3/1.5 SFH HUD Home

This house was a HUD listing on the MLS. Somehow it made it through the HUD Good Neighbor Next Door period and we were able to pick it up for $5k less than listed (~5.5% discount). Market value is about $125k so after rehab we have about $20k in equity already. The plan is to wait a year then hopefully refinance at market value to get our down payment back for another purchase. This house was in fairly good condition but since it had been empty for some time and winterized  we were not sure what issues would be found when things got turned on.  The gas and electric were restored on Friday but I wasn’t able to see the house until the next day when I got to town. The place smelled a bit like gas so I shut off the water heater (was empty but switch was set to ‘on’ and the range. Was just a quick tour to see the place so that was it for the night. Came back Sunday morning and it smelled like gas still. When I opened the door to the basement it was solid gas. Shut the door and got the gas co to come out to the house. Turns out someone turned the gas feed to the dryer from vertical to horizontal then placed a 3/4″ cap on the 1/2″ pipe. Seems malicious to me since a professional would never do that and I would think common sense would let you know that is a stupid idea in general. The guy said it was still a couple days from blowing up the joint but I was really glad that I had the foresight to schedule the turn on right before I showed up as we closed a couple weeks earlier. Once that was fixed plus another small leak near the furnace we were good with gas.

The water was turned on Monday and I made sure to have the plumber out there. As my closing attorney said: The only good thing about a HUD house is the price. Sage advice since we immediately had a blown coupling right near the meter in the basement. Not off to a good start. The entire list of plumbing fixes includes:

  • replace tub drain (mechanism toast plus drain was handyman’d out of code)
  • replace water heater
  • replace slop sink faucet
  • replace 2 sink faucets
  • bring upstairs 1/2 bath vanity drain to code (straight drop and no vent)
  • move gas range feed to original placement in the house (they had it where the fridge should be and the fridge was a huge french door deal where the eat in location should be)
  • re-run gas feed to dryer (utility co capped the line back towards a main joint)

That ends up to be way more than I originally thought but it could have been worse.

We pulled up the kitchen floor since someone had put el cheapo vinyl faux laminate down (always a bad choice) on top of old linoleum. Turns out the hardwood floors beneath are in great shape but the caveat is that they used 2″ narrow staples to fasten the underlayment and they are not coming out. We tried pliers (staples snap) and bought a staple puller (too wide) but the staples are through 3/4″ oak plus 1″ tongue and groove subfloor and not budging. The rest of the first floor has hardwoods that just need to be refinished. We contracted this out due to time constraints but in the past have refinished floors myself and it is really not so hard, just time consuming.

The roof that initially looked pretty good is actually leaking so we are in for a new roof now. Thinking of adding gutters as well to help route water away from the foundation (see next point). All in that will be around $7500.

The only other major project is the basement. There was a hint of mold and dirty carpets on the ‘finished’ side of it during the walkthrough and the listing pics. Turns out the job someone did to finish it is so poor it should be criminal. There is no vapor barrier on the concrete floor, they just laid down strand board then carpeted right over. The walls are a similar story but since the drywall (not mold/mildew resistant) from a previous remodel was jenky, they just paneled right over it. Paneling is always a sign of covering something up so in most cases I would leave and paint if in good condition, for this house it was obvious something was materially wrong so we ripped it all out. What we discovered was that the house has a floating slab so there is a small channel around the whole thing which would normally catch any moisture and either route it to the floor drain or let it evaporate but in this case was used to feed moisture directly to the finished surfaces. Needless to say we no longer have any intentions of finishing the basement but have at least resolved the source of the issue and the system can now work the way it was designed. The basement will just be a lot of nice storage now, I guess.

On the plus side, it is in a great neighborhood and school district plus it already has all replacement windows. The hardwoods look promising and it should easily rent so hopefully all the upfront cost is worth it. Trying to manage from across the country is hard enough without worrying about when the next major thing is going to fail. We are set up on this one to have a solid rental for the next 15 – 20 years. It should rent for over 1% of purchase + rehab price.

Here is a list of non-plumbing projects we undertook to get it ready to rent:

  • Installed new pendant light in the eat-in-kitchen nook
  • Removed old finished basement due to moisture.
    • Whoever finished the basement had gone right over the concrete slab and old coat of sealant on the walls so it got all basementy. We pulled everything out (carpet, padding, paneling, drywall, furring strips) and cleaned with bleach then wire brushed the whole thing and drylocked it. IT is no longer a finished basement but at least now it is a huge and clean storage area.
  • Align/shave doors
    • Many of the doors were out of alignment and needed to be adjusted or shaved down to open and close smoothly (not to mention latch).
  • Front door posts
    • These decorative posts were basically hanging by a nail and swinging around. We secured then and shimmed them then added decorative trim and caulked to keep the water from becoming trapped against the posts.
  • Slight remodel of half-bath upstairs
    •  The floor was in bad shape so we pulled out all the old stuff and put down decent tile with a tile kick plate.
    • The toilet and sink/vanity were decent so they got put back in and a new towel holder was mounted to the wall (the old one had been ripped out).
    • If I had more time I would have done a full gut of this room but with only a two week limit on my trip, this project got pushed out to last and I just didn’t have the time. I did try to bring in a contractor to handle but he quoted me $450 just to lay the tile. Since there was a bit more to it than that and it seemed like he bid high because it was a small job, I sucked it up and handled the non-plumbing work myself.
  • Walk-out basement door frame rebuilt
    • This was in bad condition due to the weather and neglect so my contractor rebuilt this after I returned home.
  • New gutters
  • New roof
  • Flooring
    • One bedroom upstairs had fake parquet and the stairs needed to be re-carpeted
    • The kitchen got shiny new linoleum
  • All new appliances (stainless)
    • Counter-depth fridge dues to tight layout of the kitchen
    • Dishwasher
    • Gas range
  • Wood floors refinished
    • The floors were in pretty good condition but just tired. We refinished about 1000 sq ft
  • Changed all the locks
  • New medicine cabinet in the full bath
  • Took simple green to the whole front of the house to clean up the siding and improve curb appeal
  • Re-caulked tub in full bath and cleaned it real well
  • Whole house cleaning

This one should rent for 1.25% of purchase price plus rehab. For financing we used conventional 80% loans on both and the down payment came from a HELOC on another rental property. We will cash flow about $100/mo on this one after factoring in the following:

  • PITI
  • 4% vacancy
  • 7% general repair fund
  • 5% CapEx fund
  • Annual HVAC maintenance on furnace and AC units (~$175/house/yr)

Not as great as the cheap house but this one has equity baked in.

I was in Syracuse the last week of March and the first week of April and although I grew up in the northeast, I was not expecting it to be so cold while I was there.



Here are some before and after pictures…





Leave a Reply

Your email address will not be published. Required fields are marked *