House #35: The Rookie House

June 12, 2012 · 10 comments

We just got house #35 under contract, and this is another house that was affected by the 2009 flooding here in Atlanta. It’s in the same neighborhood — and the exact same floor-plan — as The Flood House, and like The Flood House when we bought it, this one is currently torn down to the studs and needs complete rebuilding on the interior (actually, this one is more torn down on the interior)…

The comps in this neighborhood have dropped somewhat over the past 18 months since we purchased The Flood House, so I expect our profit on this one to be less than The Flood House, but we should be able to hit our minimum profit target ($15,000) and because the house is already completely demo’ed, it shouldn’t be too difficult of a rehab. The biggest risks are if we need any mold remediation (it doesn’t appear so, but without testing it’s difficult to tell) and whether the plumbing drain lines are clogged with dirt and can be easily blown out.

I’ve named this one The Rookie House, as “Rookie” is our dog and she’s had some health problems the past week. Hopefully the profit on this house will cover her vet bills over the next several months…though it may not… 🙂

We’re scheduled to close on this purchase at the beginning of July, will have to hold it for at least 3 months (Fannie Mae requires this when you buy an REO from them) and will probably put about $40,000 and 6 weeks into the rehab. I’ll post more renovation details and pictures in the next week or two.

10 responses to “House #35: The Rookie House”

  1. Dennis says:

    I don’t recall that FanniMae has a 90 day resale restriction. I just reviewed their website and found nothing, other than the Owner Occupied~~ 1 year requirement…BOA and other REO’s have instituted some of their own restictions in the recent past.

  2. J Scott says:

    Hi Dennis,

    Fannie was the original REO seller to institute a resale restriction. It goes on the deed (deed restriction) and does not allow the purchase to resell for more than 20% above the purchase price for 3 months. The specific language in their standard addendum (Section 14) states:

    “Grantee herein shall be prohibited from conveying captioned property for a sales price of greater than $xxxxx.xx for a period of y month(s) from the date of this deed.”

    where $xxxxx.xx is almost always filled in to be 20% more than the purchase price and y is almost always filled in as “3”.

    They also prohibit encumbering the property (getting a loan, for example) for this same amount and time period.

  3. Dennis says:

    J Scott,
    Yup, I looked at a closed transaction with the addendum docs and found the Section 14 you referred to. It was 20%, and 3 months. I appreciate your indulgence.

  4. Luke McCabe says:

    Whats your opinion on houses with mold? It seems to be so common, a house goes to foreclosure the electric goes off and the house floods. The bank waits for a year to list and by that time it’s overtaken in mold. Mold to me is a very risky flip even with bringing in professionals. Because there is always that chance of it comming back. It seems to be against you when you try to sell. We put an offer on a house with mold and in some ways I’m glad we didn’t get it. But there is a very high profit margin to be made. Just like anything though high risk high gain!
    Thanks, Luke

  5. J Scott says:

    Hey Luke –

    I used to be scared of mold, but my opinion has changed drastically over the past couple years. When you say, “…there is always that chance of it coming back,” remember that it will only come back if you haven’t fixed the source of the problem (the source of the water). Mold survives and grows by having access to moisture — cut off the moisture, and the mold will stop growing and die. There are two keys to fixing a mold problem (and ensuring that it never comes back):

    1. Make sure to fully remediate the existing issue. This means cutting out any wet/moldy sheetrock, getting a professional remediator to kill the existing mold (either by hand or by fogging the house), and then waiting for the house to dry out before putting it back together.

    2. Fixing the source of the moisture.

    Take a look at our House #33 as a perfect example. It had a major mold issue when we bought it, and we tore out most of the sheetrock in the house. But, the source of the moisture was a water heater that exploded and about 50 gallons of water leaked throughout the house — this moisture issue was simple to fix, just replace the water heater. Once the sheetrock was taken out and the mold remediated, we were pretty much guaranteed to not get any new mold (since there was no new moisture issues).

    Likewise with House #35 — the source of the moisture was a major storm and flooding back in 2009. Now that the house has been stripped down and the mold remediated (we’ll be doing testing to verify if there is any mold remaining in the house), we can safely put it back together without any concerns. Unless it floods again, the mold should never come back.

    Now, if the source of the moisture is more difficult to find — or if the source of the moisture is difficult to fix — that’s when you need to be wary. For example, if the moisture is coming through a foundation wall, that can be very difficult and expensive to fix. If you don’t fix it properly, the moisture will come back and so will the mold. So, you need to be confident that you have a handle on what the real issue is and that you can fix it — if you can do that, then there’s no reason to worry about the mold coming back.

  6. B Allen says:

    J Scott – I like your approach when it comes to mold. People who are “scared” of something are usually not informed or don’t understand it completely. Sounds like you have educated yourself which now allows you to make an “informed” decision when it comes to mold.

    I’m trying to educate myself on REI and…Mold. I looked at my first potential investment property today only to discover from my agent that there was a mold remediation done in 2010. He gave me some disclosure papers, one being a spore trap report that was done in 2010, and the other paper was a report of a visual assessment that was done in April 2012. The company that did the visual assessment wasn’t the same company that did the remediation. Their report acknowledges the remediation done in 2010 – The home owners then re-occupied the property and all the family members suffered from some type of allergic reaction and had to move out about 7 months later. There’s more findings to the report, but it concludes that air quality testing would need to be done to verify or rule out possible hidden contamination. Other causes for the health issues the family suffered could be from building products used in the remodeling and rebuilding of the areas that had remediation work done.

    The water problem was in the basement, but appears to have been taken care of. Everything looked dry on the walk thru. I’m thinking of making an offer with a Mold Inspection Contingency. Keeping in mind that I’m not going to make a decision solely based on your opinion, I’d like to hear it, seeing that this is something you have some experience with. If you’d like I could e-mail you the property listing and reports I’ve been paraphrasing.

    Thanks for your time…really appreciate your blog and your contributions on

  7. J Scott says:

    Hey B Allen,

    Here is what I would recommend (assuming you think this could be a good deal):

    – Determine how much money you would have to remediate the mold if found. The worst case scenario is that you’d have to tear out much of the drywall in the house and then have professional remediation done to resolve the problem. This could easily cost $10,000 for an average sized home. Is the deal good enough that it might be worth it?

    – If so, spend $250 to have an air quality sample done; this will tell you if there is mold somewhere in the house.

    – If that test comes back positive (so you know why the family was getting sick), bring in a couple remediators to get cost estimates on the job. If there is enough room in the budget to make the deal profitable with all the mold work, I would certainly consider moving forward.

    – If the mold test comes back indicating that it’s not so bad that you think that’s what’s causing the illnesses, then you potentially have another major problem that could be very difficult to assess and fix. At that point, you’d need to bring in a professional to determine what the problem might be and how to resolve it. But, there could be a lot of liability with that, and I’d probably steer clear.

    Just my $.02 on how I’d approach it.

  8. B Allen says:

    That sounds like spot on advice. The point you make about what if it’s not a mold problem, that it could be something else that’s difficult to assess and fix, I hadn’t thought about in that way.

    Part of the remediation included replacing some sub-flooring around entrance doors and the bathroom. They used OSB and OSB is known to use a formaldehyde-based, waterproof resin. From what I understand formaldehyde can cause allergic reactions. Now that I think about it…when I was shown the house and walked in the entrance the first thing I noticed was a very strong pungent odor. All the flooring has been removed and is down to sub-floor.

    Could be the OSB if it’s not the mold. If it is the OSB I’m not sure what the plan would be. Need to research that a little more.

  9. J Scott says:

    Hey B Allen,

    If you think the OSB subfloor could be causing the problem, it’s not very expensive to rip out some OSB and replace it with plywood. Of course, it would depend on how much of it’s in there, and what the illness-causing agent is (i.e., whether taking out the OSB would solve the issue or whether it could have been transferred to other surfaces).

    I’ve never heard that OSB can cause problems like this, so perhaps you could do some Internet research and find out more?

  10. B Allen says:

    J Scott,

    I’ve done a little research and found some info that touches on formaldehyde and the effects it can have on people. I’m sure there’s some contractors who could provide a better understanding of formaldehyde and VOC’s in general. From what I’ve read it affects people in different ways. With some people it doesn’t affect them at all, while others are very sensitive to it.

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