Wholesaling Fire Damaged Houses

Wholesaling Fire Damaged Houses

JV With Us Damaged Houses

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Published on April 3rd, 2023

Joel Efosa

Author | Real Estate Investor



My Background

All my team does is wholesale fire damaged houses. Even when we get non-fire damaged leads we hand them off to our partners. Only very few experts in this space. Anyways there's tons of money to be made. Join our Facebook group to stay up to date.

What You Should Know

How can real estate investors invest in fire-damaged houses? While it may seem complicated initially, it isn't all that difficult. Selling a fire-damaged house: Important considerations include understanding the unique challenges and potential opportunities in this niche market. Fire-damaged properties are not as common as other types of distressed properties, but they are a great source of income for real estate wholesalers and cash buyers. To maximize profits and navigate the complexities of dealing with fire-damaged houses, investors should employ effective strategies for selling your fire damaged house, such as working with experienced contractors to assess and repair the property, obtaining proper permits and insurance, and marketing the house to the right target audience looking for investment opportunities.


Fire damaged homes cost homeowners 7.3 billion dollars in direct property damage. While this may not be the most common property, there is still an abundance of them to wholesale.

Why Are Fire Damaged Property Owners Motivated to Sell?

Distressed property owners are generally somewhat motivated to sell, but why are fire damaged property owners so much more motivated? Let's talk about it!


They Already Collected Their Insurance Check (And Want To Move On)


Rehabbing or rebuilding a home takes a lot of time. Oftentimes when people lose their homes to fire, it's simply easier to sell and move away. The issue, though, is that most people don't realize that there is a strong market of real estate investors for distressed or destroyed homes. This is where you come in.


Within a few weeks, their insurance company should have already paid them for the value of their home. Now, they just want to be rid of the damaged property so they can start over elsewhere. This desire to move on makes them motivated sellers.


Some May Not Have the Capital to Rebuild


If the homeowner was uninsured or underinsured, they may not have enough money available to rebuild or restore their home. In this case, they need some cash, and fast, so they can get out from underneath the property.


This enables them to look into lease options, such as an apartment or rental property, or put together a down payment for a new home elsewhere.


It's a Liability


Many cities require burned homes to be quickly rehabilitated or destroyed. These homes are an eyesore at best and a danger (because they could collapse or burn again) at worst.


Code enforcement officials have the power to report properties that are deemed a threat to public health, safety, and welfare. Then, they can issue citations and fines to the property owners. If the property owner does act immediately and accordingly (such as repair or tear down the house), these citations and fines will quickly pile up.


Officials can then place a lien on the property, and then the local government can eventually take ownership of the property.


It is in the best interest of the fire damaged property owner to quickly unload the property and its legal issues, to a real estate investor. This real estate investor needs to be willing and capable of handling all the work that needs to be done. You can make yourself a real asset by connecting these two parties.


Those who are looking at the possibility of losing their distressed property due to taxes and fees may be the most motivated sellers.


It's Overwhelming, Stressful, and Upsetting for Homeowners to See Their Home


Remember that this is more than a real estate investment; it's someone's home. This now fire damaged home was their everything; it has a lot of sentimental value to them.


And, horrifically enough, 7.2 people die for every 1,000 reported home fires in the United States. Some may have lost more than a home; they may have lost loved ones, too.


Always be exceptionally kind and courteous when you speak with them.


Even though emotions are running high, so long as you are compassionate, they will likely be willing to hear you out and even agree to sell the home, especially if it makes good financial sense.


Wholesaling fire damaged homes can help some distressed families who need a quick way to escape painful memories.

The Step-by-Step Guide To Wholesaling Fire Damaged Houses

Of course, you need to find someone to buy the property you find, but who? Knowing how to find cash buyers is a whole other topic which we cover in our other recent articles (please link!).


Build Your Cash Buyers List


Who would want to buy a fire damaged property? Several types of real estate investors, actually! Here are some of your best options:


Developers


Developers will tear down the home and rebuild either new construction, or depending on the size of the land, put in a brand new construction community.


It is very rare for a developer to attempt to salvage fire damaged properties. Instead, they are interested in the land and the potential that it carries.


Flippers


Many people who flip houses like fire damaged properties because there is less competition, and more money to be made. This type of real estate flip takes a specific set of skills, so you may find that there are only a few investors or investor groups who do this kind of fire damage real estate business.


Like developers, they may buy fire damaged houses so they can have the land to rebuild upon.


Or, they may purchase the fire damaged home with the intention of repair. Flipping houses is a time-intensive project and the profit wildly varies depending on the many factors.


If you want to better appeal to flippers, you should have a decent idea of these factors and have an estimate of what it will cost to flip the fire damage properties. We'll talk about this in greater detail below.


New Home Buyers


As a wholesale real estate investor, you should never overlook residential property buyers. They are unlikely to buy more than one house, but the one they do purchase could still net you a healthy assignment fee.


While a burned home on a piece of land may look like a hassle and an eyesore to many- to a few, it's a treasure.


Fire-damaged homes still have a water source, electric and cable connections, and septic or sewer hookups. It can be much cheaper for new home buyers with a budget to buy fire-damaged properties, tear down the house, and build new construction.


Even better, if the home isn't totally condemned, these new buyers may be able to make the repairs themselves to save even more money and then move into the property on their own terms.


Real Estate Investors with Rental Properties


Some hands-on real estate investors may be interested in the property for the purpose of rehabbing it, or building a new home in its place to use as a rental property.


Rental properties make great investment properties because they provide a consistent stream of income every month.

Locate A Fire Damaged House (or Houses)

Knowing how to effectively find fire-damaged properties is one of the key components to wholesaling this type of distressed property.


Talk to Insurance Agents


Insurance agents and adjusters will be well-aware of local fire damaged properties. Befriend insurance agents and ask them to pass on your information to people who may be potential motivated sellers.


If you want to properly network with an insurance agent, it's in your best interest to refer friends and family to their services. You want to build a mutual, long-lasting partnership if possible.


Contact the Local Fire Department


Fire departments, local and far away, will have a list of fire damaged houses. They may also be aware of individuals who could be potential motivated sellers. Use this list, which is public information, to locate and contact motivated sellers.


Take the time to befriend at least one or two people in each fire department near you (or near where you want to do real estate wholesaling). Having a friend who is willing to call you about new fire damaged homes can be a massive asset to your real estate investing business.


Network with Real Estate Agents


A good real estate agent will keep tabs on almost everything real estate business adjacent. Network with those who have their real estate license. They can likely point you to motivated sellers and even cash buyers for your wholesale houses. This business relationship will be mutually beneficial because you will share at least a 3-6% commission with them from each sale transaction.


Real estate agents will likely be able to help you with the technical details of wholesaling fire damaged properties, and they can even help you find motivated sellers.


Go For a Drive


Drive around your area and look for properties that are abandoned or damaged by fire. Mark down their address, and then look up their contact information later.


Get Contact Information for the Fire Damaged Properties


After you have the addresses, you'll need to get contact information for each of those fire-damaged properties.


Look up property tax information as well, and try to figure out if the owners could be potential motivated sellers. A cash offer can be very persuasive to the right person.

Estimate the Property's Value and Rehabilitation Costs


Rehab Costs of a Fire Damaged House


If more than 30% of the home has been affected by fire, it will most likely need to be destroyed. If less than 30% of the home is burned, it may be salvageable by gutting and preparing the affected areas.


Check the Structural Integrity of the House First


Have an experienced, trusted general contractor inspect the floor joists, trusses, and foundation. These are some of the most important components to consider as they affect almost all other aspects of the home, and are the most time and money intensive.


Inspect the Electrical Wiring and System


Often, it's the electrical wiring that caused the fire. An estimated 36.3% of all house fires are caused by electrical problems. Replacing the electrical system is the next most money and time-intensive venture.


More than likely, you'll have to replace the breaker box, wiring, fixtures, and outlets.


Always use a licensed electrician to ensure that another preventable fire doesn't occur.


See About Water, Soot, Smoke, And other Damages Too


It's common to have water damage, as well as soot and smoke damage too. For both issues, you'll likely have to replace (or at least restore) drywall, flooring, wiring, power switches, and power outlets.


Although it may seem strange to have water damage in a burned house, it's common for this to occur. Firemen are spraying large quantities of water into the home in an attempt to put it out, and plastic water pipes may melt and leak during the heat of the fire.


Water lines, utility lines, windows, fixtures, and even the roof may need attention, too, depending on the severity of the fire damage. Smoke permeates almost every porous surface of within home, and it is difficult to remove that distinctive scent.


Figure Out The ARV and Estimated Purchase Price


If you want to make it easy to market fire damaged properties to cash buyers, you should do your due diligence. Know the damaged homes local market value, the estimated repair costs, what the bare piece of land is worth, and the after-repair value (ARV).


If the home is severely damaged, you should calculate how much it will cost to tear down and haul away the structure, and clean up the property in general. Then you should calculate the cost of a new construction house, based on the average per square foot costs in the local neighborhood. Use local house sizes to estimate the square footage of the new residence. A real estate agent can be massively helpful here.


If the home can be saved, you should get a contractor with construction experience in, to estimate what needs to be repaired and how much that will cost.


Not only will this information be beneficial to potential real estate investors but also to you because it will make it easier for you to market the home. Having this valuable information readily available for interested cash buyers will strengthen your professional relationship and may lead to more sales down the road for both of you.


Make an Offer, And Put the Property Under Contract


Next, you need to get the property under contract. Aim for the cheapest price possible, because your cut lies between the sell price and the purchase price.


Base your offer on what the land (or land plus salvageable home) is worth, minus what it will cost to clear or salvage the damaged parts. You may choose to make a significant discount it further based on the fact that the motivated seller will get cash in their hands very soon.


Once you agree on a price, move on to the next step.


Assign the Contract


Now you need to assign the contract to a cash buyer from the list of investment buyers you created. They must be willing to pay what your contract asks, plus enough for you to get paid the assignment fee you're owed.


This step needs to happen quickly because you have to offer the time frame of the contract you agreed upon with the seller.


Make sure that your wholesale fee is included in the assignment contract because this is what ensures that you are paid for your work upon the completion of the distressed property sale.


Close the Deal and Get Your Check


Carefully but politely facilitate the deal. You will be working with the buyer, seller, and title company. You may also need to stay in close contact with general contractors, restoration experts, and other related real estate investors.


This point in time is crucial to ensuring all goes smoothly and the sale goes through.


Once the deal closes, you'll get your assignment fee.


Congratulations, you have now officially wholesaled a fire damaged property!


Wholesaling fire damaged properties is a lucrative and rewarding way to invest in real estate with less competition and higher payouts.


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