Should we buy and renovate this short sale? Advice please :)

[jeastith]

My husband and I want to move to this great little area in Delaware.  It's closer to his work, has a great school, and low property taxes.  Seems others love this area too, and there isn't a big housing stock available.  If we wait for more houses to come on the market, we are going to pay at least $300,000 for something there.  But then this short sale came up in a great location.  Need some advice. 

Here's what I know: 

Listed as a short sale for $165,000

Ranch on a slab with no basement, just a crawl space.  (we love ranches, but have never had a slab house)

We have tried but haven't been able to see the inside of the the house.  The people who live there are not being cooperative with showing the house. 

Two contractors have already put in bids without even seeing the inside of the house, so I think we'd have to go in over this asking price to compete (reasonable assumption?)  We don't have a full cash offer, but we are pre-approved for $450,000 - we'd never spend that amount on a house of course, but the point is we have ample financing and some cash.

Its 950 square feet, which is too small for our family of 4.  We'd like at least 1500 square feet, so we'd have to add an addition.  The lot is a 1/2 acre lot, so plenty of room to add on - we already looked at the setback requirements and such.

It was purchased last in 2007 for $240,000.

Looks to be in pretty bad disrepair.  gutters are leaking everywhere, old door, siding is turning greenish near the ground, lots of cats running around outside, but structure certainly looks sound from what I can see, and if it was selling for that price in 2007, how bad could it have gotten in 7 years?   

Here are my thoughts.  If we could buy this for maybe $175,000 and put $100,000 into it, we'd still come out below what we'd be paying for a house in the area, and we'd also be able to design it the way we'd want it.  I've done renovations here and there, but never something of this scale.  I'm looking for opinions on whether or not this is realistic.  We are both working (and stashing!) and we have a toddler, so we'd definitely be hiring a GC to do this, and possibly even an architect to design the addition. 

Let's assume the house needs to be totally gutted because it very well might and a 600 square foot addition added (to be generous).  Would $100,000 generally cover this?  I know kitchens and baths can make houses super expensive, but to give you an idea of our tastes, we love our current Ikea kitchen, and would definitely go Ikea for cabinets and such.  We're not going to go high end on any of it, so think middle of the road or lower in terms of what we put in.  Lots of windows though.  I'd love for the whole back of the house to be large windows.  Looks out onto the woods and the house is on a lovely lot in a great location for us. 

Any thoughts of folks with more experience, please chime in!  I've gotten such great info on this forum in the past, there's a wealth of knowledge here!       

 

[waltworks]

Things can get pretty bad in 7 years. Meth residue? Mold that wasn't dealt with? Something else?

If you can't inspect it, that would put me off buying unless you are willing to basically pay for the land and scrape the house.

-W

[jeastith]

Good point.  Risky.  Ugh, never thought of meth residue, but there could be anything in there.  The land is not worth that much.  1/2 acres around there sell for around $100,000, although they are extremely hard to come by. 

Things can get pretty bad in 7 years. Meth residue? Mold that wasn't dealt with? Something else?

If you can't inspect it, that would put me off buying unless you are willing to basically pay for the land and scrape the house.

-W

[waltworks]

Yeah, there's also termites/bugs, dry or wet rot, foundation settling problems, etc, etc. I think that if you want to buy the place you should assume the structure is basically worth zero and then be pleasantly surprised if it's better than you thought/feared.

Also, personally, as someone with a toddler, no way in hell would I want to live in a house under construction with a 2 year old. Did you look into construction costs in your area? I'm guessing Delaware is middle of the road so figure $150-200/sq foot. If you want a 600 sq foot addition and a bunch of rehab (best case scenario?) You're probably already at ~$150k or something. Worst case scenario, ugh.

Good luck!

-W

Good point.  Risky.  Ugh, never thought of meth residue, but there could be anything in there.  The land is not worth that much.  1/2 acres around there sell for around $100,000, although they are extremely hard to come by. 

Things can get pretty bad in 7 years. Meth residue? Mold that wasn't dealt with? Something else?

If you can't inspect it, that would put me off buying unless you are willing to basically pay for the land and scrape the house.

-W

[jeastith]

Yeah, you guys are definitely convincing me to sit this one out.  We weren't planning to live there with the toddler though, were planning to stay where we are til it was finished.  Sounds like it isn't worth the huge risk though. 

Yeah, there's also termites/bugs, dry or wet rot, foundation settling problems, etc, etc. I think that if you want to buy the place you should assume the structure is basically worth zero and then be pleasantly surprised if it's better than you thought/feared.

Also, personally, as someone with a toddler, no way in hell would I want to live in a house under construction with a 2 year old. Did you look into construction costs in your area? I'm guessing Delaware is middle of the road so figure $150-200/sq foot. If you want a 600 sq foot addition and a bunch of rehab (best case scenario?) You're probably already at ~$150k or something. Worst case scenario, ugh.

Good luck!

-W

Good point.  Risky.  Ugh, never thought of meth residue, but there could be anything in there.  The land is not worth that much.  1/2 acres around there sell for around $100,000, although they are extremely hard to come by. 

Things can get pretty bad in 7 years. Meth residue? Mold that wasn't dealt with? Something else?

If you can't inspect it, that would put me off buying unless you are willing to basically pay for the land and scrape the house.

-W

[SDREMNGR]

risk / reward.   I'd leave this one to the professionals who don't mind taking the risk for the potential reward.  I'd stick to the sure things for you and pay a little more for it.

[Rezdent]

I bought a neighborhood crack house once out of probate court for cheap.
I knew nothing about houses at the time.  I thought my dad was going to cry when I showed it to him.

 I knew I wanted the house and I was determined to make it work.  And I did.  I made mistakes, busted ass every night/weekend for 3 years and learned a whole lot.  I'd do it again if the chance comes along.

If you aren't sure you want to do it that's a reason to keep looking because rehabbing an old house is a full second job where you are putting in lots of time and money up front for potential benefits down the road.  Living in it during rehab is not easy.  Trying to rehab it while living somewhere else is even harder.

[jmoney]

I recommend pass if you can't get in since you are getting a loan go no further. Even though you are pre-approved for 450 k the house is not pre-approved. You just don't get a blank check for $450 k, the bank will do their due diligence and make sure the condition of the house fits their lending criteria which has gotten stricter in the last several years. The house is the collateral for the loan and no bank wants to take back something they can't sell for what they lent on it. Believe me, they are tired of this after the last few years!

In general if you're not getting a rehab loan, you don't want any repairs other than cosmetic. You risk the appraisal cost you put up for that house if the bank rejects the appraisal for value or repairs. Most banks are using appraisers who are trained to look for repairs and note them in the appraisal.

[jmoney]

BTW, congratulations for trying to not borrow everything you can. Too many people would try to buy a 500 k house who are approved for 450 k.

[123flip]

If it makes you feel any better, I've dealt with 100+ short sales, and in my experience, if the sellers aren't willing to let buyers through the house, they are probably not yet to the point where they are emotionally prepared to sell the house.  I've seen sellers like this refuse to move on the short sale until the day the house goes to auction and they get kicked out.

There's a good chance an accepted offer would never close with these sellers...