can’t. My response to a seller that says the rents can be raised is, " I only buy on performance and will base my buying decision on the current income stream. " Keep in mind if it were that easy to raise the rents, why hasn’t the present owner raised them??

Re: My first instinct…RUN - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on February 17, 2001 at 18:27:34:

don’t walk away from this one.

If there is a $20,000 crack in the foundation, that house could easily collapse next week without notice. Since this is a known defect, I doubt that it is insurable.

You said you called the ad in the paper and he sounded very motivated. They always do…

You said that the house was appraised recently but you did not say how recently, and you did not say if the appraiser commented on the cracked foundation (bet NOT).

The lender disturbs me, this is because of my personal knowledge of them. Do not expect any mercy from them, they will forclose on you in a heartbeat (not owner occupying might be sufficient for them, who knows?).

Flipping with a purchase contract, or an option might work if you take a small bite and don’t get greedy.

The seller says he just does not want to mess with it, then perhaps he would give you $500 to take it off his hands. When a seller tells me that rents “could be” higher, I know then that he will lie to me because IF the rents could be higher they would be, especially if the property is owned by a “financial planner”. I smell con artist. Just my opinion, your decision.

Re: Suggestions on possible deal - Posted by John STL

Posted by John STL on February 18, 2001 at 11:22:21:

Thanks phil your response is exactly why I post stuff here

Re: My first instinct…RUN - Posted by John STL

Posted by John STL on February 18, 2001 at 11:24:01:

Thanks Ed your response is exactly why i post here, every day I learn a little more hopefully someday i be teaching too. Thanks