Framing/support issues - should we buy this property?

[surfermoe]

Hi folks,

My wife and I have had our conditional offer accepted on a side-by-side duplex in downtown Ottawa, and I`m really conflicted on whether or not we should proceed. Here are the numbers on the property:

Offer price: $419k
Gross annual rents: $48k
Property Tax: $2,362
Utilities: $4,920
Insurance: $1,800
7% maintenance allowance: $3,318
5% vacancy allowance: $2,370
10% property management: $4,740
Mortgage (4.0%, 35 yr amort): $22,848

So net cash flow seems like it will be $800/month while we`re managing it ourselves ($400 once we hire a property manager in a couple of years). I watch the local listings like a hawk, and this kind of cashflow is VERY unusual for a duplex in downtown Ottawa.

The property also has other positives:

- it`s in a central location, close to shopping, a park, and public transit (i.e. relatively easy to rent)
- the street it`s on is part of a gentrifying neighbourhood (potential for capital appreciation)
- it has an unfinished attic with very high headspace. I could easily see dormers being put on the sides and creating a spacious third floor

We had an inspection done yesterday and our inspector (whom we trust and have used for over a dozen properties) said that he`s happy with SOME of the upgrades the current owner has made.

BUT there are a couple of big negatives that we found in the inspection:

- There`s "excessive" sagging and unevenness in the floor framing
- The main supports don`t appear to have been well-done, there are some sagging supports, and some of the supports have fallen down.
- Compounding these problems is the fact that the property has no "basement" - it`s just a three-foot-high crawlspace. Our inspector says it looks like the current owners have done joist work. I have no idea how they got down there.

I`m of two minds about this, because our inspector is VERY conservative. He inspected the first home we bought and lived in in Ottawa, and his inspection was so damning that at the end of it I asked him if the house was going to collapse in the next 5 years. He said "probably not", we moved in, and five years later sold that house (without it collapsing on us first).

Before signing off, I should say that our investment horizon is long-term. We`re hoping to hold onto our properties for 20+ years, and are not striving to make real estate our full-time income any time soon. Essentially, we see our properties as a nest egg for the distant future.

Any thoughts would be appreciated.

Moe

 

[kabuku]

Hi,
Are you an experienced carpenter?
Are you an experienced contractor?
Do you have bucket loads of cash that you feel the need to part with?
Sorry for the sarcasm.
Seriously, run far, run fast and don`t look back.
Regards, Brian
[email protected]

 

[Nir]

QUOTE (surfermoe @ Mar 12 2010, 01:00 PM) sagging and unevenness in the floor framing

not worth even 100K less! that is a very severe finding! thank your great inspector and run!

 

[Lucas]

Sagging has less to do with framimng and more to do with foundation (or lack thereof...). I would not move forward with this purchase given your numbers.

Good Luck!

Lucas

QUOTE (surfermoe @ Mar 12 2010, 02:00 PM) Hi folks,

My wife and I have had our conditional offer accepted on a side-by-side duplex in downtown Ottawa, and I`m really conflicted on whether or not we should proceed. Here are the numbers on the property:

Offer price: $419k
Gross annual rents: $48k
Property Tax: $2,362
Utilities: $4,920
Insurance: $1,800
7% maintenance allowance: $3,318
5% vacancy allowance: $2,370
10% property management: $4,740
Mortgage (4.0%, 35 yr amort): $22,848

So net cash flow seems like it will be $800/month while we`re managing it ourselves ($400 once we hire a property manager in a couple of years). I watch the local listings like a hawk, and this kind of cashflow is VERY unusual for a duplex in downtown Ottawa.

The property also has other positives:

- it`s in a central location, close to shopping, a park, and public transit (i.e. relatively easy to rent)
- the street it`s on is part of a gentrifying neighbourhood (potential for capital appreciation)
- it has an unfinished attic with very high headspace. I could easily see dormers being put on the sides and creating a spacious third floor

We had an inspection done yesterday and our inspector (whom we trust and have used for over a dozen properties) said that he`s happy with SOME of the upgrades the current owner has made.

BUT there are a couple of big negatives that we found in the inspection:

- There`s "excessive" sagging and unevenness in the floor framing
- The main supports don`t appear to have been well-done, there are some sagging supports, and some of the supports have fallen down.
- Compounding these problems is the fact that the property has no "basement" - it`s just a three-foot-high crawlspace. Our inspector says it looks like the current owners have done joist work. I have no idea how they got down there.

I`m of two minds about this, because our inspector is VERY conservative. He inspected the first home we bought and lived in in Ottawa, and his inspection was so damning that at the end of it I asked him if the house was going to collapse in the next 5 years. He said "probably not", we moved in, and five years later sold that house (without it collapsing on us first).

Before signing off, I should say that our investment horizon is long-term. We`re hoping to hold onto our properties for 20+ years, and are not striving to make real estate our full-time income any time soon. Essentially, we see our properties as a nest egg for the distant future.

Any thoughts would be appreciated.

Moe

 

[surfermoe]

Thanks a lot, Brian, investsmart, and Lucas. Your advice is greatly appreciated.

Moe

 

[IanSzabo]

QUOTE (kabuku @ Mar 12 2010, 06:38 PM) Hi,
Are you an experienced carpenter?
Are you an experienced contractor?
Do you have bucket loads of cash that you feel the need to part with?
Sorry for the sarcasm.
Seriously, run far, run fast and don`t look back.
Regards, Brian
[email protected]

Find a Good General Contractor in the area, Offer to pay them there daily rate to inspect the property. But part of the service must be a detailed Quote by the end of the Inspection. So it does not drag on for weeks. If there is major work to be done, Make sure the estimate has a buffer 10-15%. Pass this on to the owner for a reduction if you decide to move forward.
I personaly love major problems with houses, As long as you know the costs moving forward & it makes sence

 

[Tootse]

Maybe have a structural engineer (or whomever would be most appropriate) to look at it. Does your home inspector have the knowledge needed to assess these facets of the property? Dilligence!

 

[housingrental]

This is good advice

Sometimes problem places are the best purchases

Just know what your getting into and make sure you:
have funds to complete work
have certainty of work to be done and cost
are purchasing property that is discounted much greater than the cost of repairs needed.

These are very hard to find - in many markets most properties with deferred maintenance are NOT priced at an adequate discount to justify purchase. Be very careful in your selection.

The last place I purchased, in February last month, had a ton of issues. here`s a brief list:

Water damage on ceiling on multiple parts of ceiling on main floor

Water damage on walls on multiple parts (some on other sides of the house indicating multiple points of entry) in the basement

Leaking from main floor to basement from plumbing through ceiling during conditionally sold period

Water damage on back addition ceiling in multiple places from bathroom leak (different than leak above)

All furnaces in building at end of life span

Terrible grading

Seller couldn`t provide any ESA reports. Seller couldn`t provide any recent fire inspection reports.

Seller refused allowing me to have an ESA or Fire inspection even if inspections, and any costs to remedy, would be done at my cost.

Other deferred maintenance throughout (wholes in walls, kitchens falling apart, etc.)


BUT

Price more than discounted enough to justify a purchase. I`m very happy with the result.




QUOTE (plpcontracting @ Mar 13 2010, 12:38 PM) Find a Good General Contractor in the area, Offer to pay them there daily rate to inspect the property. But part of the service must be a detailed Quote by the end of the Inspection. So it does not drag on for weeks. If there is major work to be done, Make sure the estimate has a buffer 10-15%. Pass this on to the owner for a reduction if you decide to move forward.
I personaly love major problems with houses, As long as you know the costs moving forward & it makes sence

 

[surfermoe]

QUOTE (housingrental @ Mar 13 2010, 12:23 PM) This is good advice

Sometimes problem places are the best purchases

Just know what your getting into and make sure you:
have funds to complete work
have certainty of work to be done and cost
are purchasing property that is discounted much greater than the cost of repairs needed.

These are very hard to find - in many markets most properties with deferred maintenance are NOT priced at an adequate discount to justify purchase. Be very careful in your selection.

The last place I purchased, in February last month, had a ton of issues. here`s a brief list:

Water damage on ceiling on multiple parts of ceiling on main floor

Water damage on walls on multiple parts (some on other sides of the house indicating multiple points of entry) in the basement

Leaking from main floor to basement from plumbing through ceiling during conditionally sold period

Water damage on back addition ceiling in multiple places from bathroom leak (different than leak above)

All furnaces in building at end of life span

Terrible grading

Seller couldn`t provide any ESA reports. Seller couldn`t provide any recent fire inspection reports.

Seller refused allowing me to have an ESA or Fire inspection even if inspections, and any costs to remedy, would be done at my cost.

Other deferred maintenance throughout (wholes in walls, kitchens falling apart, etc.)


BUT

Price more than discounted enough to justify a purchase. I`m very happy with the result.


Great points.

But I think in our case the sellers feel they`ve already discounted the property enough.

We`ll be passing on this purchase.

Thanks again for everyone`s advice.

Moe

 

[Thomas Beyer]

QUOTE (plpcontracting @ Mar 13 2010, 11:38 AM) Find a Good General Contractor in the area, Offer to pay them there daily rate to inspect the property. But part of the service must be a detailed Quote by the end of the Inspection. So it does not drag on for weeks. If there is major work to be done, Make sure the estimate has a buffer 10-15%. Pass this on to the owner for a reduction if you decide to move forward.
I personaly love major problems with houses, As long as you know the costs moving forward & it makes sence
This is very solid advice. Structural problems can be massive, i.e. excavation, possible drilling to bedroock plus vertical support columns, horizontal support beams, weeping tiles, re-filling, landscaping .. could be 40-80K or more .. and as you will have to lift the house it will crack in place requiring you to re-drywall in places and potentially fix leaky plumbing lines behind the walls !

extend the condition period .. get a quote and then a price reduction that is TWICE the estimated cost or ask seller to do it .. as you can`t finance this work and it has to be be paid in cash out of your own jeans ! So a 20% down deal now is easily 35-40% cash down .. thus only a major price reduction can offset this mortgage dilemma !