Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
Savvy real estate investors often like to buy properties that have problems, which can help us snag a great deal. However... not all problems are good.
What are some examples of "problem properties" you would never want to buy?
For example, I don't want to buy a property with a major foundation issue. I don't want to buy a property with a "problem neighbor."
What else?
(I might use your answer in an upcoming book for BiggerPockets!)
@Brandon Turner, If I am looking at properties and notice the ridge beam sagging I usually run the other way. Also I am not a big fan of properties with multiple additions that don't meet up correctly/ different floor elevations/ roof lines, etc. Also, homes built without enough crawl space to get in and inspect. Flood plain properties. Almost anything can be corrected but I am much pickier now that I was 15 years ago. If the price was right I would tackle anything. Now I look for cosmetic flips and same with my buy and holds.
Quick story (big mistake on my end) referring to foundation issues. I have looked at hundreds of properties, built and remodeled many homes. This past October I found a home being auctioned at the courthouse steps. I knew the area well and it was a great deal. I hurried through the home and it looked great. Full basement, story and a half, with ARV of $139,900. Purchased the home for $27,500. Went back to the home after the auction and noticed one of the walls in the basement was leaning in and cracked badly. I had to have a structural engineer come in and make recommendations. Then ended up having to pour a 12" concrete wall against the original block, adding and additional $7000 to my rehab. Luckily there was plenty of room in the budget for my mistake. I got a little off topic but it's important to realize no matter your level of experience, mistakes can still be made. Hope this helps someone. Good luck with your next book. Use my story in lieu of a copy :)
Properties with non-sufficient parking for all residents is a no go for me.
There is nothing worse than dealing with adults bickering over parking issues.
I am an investor and a Realtor. I don't want to buy a property with known mold issues. Though easy to take care of, the stigma attachted to that just never goes away and must be disclosed. I actually would buy a home with foundation issues before one with a mold problem. A foundation issue is usually fairly easily taken care of and if planned for in the renovation process and purchase price of the home, can still be lucrative.
@Brandon Turner, If I am looking at properties and notice the ridge beam sagging I usually run the other way. Also I am not a big fan of properties with multiple additions that don't meet up correctly/ different floor elevations/ roof lines, etc. Also, homes built without enough crawl space to get in and inspect. Flood plain properties. Almost anything can be corrected but I am much pickier now that I was 15 years ago. If the price was right I would tackle anything. Now I look for cosmetic flips and same with my buy and holds.
Quick story (big mistake on my end) referring to foundation issues. I have looked at hundreds of properties, built and remodeled many homes. This past October I found a home being auctioned at the courthouse steps. I knew the area well and it was a great deal. I hurried through the home and it looked great. Full basement, story and a half, with ARV of $139,900. Purchased the home for $27,500. Went back to the home after the auction and noticed one of the walls in the basement was leaning in and cracked badly. I had to have a structural engineer come in and make recommendations. Then ended up having to pour a 12" concrete wall against the original block, adding and additional $7000 to my rehab. Luckily there was plenty of room in the budget for my mistake. I got a little off topic but it's important to realize no matter your level of experience, mistakes can still be made. Hope this helps someone. Good luck with your next book. Use my story in lieu of a copy :)
There aren't many property conditions that can not be cured, if you have enough money to cure the problem. What you won't be buying is a property held by an owner with a revisionary deed that after a period of time or upon death reverts back to the grantor, or a restricted deed that may revert back upon some future occurrence. Such are not marketable.
Contaminated properties are high on the list to stay away from, environmental issues can be very expensive to clean up.
In Florida we have the famous "chinese drywall" houses. Once they have this issue, even if mitigated by a licensed contractor, they still must have this disclosed upon sale or transfer. To my knowledge, that never goes away. I won't buy one that has or had that issue and I know other investors that won't as well. These are tagged for life. The other "problem" properties are ones that won't pay me to own them!
I have, but will not again, buy a property that has had substantial improvements done by the homeowner. Too many surprises with work done that would never meet anyone's idea of code.
Well @Skyler Smith do I have an opportunity you will just love ....
Last month there was a fire in a building behind our 5-unit. It turned out to be arson - revenge on a tenant (go figure) - but when the fire department was examining the integrity of building once the fire was extinguished, they found a body in the attic. The body was un-related to the fire and the poor fellow had been there for nearly five years - corner says he died in June 2010 (suicide was the cause put forward) and somehow none of the tenants smelled the decomposing body during that first summer.
I promptly called the owner and offered to buy the property - hoping it was sufficiently damaged to warrant a teardown. We are now negotiating.
While most things about the property itself (mould, asbestos, death, etc) - short of a grow op or meth lab - can be addressed, we cannot as readily fix neighbourhoods. There are some that we will simply avoid.
There are several 'red flags' that most everyone will avoid when it comes to buying properties. Things like mold or foundation issues will generally keep most seasoned investors away. I have one rule that is first and foremost for all properties that I am considering for purchase. That rule is I do no want to buy anything where I can not physically go and see the property for myself. Properties out of state or even several hours away make it so that at any given time I am not able to go and see what may be going on. I do not like the idea of having to depend on someone else to tell me what is going on with my investment. I know that some use the diversity approach to buying properties so that they do not have all their eggs in one basket. I prefer to have all my eggs in one basket and be able to watch that basket very closely.
Savvy real estate investors often like to buy properties that have problems, which can help us snag a great deal. However... not all problems are good.
What are some examples of "problem properties" you would never want to buy?
For example, I don't want to buy a property with a major foundation issue. I don't want to buy a property with a "problem neighbor."
What else?
(I might use your answer in an upcoming book for BiggerPockets!)
Careful in selecting properties in non-conforming neighborhood.
I just bought a 4 unit building. I had one squatter in a store. I had 4 squatters in the four bedroom apartment. Two of the residential squatters also had possession of another store. This was a foreclosure, so 7 John Does to evict. This could have been a nightmare. Lucky, the house had one boiler. The gas meter was supposed to be locked, but one of the John Does broke that lock off a year earlier. When i bought the building I called the gas company to get a final meter reading. They came to shut off the gas from the street. So no heat, no hot water. I was able to get them all out with $2200.00. The person in the first store agree to leave on there own. The 4 others just split the $2200.00 and they all left. One of the guy came back 2 days later. He need more money. Since we had a signed receipt from him. We escorted him from the building. He actually called 911. When the police, came he told them that we illegally evicted him. Once the police saw the receipt, they told him to go and not to come back.
You have to know the local area, or have a realtor in the local area that will tell you the truth about the area. Generally high crime areas are a problem even if it is a good deal. You will have difficultly attracting a good renter in a high crime area.
Also busy streets can be a problem for residential houses (SFR).
The other more subtle issue is over improving a house based on the neighborhood. This is easy to do if you are not careful. Do not put a tile roof on a house where all the houses have asphalt roofs.
A property with real and repeating flood potential.
Contaminated land. My aunt had an commercial property in northern NJ where the tenant dumped oil. Hundreds of truckloads of dirt later- it literally killed her and the heirs I think have walked away.
I like to stay away from arterial streets, even if the deal is fantastic. It limits the pool of potential customers too much (especially those with young children). I think this is what @MarkG16 was talking about.
We've got one property that has a really messy neighbor, and we regret it. In the future I'd pay more attention to the neighbors.
Asbestos I will take on, if it is siding, which is much, much easier to deal with.
Most of the above, plus title issues. Old quitclaim deeds piled on a contract forfeiture with 3 old land contracts not conveyed properly where one or more prior parties are now deceased. Check the title chain!
Loud, vicious barking dogs next door to the subject property. You know, when you walk out the back door the dogs try to chew through the fence to get to you!
Location location...I have many preferences and as I become more comfortable I can stick to them better. The most valuable commodity is not our money but our time and I'm a lot fussier now days. I have bought and fixed everything from houses over the lot line to hoarder houses to drug dens...own them all still and they are making money, but I don't want to do it anymore. Now I want mixed use or over 5 units brick, full basement multi-families facing a park or on public transportation with at least 2 good employers in the area. picky, picky.
I have to second @Michael Noto I hate parking issues. People get so upset about not being able to park it's not funny. I pass on all deals that don't have (or could be made to have) adequate parking.
Also, no board ups on the same block. They're magnets for trouble and insurance headaches.
Foundation in which no rebar was used. (Yes, we have that down here, it's rare but not unheard of.) You literally have to demolish the home. There's nothing you can do to fix it.
1) Desirability - If no one wants it, why should I?
2) Utility - If I can't use it as intended, what good is it?
3) Scarcity - too much competition means profit margin compression. Es no Bueno
4) Transferability - if I can't sell it or encumber it, that is a big limitation.
Now, flip these things around.
If you know how to fix these problems efficiently and economically, that's where the money is!
If not, refer or just move on. Amateurs try to solve unsolvable problems. Professionals know to utilize others' to monetize profitably rather than waste time keeping it all. 100% of zero = $-0-