Termite Damage - Should You Take on the Unknown Repairs?

3 Replies

I've made an offer an a single family investment/rental property in Massachusetts.  We plan to buy and hold and rent it out for 5+ years at least.  The inspection revealed termite damage that may require the entire sill to be replaced.   The sellers are offering us a credit on the purchase price, but will not fix damage themselves, nor will they allow us to conduct our own estimates with our own contractor.  They have provided the termite report, and shared what the suggested remediation is (but even that report admits that they cannot see all damage until siding is removed).  So here's my question:  While risky (considering we can't be sure the extent of the damage), the numbers still work for us.  We will have to invest more capital than we originally planned to fix the damage, which will lessen our ability to re-invest in other properties, but the cash flow and rate of return on the property still work even if we estimate out what we think repairs will cost.  So what would you do?  Take on the risk considering the numbers likely still work?  Or, avoid the unknown of possible pitfalls and further unseen damage that we'd be taking on, and save the capital for another investment?  I've read some blogs and done some research on repairing termite damage (particularly replacing the entire sill) and unfortunately the feedback varies wildly from "absolutely walk away" to "it's not that big of a deal".  I'm interested in hearing from investors on this...

I would talk to several different contractors and get a "worst-case" scenario. If your numbers still work, I would probably go for it. Be honest with yourself and you should be fine.

Had a property with termite damage and had similar situation with not knowing what I dont know unless I opened up the walls. We imagined that the sill might need replacement, but there is more to it as that is not the only thing that can be damaged by termites. You need to budget the rehab project for worst case scenario and it still needs to work with that rehab cost or you risk going over budget. On one wall, we needed to replace the sheathing under the siding and re-wrap with tyvek. We were able to reuse the vinyl siding but you have to assess and consider cost of new siding. Then we had to replace areas of framing on interior and rebuild the window framing plus repair the aged window, but you might need to consider new window as well based on how many on that wall. then drywall and any other infrastructure that needs to be done on that wall: electric plumbing, etc. that affected wall had plumbing so new code dictated double wall with insulation on outer most wall which added additional cost. termite damage went as high as the roof truss and I needed to replace a beam, but luckily above the bottom beam was the only affected area. You should be allowed to have your contractor do a walkthrough and at least measure and estimate for this worst case scenario so you can determine if its still worth the effort. If you cant be allowed back on site for more walkthroughs or understand the true possible costs of rehab, then I would skip.  I underestimated my rehab despite knowing about termite damage and went over by 20k due to more than expected damage and cost to repair.

@Chris Furcolo When a seller refuses to allow your contractor in, I get very nervous.  It makes me think that they're hiding something - and maybe something big.

My response to the seller would depend on the strength of my negotiating position.

If it's a property that has been hard to sell, or if the seller is under some kind of pressure, you probably have the upper hand in the negotiations.

If that is the case, I would counter, stating that unless they allow you to conduct a full inspection, you are out of the deal.  (Presuming that you're still within your due diligence period).

If you're getting a killer deal that you don't want to walk away from, I'd be inclined to go with the @Nathan G. solution and talk with a couple of contractors.

FWIW, I never want to seller to make the repairs.  Their motivation is to do the job the cheapest way possible.  I'd much rather have a price concession and have the buyer get the work done themselves.

If you want to shoot me the address, I can tell you how many days it was on the market, vs the average for the area.  I can also tell you the market history.

That may give you an idea of who has the upper hand in negotiations.

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