The Three Types of Fire Damaged Properties in Real Estate Investing

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There are basically three types of damage to evaluate when investing in fire damaged properties. The first is what most people see when they look at a property that has been burned. This damage appears to be so extensive that it can’t be repaired. Seldom is this the case unless the roof has caved in and the walls aren’t structurally sound.

Actually, most damage is much less severe and falls into one of the following three categories:

1. There is slight soot or smoke damage throughout most of the property with the major damage contained to one room, usually the kitchen or a bedroom. These usually start when a pot on the stove over-heats and catches fire. The smoke generated is electrostatically charged and adheres to everything including the walls and ceiling. This type of damage is very easily corrected and should cost in the area of $15 to $20 a square foot for the entire living area of the property.

2. The ceiling has been penetrated by the fire and the trusses have been burned. However, the roof is not penetrated or is only slightly burned through. In some cases the roof has been opened by the firemen. Usually a couple of rooms are heavily damaged. This type of damage should be in the area of $20 to $35 a square foot.

3. The interior is heavily damaged and the roof is completely burned through in various areas. This is the most extensive type of damage and could run from $40 to $70 a square foot or more. Be very careful on these properties as a contractor can get started and have trouble finishing the job because he underestimated the repairs and labor needed.

More accurate estimates of these repair costs should be gotten from local contractors who are in the business of rebuilding burned properties. Keep their phone numbers as contacts for your buyers list and ask for referrals to investors who work with these contractors so you can sell them your deals.

The opportunity that exists for even more damaged properties is to put them under a purchase and sale contract or get an option agreement with the seller. Next market them to a buyers list of local contractors and companies that repair smoke damage. Look to buy these properties at about 10% of their After Repaired Value (ARV) and sell them in “As Is” condition for twice what you paid as a wholesale property.

In summary, there is excellent potential to sell wholesale burned properties. Do not worry about the condition of the properties, just get them under contract and wholesale them to investors who know what they are doing. Properties in category #1 above offer super potential as the repair work is labor intensive but only minimal materials are required. A homeowner will generally get a substantial insurance payment from his insurance carrier and whatever he sells his home for is essentially found money. You have no risk except for your deposit with the homeowners so try a few burned properties to see how easy they are to acquire and sell.

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