Is That Investment Property All That It Appears To Be?

The following article Is That Investment Property All That It Appears To Be? Find more on: MPG Deals Blog

Happy Friday All! Hope you had an awesome day with friends and family yesterday and had your fill of turkey :) .  I myself was super busy all week getting ready for family coming into town and wasn't able to post earlier this week and wanted to make sure I got something out before next week.

What I want to cover today is really all about hidden issues with distressed properties. No one likes it when they purchase a property and then find that there are foundation issues, mold or something else lurking that has the potential to cost you thousands of dollars, taking away from your bottom dollar when selling the property.

Hidden Issues with Investment Properties

Chris Clothier put up a post recently that covers some of the pitfalls when investing in distressed properties:

Hidden issues may be lurking

People who are selling distressed properties know that their properties have issues. They know that you know that their properties have issues. What they might, in some cases, be banking on, is that you might be so focused on seeing certain obvious issues that you don’t see the less obvious issues that they tried to cover up, so you paid a higher price for the property than you should have.

Hidden issues are not uncommon in distressed properties. Sometimes no one knew about them, sometimes the previous owner tried to cover them up. Some of the more common problems are electrical (re-wiring an entire property? An easy $10,000), mold (check out any fresh paint), and water damage. Check for caulking issues, like dry or cracking caulk, lots of caulk in one area, or peeling as indications of water damage.

If you miss something in your initial budget, it could turn a profitable investment into a lemon in a flash. Investing in distressed properties, especially if you’re inexperienced, is always somewhat of a gamble.

Read the full article "3 Pitfalls in Investing in Distressed Properties"

We totally agree with Chris in his final statement in that clip. Investing in real estate is always somewhat of a risk. However, a good investors knows the risks and actually hedges their bets on calculated risks. It is extremely important to conduct inspections before purchasing a property, whether it's from the MLS, a wholesaler or something that you found through your own marketing efforts. Also, the 3 things that Chris lists, electrical, mold and water damage are among the most costly and overlooked inspection items. I encourage you to read the rest of the article, and I think where they have "face-paced" at the beginning was suppose to be "fast-paced" :)

Do Your Due Diligence With Inspections

Ken Meyer actually wrote an article that has something to say about all 3 potential money sucking issues including:

Water Leaks

Look at the caulking around the bathroom tub. Lots of caulking could mean repeated attempts at stopping water from running behind the top. Caulking that is dry, cracked and peeling can indicate a long-term leak that may have rotted wood in the walls and floor joists around the tub. Check around the tub for other signs of water stains or soft wood. If you can get under the house, check the joists for rot.

There is a lot of money to be made in distressed properties. But if you miss a repair or two in your initial budgeting, it will end up costing you much more money than you expected and could turn into a money-loser just as easily. The trick is to not rush your inspection. Take the time to look at everything carefully and don’t cut corners.

Read more about what Ken has to say about electrical and mold issues "3 Hidden Issues Found In Distressed Property For Purchase"

I decided to include his bit about water leaks because in our experience they can be the most expensive and hide the most damage, including MOLD!

It's important to find the source of the leak. Years ago homes here in the Southeast were plumbed using something called polybutylene. Over time not only the joints would fail, but also anywhere in the pipe where it was bent to go around duct work or made a sharp curve to go up to a bathroom or kitchen. Repeated breaks could leave a home with mold growing in all kinds of locations, and not just localized. Again, Ken gives great advice at the end of the article and is what we recommend, complete and perform extensive inspections.

Summing It Up

The most important thing you can do to help eliminate as much risk when investing in real estate is to complete a thorough inspection.

Here at MPG Deals, we aim to find and disclose every issue that we find with every wholesale real estate investment that we offer. However, we do advise all of our end buyers to perform their own due diligence to insure they are buying a property without any hidden issues. Until next time, and enjoy your holiday weekend and we wish the best to you and your family!