The porch on this potential investment property is about to completely fall apart.
We are looking at distressed properties to find a single-family home that we can purchase and use as an investment rental property. We’ve spent about two months in our search, which has been documented in previous Reality Check posts on Cyberhomes.com.
Distressed properties are tricky and a lot depends on your definition of “distress.” For me, distressed means major issues -- a property that may have structural problems, a cracked slab, dangerous wiring, the plumbing is shot or extensive interior damage caused by people or nature.
We find ourselves looking at distressed properties because entry-level homes in the areas we are considering are currently under tremendous buying pressure. Investors and first-time buyers are bidding up these houses to the point that they aren’t financially feasible for us to purchase and break even on the rent.
We need to find a single-family house at no more than $375,000 so that with 20 percent down, we can hit our target rent of $2,000 to $2,100. But we have been outbid by investors who are paying cash or have a large deposit so they can bring the monthly cost down, or first-time buyers who are willing to pay a bit more to get into a house.
So, we’ve decided to look where there is less competition, which brings us to the distressed property market.
We saw two properties this week. The first has a badly cracked slab, which is causing the front portion of the house to slide forward toward the street. We also looked at a two-story house on a hill with two length-of-the-house porches that are pulling away and near collapse.
On the house with the cracked slab, I called the city building and safety department because this 1960s development has a history of cracked slabs due to improper soil compaction. I was told the problem started so long ago that the soil has naturally compacted, meaning there shouldn’t be a problem once the slab is repaired.
The house will have to be jacked up so that a new foundation can be poured at the front. Then, the cracked portions inside will have to be cut out and new concrete poured and anchored to the solid portions of the pad.
This city also requires slab work be designed by a soils engineer, which is something we are looking into. Once we have that, then we can get bids for the repairs so we can determine what purchase price makes sense.
The bank has steadily dropped the price on the property and it’s sitting at $289,000. The house also needs major updating. Comparable properties are selling in the neighborhood for the low $400,000s, so we can decide what it’s worth when we get the bids back.
The second property also has a slippage problem. It was easy to see that the footings for the hillside porches were not deep enough, the posts were pulling away from the house and the bottom sliding even further down the hill.
There were also significant cracks in the stucco at the foundation on the hillside. This could be because the house is sliding or the porch is pulling the structure with it. This is another case where you would have to invest in soils and structural engineers.
At $299,000, the bank had a long way to go before the price made this a good deal. A neighbor told us a couple of other parties were interested but were waiting for the price to drop before it made financial sense, backing up our assertions. —Rick Hazeltine