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Kristen, Home Buyer in Philadelphia, PA

How would you make an offer on a house that has been just about gutted?

Asked by Kristen, Philadelphia, PA Sun Jan 4, 2009

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Hello Kristen,

If you're thinking being gutted is a negative, here's a different point of view. Our investors love to pick them up when they're gutted, it's a lot less work for them to do and they're usually priced way below comps, leaving plenty of room for a profit. Choose a Realtor who knows the neighborhood well, have them pull up comps of homes in good condition. Hire a contractor to do an estimate for you, tell him what you would want done to the house. Take the average Sold price of homes in good condition, subtract the amount it will cost to have the work done and make sure you have about 20% in equity once the house is finished. Here's an example of what one of our investors did with a gutted home. The average Solds in the neighborhood are $1,000,000 to $1,200,000 for the size of home that he was going to make this home. He bought the house for $450,000 (completely gutted). He popped the top and made it gorgeous for $350,000. He's into the house for $800,000 and can easily sell it for $1,000,000 if he wouldn't have decided he loved it and decided to move in instead of selling it. Our Investors in lower priced homes are doing about the same calculations only they do all of the work themselves. Have fun with your project, if you decide to do it.

1 vote Thank Flag Link Sun Jan 4, 2009
We looked at the house, they left one small room intact. they tore everything else out. that's why I said "just about gutted" , my husband was a home builder for 13 years, they left a few stud walls up as well, but since seeing the home, and knowing that the sub floors need replacing since there are holes thru out , it would have to be a full gut in the end, no matter who gets it.
0 votes Thank Flag Link Sun Jan 4, 2009
By all means have an inspection done--it's well worth the cost--especially in your case w. cash. if a loan is involved,my experience has been that they require a structural engineer on top of the appraiser--but that was w. post-katrina homes to check for structural damage.The one you-re looking at just apears to be in unfinished condition--no issues w. disaster.I'm not sure this home is gutted--seems to be more unfinished.
0 votes Thank Flag Link Sun Jan 4, 2009
When paying cash you are at a huge advantage as financing is limited for these type of homes. You will want to do your inspections prior to putting in a bid. even an informa walkthrough with a contractor can point out any serious defects. The homes are sold as is and teh bank will not renegotiate after you put in an offer. you will want to accompany your offer with a proof of funds letter and a letter with any estimates, costs, descriptions and phots of any defects that are affecting the price. Good luck with your purchase Kristin
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0 votes Thank Flag Link Sun Jan 4, 2009
Thanks Dana. We're working with cash, so no loan would be needed. I've been reading alot about REO homes. just wondering if you need an inspection and cost of repairs report to go in with your offer, I mean is that something that is done in a case like this?
0 votes Thank Flag Link Sun Jan 4, 2009
First,contact a realtor who can assist you in setting a fair price. There is a loan program available(203K) for properties which need extensive repairs. if the property is not in liveable condition, this is probably your only option,as no other program will approve a property which is not in move in condtion. Your realtor can assist you w. this. I am in south Louisiana,and we did a lot of 203k loans after katrina.
0 votes Thank Flag Link Sun Jan 4, 2009
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