Burnouts are intimidating.
A good amount of real estate investors shy away from them completely.
Depending on the extent of the damage, it can be very costly to rehab and there’s so much unknown with what will be found in the property, a lot of investors don’t want that size of project or risk.
For us, when we see a burnout, there’s a fire under us to get the deal to work. There can be great profit in these properties if we rehab it right and we’re able to turn something terrible into something beautiful again.
When a seller reaches out to us because of a fire, they’re obviously going through an unfortunate time in their lives and it’s a very public event. Neighbors are nosy and either driving or walking by constantly to find out questions like:
• “How did it happen?”
• “Was anyone hurt?”
• “Will you rebuild?”
• “Where will you live?”
• “What all was destroyed?”
People are just naturally curious.
What they fail to remember is how sensitive these questions can be to the homeowner. They’re left struggling to figure out those answers themselves and it can be hard emotionally to stick through it all.
Some homeowners simply want out.
There are terrible memories now associated with the house and sometimes they just want to take the insurance money and move on.
This is when reaching out to an investor makes sense because they obviously can’t sell it on MLS until it’s been rehabbed.
To be honest, we wouldn’t recommend a burnout property to a newer investor. It can easily become a nightmare deal and can leave a sour taste in your mouth if it takes you more money and time than you budgeted for.
When you’re going through a burnout, it’s important to know costs for both replacing materials but also the cost to gut the affected area so that there aren’t any structural issues down the line.
Having a general contractor who knows and fully understands how to handle a burnout is crucial. When dealing with a burnout there is no doubt that permits will have to be pulled and inspectors will be involved. Having a contractor with experience working in these conditions will likely make or break the deal.
If you come across a burnout that you think would be a great investment deal but aren’t quite ready to take the project under your wing, try assigning the property to another wholesaler who’s more experienced with burnouts.
Depending on your relationship with the investor, they might be willing to walk through some of the steps they plan to take to get the property ready to sell to a retail buyer. This can greatly help your confidence level and overall understanding of how to properly manage a property that’s fire-damaged.
Just like any investment deal, make sure to analyze your numbers and accurately budget for your rehab and holding costs. Burnouts aren’t for all investors but if done right, you can turn a nightmare into dream home while making a nice profit.