It’s a well known fact that because of their age, when you buy investment property of pre-owned homes it may come with at least one, if not more, significant issues. This is the assessment of reputable home inspector, HouseMaster that operates in over 390 cities across the United States and neighboring Canada.
The CEO and president of HouseMaster, Kathleen Kuhn, suggests that when looking for a piece of property based on pre-ownership, repairs and maintenance are to be expected. However, she advises that before you put your money into the deal that’s previously owned, you should know what the issues are with the home, and what the costs will be to address the problems.
Based on their own experience of inspecting over a million pre owned homes, on behalf of the prospective clients, HouseMaster suggests you consider the following before you make your final decision:
- A heater exchange that’s cracked
- A failing compressor in an air-conditioning system
- When you consider a prospective piece of land, look for hazardous conditions such as asbestos, leaks in underground storage tanks, lead paint
- A basement that has mold or moisture
- Roofings and flashings that are defective
- Signs of rodent or termite infestation
- Plumbing that’s of mixed vintage and models
- Aluminum wiring
- Cracks in horizontal foundations are not a good sign.
- Significant settlement of the house
- Electrical systems in the home that seems under-specd
- Separation or settling of the chimney
If you choose a home with any of these issues, most are fixable according to Kuhn. However, when you are in the process of assessing a property that’s pre-owned, consider what the costs are to fix the issues. Repair costs, especially for major systems and utilities can be a big factor for those wishing grab on to a previously owned land.
To give you a rough estimate of the costs to buy investment property based on pre-ownership, fixing a leaky roof can set you back several thousand dollars, as can doing up a wet basement. Budget anything can be anything from $1,000 to $1,500 for a new A/C compressor.
A reliable agent, helping you understand the value of pre-owned homes, should insist on clauses in the agreement that allow you to reconsider your offer, or even your decision to purchase, if significant issues are uncovered during a home inspection.
Speaking to investors looking into pre-owned homes, Eric Tyson and Ray Brown note in their book, Home Buying for Dummies, that reconsidering or renegotiating the deal does not arise if no significant issues are uncovered.
However, as the book points out, if you are prepared to invest and your inspector does stumble upon serious deficiencies in the pre-owned home, such as dry-rotting or termite damage, that could cost you significantly as compared to the overall price tag. That’s the time to re-negotiate to cut down the rates a bit.
The authors of the book propose several alternate ways to proceed into a contract that might have major deficiencies.
- An escrow with sufficient funds could be set up by the seller, giving instructions to pay the contractor of the party interested in the piece of property with major noticeable issues.
- A passbook savings account can be used to hold a portion of the loan by the lender, which can then be released once the work has been completed to the satisfaction of the interested party.
- If you still wish to invest in the prospective home where significant remedial work is required, the seller could offer you a credit on the listing price. However, financial institutions usually frown upon such arrangements because they lack sufficient guarantees.
When you out hunting for a piece of property, it is necessary to hire a professional home inspector. He/she may charge you between $300 and $500, depending on the complexities involved in the inspection. Verify their credentials with institutions like the American Society of Home Inspectors or the American Association of Home Inspectors before signing them on. It’s better to use referrals from friends or relatives for a good home inspection service to snatch the property into your investment basket.
When you are prepared to invest your money in a piece of land, make it a point to be around during the inspection as this will give you an opportunity to inquire and learn about various aspects of your new investment. Asking pertinent questions during the inspection is also a great way to become knowledgeable about any potential future issues you may face when you buy investment property. As the folks at HouseMasters suggest, a home inspection is the best way to ensure your final decision is based on sound judgment, rather than emotional attachment to the property.