With literally thousands of foreclosed homes still on the market, real estate investors are snatching these homes up at record pace. Unfortunately, the vast majority of these foreclosed homes are in pretty rough condition and need extensive work. That is primarily why they are being sold at such bargain prices. Real estate investors typically purchase these homes at rock bottom prices (many times sight unseen), rehab it and turn around and sell it for profit to you the homebuyer. So what exactly are you getting when you purchase a “flipped” home? It is very important for you to remember that the entire purpose for investing in real estate is to make money. Investors are typically not concerned with the safety and well being of you and your family. They are most concerned with how much profit they can make on their investment. They will typically cut corners any way they can to make that profit, even if it is at your expense.
As a home inspector, I have inspected many homes that have been flipped by investors. There is a very common scenario I see that plays out in almost every home I have inspected that is being sold by an investor. Investors are very smart and know exactly what the majority of people are looking for when purchasing a home. Fresh paint, new carpet, tile, countertops, cabinets and sometimes even appliances. Can you see the common denominator? If you guessed aesthetics, you are correct. It is very easy and relatively inexpensive to make a home “look good”. Sadly, most homebuyers write up an offer on a home based strictly off of their first impression of the home. That is where the common investor has your number.
You have no doubt heard the expression “Lipstick on a pig”. This is a very common phrase used in the real estate industry, and for good reason. Most homebuyers spend approximately twenty minutes or so walking through a home prior to making an offer. At best, this provides a general impression of the overall cosmetic condition of the home. But what about the foundation, grading, electrical system, plumbing, heating and cooling systems, attic construction, insulation, ventilation, and roof conditions? Ah yes, the big ticket items that most people do not think about or even look at when walking into a home that is being flipped. The most common thought that occurs in most peoples mind is that the home looks so nice, everything must be new. Even real estate agents unknowingly add to this perception when writing up their description of these properties in their listing. They will say something like “Simply gorgeous turn of the century home. Completely remodeled inside and out. Ready for you to move in and make your own. Everything is brand new. The only thing this home needs is you.” That was taken from an actual listing here in town. It is no wonder that a home buyer would naturally assume that the home is in perfect condition. Unfortunately, this is not the case with the vast majority of flipped homes. The reality here in Indiana as well as other parts of the country is nothing like the house flipping shows you have seen on HGTV. Far from it.
While every homebuyer wants the home they are looking at purchasing to “look nice”, it is far more important that the major systems and components of the home be in newer, good working condition. Most investors will not, and do not pay any attention to these big ticket items, as they are the most expensive items to repair or replace in a home. They will always cosmetically improve the home and then stop. I have literally inspected hundreds of homes that were falling apart amidst the new carpet, tile and countertops, brand new light fixtures and ceiling fans installed on ceilings that were ready to collapse, freshly painted walls that were a feeble attempt to cover up moisture stains, mold and termite damage, brand new kitchen cabinets installed right over wet and moldy drywall, brand new carpet and tile installed right over rotted subflooring. The list goes on and on.
So what are some of the things you should really be looking for when searching for a potential home? Very simple, do not concern yourself with walls that need paint or flooring that is out of date or stained. Cosmetic items should be the least of your worries. Look instead to the big ticket items. Ideally the furnace and A/C unit should be less than 10 years old. The water heater should be new to no more than 5 years old. The roof should be no more than 10 years old (this includes the gutters and downspouts). If the home has a crawlspace, it should be relatively clean. It should have proper ventilation, a vapor barrier and have no evidence of water intrusion. The supply plumbing should be all copper or PEX piping. The waste lines should be PVC or cast iron. The grading of the home should slope away from your foundation. The attic and basement should have proper ventilation to prevent high humidity levels which make for conditions conducive to mold growth. The electrical system should be 200 amp service to accommodate today’s growing home electrical needs. These are just a few of the many considerations to take into account when looking at a potential home. It is important to keep in mind that cosmetic items such as carpet and paint cost only a fraction of what the major systems and components in a home do.
So what can you do to protect yourself from purchasing a potential “flipped” money pit? The most important thing is to be realistic in your expectations when looking for a home. No matter what the description says or how cosmetically pleasing the home may appear, no home is perfect. The number one way to protect yourself is to hire a professional home inspector to inspect the property prior to closing. When making the initial offer on the home, make sure you add an inspection contingency in the agreement so that in the event that major deficiencies are found, you can turn and run. Do not assume for one second that just because everything looks good cosmetically that the home is in good condition and doesn’t need to be inspected. Real estate Investors and sellers alike can be very clever in the ways they hide major flaws and deficiencies. Do not assume that everything you read on the sellers’ disclosure list is gospel. It is a sad reality that in todays economy, people will do almost anything for the almighty dollar without a conscious. A home inspection is the #1 consumer protection service available. A $300.00 home inspection could save you thousands of dollars in the long run. I see it every day.
Be careful out there.
Mike Chamberlain, Owner
IN. Lic# HI00700108
MICP, CMI, CRT, IAQCP
MC² Home Inspections LLC