In most of the U.S., real estate markets have been hot and competitive for years now. Many investors – even new investors – have started looking at potential properties they may not have considered five years ago.
Exhibit A: hoarder homes. We’ve all seen videos, whether on YouTube, Facebook, or TV shows like Hoarders, wandering through homes packed to truly frightening levels. As in, “If someone lit a cigarette in here, the whole tinderbox might go up in an inferno blaze.”
As unlikely as that is, there are still plenty of reasons to approach hoarder homes with caution as a new investor. Here are five risks posed by hoarder homes for new real estate investors — and more importantly, how investors can circumvent them.
Risk 1: Hidden Property Problems
When a room is stacked from floor to ceiling with junk, it’s hard to tell what kind of condition the floors are in. Or the walls. Or the wiring, plumbing, structure, etc.
The same problem will face your home inspector when they go in to evaluate the property. How can you, or your contractor, or your home inspector, or even the lender’s appraiser be sure of what’s going on beneath and behind all that junk?
Mitigation: If a property looks promising, but you need to verify exactly what needs replacing and what doesn’t, you may need to invest some time and/or money in clearing away a minimal amount of junk.
That could mean clearing it away from the walls and piling it in the middle of the room, if possible. It could mean removing some junk from the property.
One option is putting a contract on the property with a good contingency clause for evaluating the property’s condition. You’ll also need to get the seller’s permission, in writing in the contract, to move their junk away from the walls.
If after you invest a few hundred dollars in clearing away some junk to get a closer look you decide the property has more problems than you first suspected, cancel the contract and get your deposit back.
Another option? Simply assume the worst. The only problem is that the “worst” may be worse than you think.
Risk 2: Infestations
Hoarder houses are notorious breeding grounds for cockroaches, rats, and other pests.
That’s the bad news. The good news is that the most dangerous and expensive pest – termites – are not as likely to be drawn by the trash and junk.
Mitigation: First, be sure to include a line item in your renovation budget for pest control services. Price it out beforehand and assume you’ll need to treat the property at least once. If the house has no infestations, great, you’re now under-budget.
Even more importantly, make sure your home inspector can access the support beams and some framing, to thoroughly check for termites. Treating for ants and cockroaches is affordable, but termites can cause expensive damage to repair.
Risk 3: Mold
Speaking of expensive damage to repair, mold in the drywall and framing can be a nightmare.
And hoarder houses pose a double threat: first, with all the miscellaneous junk in the house, all in close quarters, and potentially covering the walls, the risk of mold can be higher. Second, the risk of you and your home inspector missing it is also higher, since you can’t easily see every surface.
Mitigation: Once again, do everything you can to clear away junk from the walls, and clear up access panels. You won’t be able to see every square inch of flooring before settling but do everything you can to make sure you can check behind the walls and cabinets.
Especially look beneath and behind plumbing lines and fixtures like sinks.
Risk 4: High Cost of Junk Removal
Removing all that junk could get expensive.
While this is the most obvious cost in buying a hoarder home, investors can still be burned if costs run far higher than expected.
Mitigation: Get multiple quotes on junk removal. In all likelihood, you’ll want to use a junk removal service, as they tend to charge less by the hour than your general contractor.
Double check references and ask for details like how large of a dumpster they plan to use, how many times they anticipate emptying it, how long they expect the process to take. Ask if they’ve ever gone over budget.
Get very clear on your junk removal costs before putting the property under contract!
Risk 5: Sellers’ Second Thoughts & Settlement Delays
As a real estate investor considering a hoarder home, you have to remember you’re working with a seller who has mental health problems. They kept all the junk in the property because they literally can’t bear to part with any of it.
That means they are selling the property – and everything in it – with great reluctance. They don’t like what’s happening, and they may well try to cancel or delay the sale if given half a chance.
Mitigation: First, know from the start that a cancelled contract is a risk. Know going in that you’ll be working with a difficult seller.
Speak with your realtor about your concerns, and brainstorm tactics with them to prevent delays and cancellations. Perhaps you can build in a delayed settlement penalty, where the purchase price drops by $5,000 if the seller delays settlement?
Maybe you can even build in a deposit from the seller, that’s forfeited if they cancel the contract. Get creative and do what you can to protect yourself.
After all, you’re investing some time and money in this property, to move around junk so you can view walls, to have a home inspection done, etc. Get creative on how you can protect yourself and your contract.
Hoarder Homes Can Be Good Investments, But…
Many investors take one look at a hoarder home and their stomach turns. That can spell opportunity for investors willing to tackle the headaches.
But headaches aren’t the only drawback of hoarder homes. They can come with a higher risk of hidden property problems, as outlined above.
Do everything you possibly can to get a thorough look at every wall, behind every access panel. As an investor, your biggest risk is nasty surprises after settling.
Make sure you have a clear understanding of every cost involved in cleaning and renovating the property, and hoarder homes can be a great opportunity for real estate investors.
Have you ever bought a hoarder home?
What happened? Any tips to share? Don’t be shy! Share below!