When Not To Renovate
The Top Four Homes To Walk Away From
With so much written on how to renovate and so many new investors
starting up every day, we thought it would be helpful to offer some
suggestions on some of the projects many investors will want to avoid.
These guidelines are offered for the average real estate investor. There
are always exceptions and there are some investors who specialize in
buying properties nobody else will touch because they have the
construction expertise others lack.
#1 Damp Basements
In general avoid homes with damp basements unless you are clear about
the source of the water penetration. Sometimes damp in a basement can be
easily remedied by installing proper gutters, downspouts and even French
drains around the home. However, if the source of damp is from rising
ground water tables beneath the home there is very little that can be
done to prevent it. A sump pump can alleviate the problem to some extent
but with increasing concerns over mold we'd recommend being very
cautious around damp basements.
#2 Structural Damage
 Structural damage may
be evident from large cracks (over a quarter inch) in the foundation
walls. (Minor cracks are not typically evidence of structural damage).
Significant cracks in any wall or ceiling surface may be a sign of
structural damage caused by foundation movement. If in doubt we suggest
you consult a structural engineer as well as a home inspector (a typical
home inspector will highlight the problem but may not be qualified to
determine if it is structural or otherwise).
#3 Bad Locations
It may seem obvious but this one can't be avoided. Many novice
investors are attracted to homes in poor condition in poor locations
because they seem such a bargain compared to other homes in the area.
The truth is many of these properties may be overpriced based upon their
location alone. When it comes to remodeling a home the biggest factor in
determining the ultimate market value of the property after renovations
will be its location. You can make a terrible house gorgeous but you
can't change its location. A run-down property by a train line will
still be by the train line after it's fixed up. Stay away from
properties in bad locations; they take longer to sell and they
appreciate less that equivalent properties in better locations.
#4 Insect Damage
Minor insect infestations can be treated relatively easily and may
not be expensive to repair. However, the problem with insect damage from
Termites and Carpenter Ants is that most of the damage is done
below the surface of the wood and out of sight. Because of this, the
extent of the damage may not be known until you start tearing down walls
and ceilings and by then it may be too late.
 Termites typically nest
outside the home and forage inside the timbers of the property, carving
out extensive tunnel networks that can turn solid timber to dust and
eventually destroy a home. However, there are many varieties of termites
depending on where you invest, so be sure to research what types of
termites are typically found in your neck of the woods (check the links
below for pest information resources).
 Carpenter Ants commonly nest in woods near the home
and have satellite nests inside the home. They eat away at the timbers
from the inside to create their nests. Carpenter Ants commonly eat
through damper timber when building their nests.
Having a thorough pest inspection of any potential investment is wise
as is becoming familiar with the tell-tale signs of infestations
yourself. If you can't determine how extensive any insect damage is, you
may want to give the property a pass and move on to the next one.
How To Spot The Problem Properties
The more you look at homes (especially if you go around homes with a
licensed inspector) the more familiar you will become with the tell-tale
signs that the property could be one to avoid. Wise investors also take
time to educate themselves on what to look for. There is a wealth of
information freely available on the Internet to help you get started.
Taking On The Challenge
Even the problem properties can turn a healthy profit provided you
budget for the full cost of repairs up-front and you are able to
negotiate a purchase price that has room for you to make a profit. Some
problem properties couldn't be given away and be worth fixing, but the
land the property sits on may be worth investing in if you have the
timeframe and budget to redevelop it. |
