Home Inspector vs. Flipper BEEF! (with pics!)
Hello BP world!
I have been considering writing an article on this topic for some time, so here goes.
Full disclosure: I am an active real estate investor who has performed various flips and I own some rental properties. I work full time as a licensed home inspector and structural engineer in the state of NJ. I have performed over 800 home inspections over the last 5 years and over 200 structural evaluations.
The BEEF: Quality of flipped properties
About 15-20% of the home inspections that i perform are on houses which have been flipped by other real estate investors. I have seen a fair share of quality flips, however, a lot of them are JUNK! I honestly feel like some of the homes become worse after some of these investors/contractors perform the renovations. The problem is, other than permit approvals from the township (which most of the time are not obtained), there is no one other than the home inspector checking the work that the investors/contractors are performing. I find that most of the flip remodels consist of kitchen, bath, flooring, and paint, while the big ticket items that actually improve the quality of the home and prolong the life of the property are ignored such as roof, structural, mechanicals, and hidden items in crawl spaces and attics (water penetrations, mold, termite, etc). I would say that deals fall through on about 50% of the inspections that i perform on flipped properties because of these big ticket item being neglected by the flippers. Often times, when i find that the big ticket items are skipped over, the quality of the finishes is also poor and in turn is a reflection of the investor.
The purpose of the post is not for me to rip other investors because of the things that i've seen as a home inspector. The purpose of this post is to promote quality renovations and bring to light some of the big ticket items that flippers should be aware of and sometimes skip over (maybe on purpose / maybe not). I think a big reason why flippers get a bad rap is because these major items are neglected by the flipper. In addition, i want to stress the importance of due diligence to other investors when they're buying homes to flip. I do realize that some of these defects that i have listed below may have been concealed or unknown to the investor/contractor who performed the flip. Either way, it puts the flipper in a bad spot because the deal may fall apart due to these big ticket items and they will incur major repair expense OR the buyer may incur major expenses after purchasing the home if they aren't found in a home inspection. Lose lose situation for everyone. I understand that flippers are in it to make money, but often times the quality of the flips is significantly compromised because corners are cut to increase profit. This is where morality and ethics come into play, which i will not discuss in this post.
Conundrum that comes along with being an investor AND Home Inspector: As an investor who wants to perform a quality renovation and provide a new homeowner (many times first time home buyers) with a property that will last for the next 20+ years, the profit margin needs to be at a point where i can make a respectable profit. The problem is, i am getting out-bid by investors who's renovation budget is significantly lower because of the low quality of work and ignorance to big ticket items. Therefore, they may be willing to pay $20,000 more for a home than i would, not knowing that the property needs a waterproofing system and mold treatment, or has an underground oil tank, or has termite damage, or ignores the 25 year old roof, water heater, and furnace.
Side note on permits: I advise every investor to have their contractors pull required permits during a renovation whether you're flipping the property or keeping it as a rental. Permits may cost a few extra bucks and may prolong the reno process, but if you care about the quality of your properties you want the contractors to do things up to code. Therefore, permit approvals from local construction officials will improve the quality of the rehab because they are checking up on the contractor as needed for permit approvals. In addition, for a flip, providing the buyer with the permit documents will show that you have are being proactive and doing things legally which will lead to less skepticism during the home inspection process and ease the mind of the buyer.
I have included below some major defects that i have come across while inspecting homes, which i think are of importance for flippers to be aware of.
1. Roofer installed a third layer of shingles over two existing layers. In NJ, you are only permitted by code to have up to two layers of shingles on the roof. Per request of the buyer, the investor ended up tearing all three layers off (including a brand new layer) and installing new. It is possible that the investor may not have known and roofer just went up and added an additional layer without mentioning that two layers exist. Maybe the roofer was at fault here.
2. Major squirrel infestation in the attic - in this case, the investor was flipping a previously bank owned property which sat vacant for a couple years. Squirrels chewed up the wiring and insulation throughout the attic space. Nesting and contaminated insulation throughout the attic space had to be completely removed and properly treated before new insulation could be installed. Gaps in and around the gable and soffit vents had to be sealed to prevent the squirrels from returning. In addition, all of the chewed wiring had to be replaced. There was a live squirrel (not pictured) in the attic when i went in.
3. Covered asbestos shingles - often times, it is acceptable to install new vinyl siding over old asbestos cement siding. However, if the wall sheathing of the home consists of pressed particle board (not referring to OSB) or exterior grade gypsum board, the nails for the new vinyl siding break the asbestos and blow out the sheathing. The nails come loose and the vinyl siding is falling off. For ease of understanding, imagine nailing siding into sheetrock.
4. Missing foundation - in this case there was small laundry room addition on the rear of the home which was built via DIY project long before the investor bought the property. The 6'x6' addition was originally built over a brick foundation which was simply resting on the soil. Instead of properly installing a new foundation, the investor simply removed the failing bricks and stacked up pressure treated 2"X4" on the soil under the exterior walls of the addition and enclosed the sides with plywood to cover it up.
5. Mold inside return bays - in this case, the home sat vacant for some time and mold grew inside the first floor ceiling joist bays. When the new HVAC system and duct work was installed, some of the joist bays were used as return ducts. However, the mold was not remediated beforehand and now conditioned air from inside the house is passing through moldy return bays.
6. Broken and / or clogged sewer lines below the floor in the crawl space. This condition is obviously not something that is in visible sight as the pipes in this situation are below the dirt floor in the crawl space. However, investors should be aware of the piping materials and consider having a plumber out to scope these pipes prior to buying. In the photos below, the sewer pipes consisted of galvanized steel and cast iron, both of which were cracked or broken under the dirt floor of the crawl space and causing sewage to leak into the crawl space.
7. This may seem petty but is so easily avoided. A french door refrigerator was installed against a wall and the freezer door opened less than half way.
8. Newly installed HVAC system without permits - dual zone heating/cooling was installed and the two condensers at the exterior were installed too close together. The industry standard requires the condensers to be a minimum of 12 inches from any wall and minimum of 24 inches from each other in order for the hot air to properly dissipate in the summer season. Without proper spacing, the energy efficiency is significantly reduced as well as the life expectancy of the condensers. Township official would have failed it during inspection if permits were obtained.
9. Defective chimney structure. To state the obvious, the photos show the loose sleeve and cap at the chimney as well as the defective stucco covering. Side note: this was a very expensive home, just under 7 figures.
10. 3-5 inches of standing water in the driveway. Needless to say, there was water in the basement, part of which was finished.
Thanks for reading and looking forward to some feedback!
Justin Eaton