House inspection reports numerous problems, should I continue?

Question

I recently made an offer on a house that is listed for ~$65K, and the house is 90 years old. The inspection report came back with 24 issues under the actions needed list and it made me wonder if this something I should be concerned about. The biggest problems are outdated electrical wiring (no ground), mold in basement, home water pressure of 120 PSI,  improper drafting of flue gases, and the list goes on.

When you are looking at house inspections, what are some things you find that make you turn away from the investment?

In terms of rent, I could get about $700 monthly (2 bed, 1 bath). To make this deal appealing, what would be realistic offer for this house?

James Wise · Answer

$65k for $700 in rent is not great. You can do better. In many "turnkey" markets you should be able to hit $850 or so in rent for that price point.

Now that, that is out of the way on to your original question as they are really seperate issues. It's important to note 3 things.

1. The house is 90 years old. All houses, especially older ones will have many issues.

2. The inspectors job is to find issues. Any inspector can find a laundry list of issues in any house. Many are simple fixes.

3. The house in ONLY $65k. There will be no perfect house. If there ever was it sure as hell wouldn't be this cheap!

Clayton Mobley · Answer

@Michael Pearse I'll have to agree with the others here, this sounds like more work than it's worth. The only real potential upside here is if the neighborhood is highly desirable (like A class) - which means the lot is what you're buying, not the house. In that case, you could pour all the necessary money in to fix this junker up/gut it and start over and maybe re-sell, but that reaaaallly depends on the area, the market, and comps for the type of house you would be basically building from scratch in it's place. If you buy this for 65k (sounds a bit high unless, again, the area is highly desirable) and have to put in 50-100k to make it livable, could you get more than $170k to re-sell? Based on the laundry list of issues (mold in the basement? outdated (and possibly dangerous) systems throughout? oh lordy) and the very real likelihood of some other fun surprises as @Ralph R. mentioned, I'd say you're in for more than a few months of intense rehab work, some pretty high costs, and a lot of stress. If you don't have experience with this kind of inside-out  rehab (and a vetted team in place already), this might not be the place to start (as @Brandon Battle pointed out).

Again, if you're basically wanting to buy the lot because of the area, that's one thing. I don't know what market you're talking about (so maybe 65k isn't high for a gut-job? It would be here in Bham), but if you were originally thinking you'd go the low-stress turnkey route, I don't think this is property for you. It's so easy and tempting to buy things that seem cheap, but you often end up with a higher price tag after rehab if you don't already have a system/network in place to get things done in a time- and cost-effective manner.

My gut would say walk and look for something more in line with your goals. If passive income is what you're shooting for, this property isn't the one.

Best of luck!

Clayton

Michael Pearse · Answer

@Larry Fried Thanks for the input. I will keep my options open and see what grabs my attention.

Larry Fried · Answer

@Michael Pearse This is too low a rent for what you are going to have in this house.  Further it is likely to be a challenge to get reliable tenants that will take care of the property.  As Sean said, there are better deals to be found even buying from a turnkey provider.

Sean Tarpenning · Answer

There are much better deals in Kansas City for the rent to price ratio.

Michael Pearse · Answer

@James Wise I agree with you on the rent to purchase ratio, thanks for the feedback. True the house is old and naturally wanting to turn away from the property after getting the inspection report is likely common. I just don't see how this would be a smart investment unless it was heavily discounted to account for any fixes that would need to be addressed. Thank you for your input.

Michael Pearse · Answer

@Clayton Mobley Thanks for the detailed response. The area is around C class, which does not help at all. It would require some rehab due the nature of the house being so old. From a structural standpoint the house is in good condition and there are no major holes in the walls. I could only see this house being a good deal if I got a huge discount on the house. Again, thanks for your input.

Michael Pearse · Answer

@Ralph R. The roof is estimated to be 10 to 12 years old. Most of the appliances are relatively new (within 5 years of age). With the house being so old, I agree there could be additional issues behind the walls that the inspector didn't see. This may be a rehab house, and that was not my intention for this investment. Thanks for the information

@Brandon Battle My original plan was to get a turnkey property and no minimal work in repairs. Some of these issues will need to be addressed and may ultimately hurt the already low marginal profits. I may have to walk from this offer. Thanks for the feedback.

House inspection reports numerous problems, should I continue?

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