Foundation issues on on BRRRR!

16 Replies

Hello fellow BRRRR people! I am looking at a house right now and all the numbers line up but it has some significant foundation settling. My biggest fear is that I go through the process of repairing but then a lender won't lend due to the foundation. Has anyone had any experience with this? Thank you in advance!

@Stephanie Kern , I don't quite understand.  Do you need a loan to fund the property purchase and/or repair of the foundation?  If so, then yes, you'll have to get creative since typical lenders don't want to take the risk.

Once your repairs are complete and you're trying to Refi, the appraiser's report should reflect that there is low/no risk with the property's condition. Typical lenders won't look back at a property's repair history. Hypothetically, if a lender wanted details about the foundation repair, you would provide evidence in the form of an invoice, green tag, and engineering report. That should be enough to close the inquiry and move forward. If not, find a new lender.

where is it.. some areas of the country are notorious for foundation issues.. Also once corrected should not be an issue going forward.. virtually every flip we did in and around Dallas we got the house because it did have foundation issues in that area it seems like to me its not if  but when your going to have to deal with the soil and cracks in foundation.

@Brit F.  My intention is to pay cash for the house and renovation, place a tenant then go to the  bank and get a loan, putting my money back in my pocket.  I just don't want to spend all this money just to find out the bank won't loan due to the foundation.  My budget includes foundation repairs and of course I would have the work done and inspected by a pro.  I have just never delt with foundation issues at all!

Originally posted by @Jay Hinrichs :

where is it.. some areas of the country are notorious for foundation issues.. Also once corrected should not be an issue going forward.. virtually every flip we did in and around Dallas we got the house because it did have foundation issues in that area it seems like to me its not if  but when your going to have to deal with the soil and cracks in foundation.

Hi Jay!  I am a former Portland resident myself...man do I miss it!  Anyway, the house is located in Nevada about 2 hours outside of Las Vegas.  The area is not known for shifting foundations (at least to my limited knowledge) but I have never done a project with any foundation issues and I am very hesitant.  I would hate to turn down an excellent opportunity due to fear so I am trying to gather as much information as possible.  At what point is a foundation a total loss?  

 

Originally posted by @Stephanie Kern :
Originally posted by @Jay Hinrichs:

where is it.. some areas of the country are notorious for foundation issues.. Also once corrected should not be an issue going forward.. virtually every flip we did in and around Dallas we got the house because it did have foundation issues in that area it seems like to me its not if  but when your going to have to deal with the soil and cracks in foundation.

Hi Jay!  I am a former Portland resident myself...man do I miss it!  Anyway, the house is located in Nevada about 2 hours outside of Las Vegas.  The area is not known for shifting foundations (at least to my limited knowledge) but I have never done a project with any foundation issues and I am very hesitant.  I would hate to turn down an excellent opportunity due to fear so I am trying to gather as much information as possible.  At what point is a foundation a total loss?  

Get two or three foundation remediation companies to bid on it..  also talk to a very good and experienced broker in the area they will know.

is this up the 15 towards Utah ?

we became Nevada residents last year.. so we do the snow bird thing.. summer in Portland and winter in vegas 6  to 7 months there rest of the time here. 18 years of NW winters I have had my fill.. although Vegas is not that warm in the winter but at least the sun shines.. 

 

@Stephanie Kern I purchased a house last year that had a collapsing front porch due to eroding support, collapsing back end due to the ‘foundation’ being built without footings, and some cracks in the rest of the foundation. Knew it going in and budgeted for the repairs. Pulled permits, got it done right and had no issues with buyer financing.

It's located in Pahrump, NV.  I will watch and see what happens with this house but I think it's not for me.  It is already at the top of my budget and if anything really terrible comes up with the foundation then I might be in trouble. 

Hello Stephanie, not sure if this information will be helpful since you have decided to pass on the deal. I am not sure who your refi lender is, but I have not had an issue with refi on any of the properties that I have BRRRR'ed. Typically the lender just sends a appraiser out to do the appraisal and I provide the lender with the rehab sheet as a reference for what was completed, (foundation repair is disclosed on the rehab sheet). No issues have ever come from the lender.

Anyhow, there are two very important thing that you should be concern about if the house does have foundation issues. First, is whether or not the foundation issue has caused damage to the house in ways you can not see or cannot identify without extensive investigation. (i.e. broken or crushed cast iron drain pipe, structural framing issue, etc.). Secondly, if not repaired properly and you decide to hold property for a long time (+5 yrs). You might have to revisit the repairs again, if not done correctly.


I can give you two pieces of advise as a real estate appraiser (my full time job) and real estate investor. First, as an investor (rental) have the foundation inspected by a general contractor and get an estimate to repair. If it sounds significant then have another contractor look at it along with a structural engineer if need be. If its a few thousand that you can roll into repair costs then no big deal. Now here is the biggest most important question, are you holding this property for long term or renting and then flipping quick after a few years.


Your statement which says "My biggest fear is that I go through the process of repairing but then a lender won't lend due to the foundation". Well to answer this, a lender can not deny you if there is a foundation issue because they will never know unless you stand there pointing it out to an appraiser. The appraiser is the EYES AND EARS of the bank so when appraiser arrives hide the issue and don't say a word. Majority of appraiser's 

1) Can't identify a foundation problem if the foundation fell on them lol

2) Wont disclose something observed with the foundation since a foundation inspection is far beyond the appraiser's scope of work and expertise in order to produce credible assignment results per USPAP

3) Somehow if they find out from you or god knows where that there is structural damage, it will be dismissed if you can show it was repaired if you do decide to repair it

4) I know long term BRRRR investors that buy homes with foundation damage all the time with the intent to hold for long periods of time and address it later on....

5) If you plan on flipping to an end buyer soon then this can come back to bite you. If you purchase a property with foundation damage and ignore the issue but rehab the rest of the house you could be setting yourself up for a disaster. An end buyer can come in the home fall in love, order a home inspection to have the inspector fail and call out the foundation damage. When this happens there is a chance that buyer could back out and you will either have to lower price or get it repaired.

6) If flipping address issues ASAP

7) If buy and hold you can still get a loan when you refinance or purchase and address issue whenever


Hope this helps

Stephanie,

I am familiar with the property that you have posted. This would be an extreme expensive to repair the foundation on that property . Although the MLS states that the property was built in 1979 and further settling is unlikely I would be wary of that claim. I have in the past purchased numerous homes in Pahrump that have had foundation issues, mostly from banks, and sold them as tear downs. All of the homes in Pahrump built before 2002 were not subject to building codes that required soil samples and engineering report. The reason the foundation is sinking is unstable soil and have the foundation repaired will be a temporary fix.

Don't look just walk away from it. Even if you resurface all of it it will deteriorate. When the next buyer finds out you did not disclose it the lawyer will go after you. If you disclose it they want a guarantee and low ball your defected home. Liquefaction zone...

Originally posted by @Andrew Ace :

@Jay Hinrichs how successful have you been with repairing foundations on those renovated properties? What types of repairs are they doing to secure the foundation?

from my standpoint in the markets in texas i worked in it was not if but when your going to have to deal with foundations.. 

many of the older homes they cut corners everywhere there is a reason they build and sell so cheap..

 

@Jay Hinrichs got it. Thanks. Have there been any learnings based on your experience of a rough year cutoff for when you have higher probability for foundation issues?

I tend to look at grade of the property, proximity to flood zones, and current general condition. Are there other factors that you check in addition to these? Thanks.

@Angelo Mart Good info, thanks for sharing. Question: do appraisers typically read the current (or past) listing descriptions for properties they are appraising? If foundation issues are not apparent, but the listing description states that foundation issues are present, I'm wondering if an appraiser would see that or not. 

Originally posted by @Larry Barrett :

@Angelo Mart Good info, thanks for sharing. Question: do appraisers typically read the current (or past) listing descriptions for properties they are appraising? If foundation issues are not apparent, but the listing description states that foundation issues are present, I'm wondering if an appraiser would see that or not. 

If it is stated in a past mls listing the appraiser could question if the new investor has repaired this issue or use that info to justify the variance between the prior low price and current higher appraised value. Overall, it is beyond the appraiser's scope of work or expertise to mention a foundation issue without a proper report from a structural engineer or contractor

 

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