Bidding on an uninsured HUD property - Inspection question

7 Replies

Hi, all.  Happy 2018!

I'm looking to bid on a property that is currently 30 days on market. Open to all bidders at this time. The home is uninsured and property disclosure states a failed pressure plumbing test and noting repairs that include plumbing, foundation, and wood rot (very vague/no specifics). The home was built in 1934 and is a 'non-contributing' property in a historic district. I understand as an investor that you lose your earnest money on HUD properties if you bail after an inspection. Also I would like to have a good idea of what exactly needs to be addressed and how much it might cost before even making my bid.

Advice on how to proceed with inspection? I know some companies offer free estimates so I'm wondering if it would be a faux pas to have a company do an estimate while I and the real estate agent are there? Or are there better ways to go about this?

Also, is it illegal or otherwise unwise to contact the previous (not current) home owner and ask about the property? I know who lived in the house before it was foreclosed. 

I am very new as this would be my first investment property. 

Any and all advice appreciated.

What exactly is a "non contributing" property? Will you be governed by a historic board? 

@Tanya A. Before spending time or money, I'd want to nail down the specifics of what being in an "historic district" means.  Some regulations can be onerous - enough so that good deals aren't worth the hassle.

If that passes muster, bring a contractor with you to look over the property. Not a faux pas at all - it's good business.

As to contacting the previous owner, I'm not sure how much help that would be, but there's no reason not to.

Good luck!

@Tanya A. A “non-contributing” structure in a historic district is not eligible for historic tax credits, but is almost certain to be governed by locality-specific historic renovation guidelines. Meaning, you still have to jump through a lot of hoops, but there is no tax incentive to do it.

And if you can glean any info from a previous owner you should try, nothing wrong with that!

As someone who has spent more than half of my life buying HUD homes, look at it this way. Assuming the property is over $50,000, $1000 in earnest money buys you 45 days to find out if the property works for you($500 if under $50). That is your max liability

The PCR- Not holding pressure could be as simple as a $10 shut off valve. HUD does not investigate the extent of the problem, just that it failed as pressure test. You cannot turn on utilities before having an excepted bid, so an in depth pre-inspection is not possible

No problem at all in contacting previous owners or neighbors.  I take neighbors info with a grain of salt because all of them "heard" something that is often inaccurate

Thanks everyone for the great feedback, especially with regards to getting a contractor out there and contacting the previous owner.  I feel much better about those decisions.  

I am absolutely trying to do due diligence on the historic district part. It's definitely governed by historic board, and I've reached out to them and am waiting to hear back.  I've gone through several minutes from their meetings and it does sound like they're fairly reasonable with approvals for repairs and upgrades on noncontributing properties so far (far greater approvals than denials), but I think I'll also contact some homeowners of the properties in question and ask for their opinion of the experience. My realtor also just sold a home in the district for a client and is going to help me connect with them as well. And I'm going to see if the board has any record of history on the property or previous requests for improvements. I don't know if they keep that sort of thing.

@Greg H. I've read so many of your posts here; thank you for replying.  I felt the pressure test probably could go that way as well - the wood rot also might be as simple as replacing a wood fence on the property which looks to be in very poor shape (that is, of course, if the historic board doesn't demand reclaimed wood from the exact same tree family, year, and location of the original property (yes, I've read that post, haha).  I'm mostly concerned about that foundation. 

There is one issue that's a BIG RED FLAG, however, which I unbelievably forgot to mention in my original post.  The property is on a nonconforming lot.  It's tiny and practically in the back yard of the property behind it.  It has alley access only, and I was deeply concerned about how to get equipment into the area if major repairs ever needed done.  In addition, my realtor just called and informed me that due to the nonconforming characteristics of the property, should 49% of the property be damaged in any way, the city would not authorize a rebuild.  You're left with an empty lot - and I reckon that probably means insurance issues as well. 

@Tanya A. The non-conforming issue may not be a big deal. Usually that means you can’t make any significant change, i.e. you can’t make a single family into a duplex, you can’t build a new deck, you can’t make it commercial or change the zoning, etc. You can only repair/replace what is already there.

And I’ve never had trouble insuring non-conforming properties, but you can confirm the specifics of your situation with a quick call to your insurance agent.

I will hire licensed inspector to do a comprehensive inspection of the property and prioritize the importance and repair cost. You get what you pay for it.

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