Why is this townhouse only $5,000? [closed]

Question

Here it is, the $5,000 townhouse. It obviously needs to be completely redone, but what I was wondering is, what do I do about the houses next to this one? What if water is coming in from the house next to it? Am I responsible for the roof? I know a 2 of the condos in the same building are going for $43,000 each (they are just outdated, no water damage).

This place is 1,100 Sq Ft (550 each floor). Do y'all think it would be worth it to fix it up? And, what are the laws about townhouses/condos neighbors? (Like what about the roof or wall in between two of the places)

Answer 1

You need to consider the final selling price you could get for it, if it was fixed up and in great shape. Based on "outdated" ones at $43k, maybe $45k-$50k? So there's a bunch of costs you need to estimate and add up:

• Initial purchase + real-estate fees
• Demo/disposal costs
• Carrying costs × amount of time this will take (interest on money borrowed, property taxes, utilities)
• Inspection/Permit costs (don't forget to consider the time it takes waiting for this too)
• Material cost
• Labour cost

The last one is tricky -- depending on how much you do yourself, it could be cheaper, but carrying costs go up. Also, you probably value your time at something above $0/hr, so you'll want to make enough profit to pay yourself better than what you could make doing some other job. If you sub out the work it's more expensive but probably done faster (lower carrying costs) and your hours go down (effectively netting you more per-hour on lower profit).

As you can see, the budget this leaves for the actual reno part shrinks pretty quickly.

Based on the photos (and this is a very, very incomplete list):

• Based on those beams hanging down, probably some structural fixes that require a structural engineer
• Some (all?) new windows or window repairs
• New flooring
• New drywall
• Stairs refinishing
• Probably a bunch of electrical
• No picture of the kitchen -- but I'd bet on new everything there too
• No picture of bathroom(s) -- same thing, I'd bet on total replacement
• As you demo, you will find more unexpected problems

You need to estimate a best and worst case for both costs and selling price, and decide on your comfort with the risk vs reward. If you could make $10k profit on this I'd be amazed, and I think the worst-case is losing several tens of thousands of dollars.

Answer 2

Gregmac's answer is good but just take material costs. Here are your bare bare minimums.

• 3k drywall + 500 misc drywall.
• 4k for appliances
• 2k for demo removal
• 3k for cabinets and counters - kitchen and bath
• 3k for flooring
• 2k misc lumber - subfloors stairs and so forth

This is getting the cheapest materials possible and using the cheapest may result in a negative when selling.

So you are at 19k. This is not counting plumbing, electrical, and the big big big one - remediation and inspectors making you redo structure.

So at best you are looking at putting in 30k plus a crapload of time... And then you could be hit with paying for a remediation service (most cities don't allow you to do it yourself anymore even if you do it right) and hiring an architect/engineer. I mean honestly this could cost 50-60k with bare bones quality.

Answer 3

The Building Code requires any structure that looses more than 50% of its value must be brought up to the new current code...it cannot just be replaced to match existing.

This includes fire walls between units, electrical systems (including the use of conduit due to the size of the building), sound control between units, required number of parking spaces, sprinklers (due to 3 or more units), etc.

If you don’t have proper water pressure, you may need to run a line 4-5 blocks to get it, or install a booster with holding tanks.

Your largest cost may be 1) the cost to renovate the units that were not damaged to bring them up to the new code too. I’d hire an architect to argue that you could add a 2-hour fire wall between the damaged and undamaged units so the undamaged units are “in a separate building”. (Strange, but they may allow it.) or 2) eliminate the units that do not have the proper setback from property lines, including the undamaged units.

Btw, you can’t work on your unit, because there’s too many units (more than 2) connected. Workers need to be licensed and bonded, except for painting, etc.

Also, you’ll need an architect to prepare plans, if the building is over 4,000 sf or 20’ high from floor to top floor ceiling.

Answer 4

What you're missing is entitlements

I.E. permission to build.

• From the government you'll need building permits, and they will have a bunch of requirements - conditions they'll put on your building permit, such as replace the plumbing lateral, install all AFCI breakers, etc.
• You are also in an HOA district, and the HOA will have a bunch of community requirements e.g. change exterior paint color.
• You're only buying one unit, and you share a roof and structural wall with the adjacent unit. And that means anything you do that would affect the other unit must be approved and done professionally. I call that an entitlement cost because hiring the professional is the cost of getting permission to do the work.

And we're in a depressed town where $50,000 is as good as you can hope for. If it were San Francisco and you could foreseeably get $1.3 million, different deal.

The low price is probably due to a glut of housing compared to the number of people who want it, i.e. the town population is shrinking as a rule.

Entitlement costs, plus actual cost of renovation, probably exceed what the building could possibly sell for, given the glut of usable sub-$60,000 units right in the same complex. Hence no one has fixed it. Adam Smith wants the unit to be demolished.

Also, HOA and city taxes may be oppressive

Here's the other problem you get when demand is low and housing stock is in bad shape. The costs of the infrastructure are even higher because it tends to be old and urban (e.g. public transit to run), but there are fewer taxpayers and less assessable value to spread it across. So...

• City taxes will tend to be VERY high. Far higher than you'd expect.
• HOA fees will also be very high, because they have higher-than-ever site costs against lower-than-ever occupancy.

So these costs will "eat you to death" all the while the above economics is not working out.

Fair chance the city itself is the seller of this property; the usual fate is people stop paying the prohibitive taxes and HOA fees and just walk away; then the HOA puts a lien on the property whilst the city takes it for back taxes.

Oh, yeah. There might be liens.

Normally, a bunch of "due diligence" happens, usually orchestrated by your Realtor. The problem is that on a $5000 house, no Realtor will represent your interests for 5% of $5000 ($150).

That leaves you to pay for those costs a la carte, and the very strong temptation would be to simply skip them, to avoid paying 30% of the property's cost in research*.

That could end in disaster if something like a lien is missed.

---

---

* Hold my beer. Once I bought an old industrial site for $120,000. Legal and the stage 2 environmental site assessment was nearly $40,000.