When Not To Renovate:
The Top Four Homes To Walk Away From
With so much written on how to renovate and
so many new investors starting up every day, we thought it would be helpful
to offer some suggestions on some of the projects many investors will want
to avoid.
These guidelines are offered for the
average real estate investor. There are always exceptions and there are some
investors who specialize in buying properties nobody else will touch because
they have the construction expertise others lack.
#1 Damp Basements
In general avoid homes with damp basements
unless you are clear about the source of the water penetration. Sometimes
damp in a basement can be easily remedied by installing proper gutters,
downspouts and even French drains around the home. However, if the source of
damp is from rising ground water tables beneath the home there is very
little that can be done to prevent it. A sump pump can alleviate the problem
to some extent but with increasing concerns over mold we’d recommend being
very cautious around damp basements.
#2 Structural Damage
Figure 1 Cracked Walls
Structural damage may be evident from large
cracks (over a quarter inch) in the foundation walls. (Minor cracks are not
typically evidence of structural damage). Significant cracks in any wall or
ceiling surface may be a sign of structural damage caused by foundation
movement. If in doubt we suggest you consult a structural engineer as well
as a home inspector (a typical home inspector will highlight the problem but
may not be qualified to determine if it is structural or otherwise).
#3 Bad Locations
It may seem obvious but this one can’t be
avoided. Many novice investors are attracted to homes in poor condition in
poor locations because they seem such a bargain compared to other homes in
the area. The truth is many of these properties may be overpriced based upon
their location alone. When it comes to remodeling a home the biggest factor
in determining the ultimate market value of the property after renovations
will be its location. You can make a terrible house gorgeous but you can’t
change its location. A run-down property by a train line will still be by
the train line after it’s fixed up. Stay away from properties in bad
locations; they take longer to sell and they appreciate less that equivalent
properties in better locations.
#4 Insect Damage
Minor insect infestations can be treated
relatively easily and may not be expensive to repair. However, the problem
with insect damage from Termites and Carpenter Ants is that most of the
damage is done below the surface of the wood and out of sight. Because of
this, the extent of the damage may not be known until you start tearing down
walls and ceilings and by then it may be too late.
Figure 2 Termites
Termites typically nest outside the home
and forage inside the timbers of the property, carving out extensive tunnel
networks that can turn solid timber to dust and eventually destroy a home.
However, there are many varieties of termites depending on where you invest,
so be sure to research what types of termites are typically found in your
neck of the woods (check out our website for links to pest information
resources).
Figure 3 Carpenter Ant
Carpenter Ants commonly nest in woods near
the home and have satellite nests inside the home. They eat away at the
timbers from the inside to create their nests. Carpenter Ants commonly eat
through damper timber when building their nests.
Having a thorough pest inspection of any
potential investment is wise as is becoming familiar with the tell-tale
signs of infestations yourself. If you can’t determine how extensive any
insect damage is, you may want to give the property a pass and move on to
the next one.
How To Spot The Problem Properties
The more you look at homes (especially if
you go around homes with a licensed inspector) the more familiar you will
become with the tell-tale signs that the property could be one to avoid.
Wise investors also take time to educate themselves on what to look for.
There is a wealth of information freely available on the Internet to help
you get started.
Taking On The Challenge
Even the problem properties can turn a
healthy profit provided you budget for the full cost of repairs up-front and
you are able to negotiate a purchase price that has room for you to make a
profit. Some problem properties couldn’t be given away and be worth
fixing, but the land the property sits on may be worth investing in if you
have the timeframe and budget to redevelop it.
Links online at http://ushomeinvestor.com/Owners/problem_properties.htm |
