A very good friend of mine has a name for what most of us would call a "tear down".  He calls it a crash down shack.  Recently, a colleague of mine referred a new client to me to handle what he said would be a residential transaction in Seattle - normally this guy does only 100% commercial deals and I do both commercial and residential.  So, at the time, I said, "ok."

After seeing the house, it is a TOTAL crash down shack.  There are multiple pest organisms eating away at the wood framing and there are items breaking through the flooring.  Fixtures for sinks are missing and the gutters have a veritable garden growing in them with no downspouts visible.

In doing research, I learned that there are no banks that will provide a land loan on it since the property exists.  Since the house is in such bad condition, it won't qualify for conventional financing.  Now, we are stuck with either a cash or a rehab offer.  Not that many of those exist right now.  Rehab loans for WA State, as I have heard from Eric Aasness of Countrywide, only allow up to $50,000 in funds and it is unknown if this will be enough to make this house habitable again.  The concept of tearing the house down will likely cost the client about $20,000.

Are any of these the right things to do?  Maybe not. 

My suggestion was that the client look at the idea of rehabbing the property on her own, then putting it in the rental market for a while till our market starts turning around so that she can recoup her expenditures.  She owns it outright and could do the work for less than others because she doesn't have the carrying costs of a mortgage associated with the cost of rehab.

If she were to put $50,000 into fixing it up and then rented it out for $900 per month, she'd be making a return on her investment of $50,000 (borrowed) as well as the increased value of the property when it sells later on.

What would you do?