Friday, December 20, 2013

What's the difference between a major real estate fixer upper and lightfixer upper?

When looking at houses we always have to ask ourselves what is our comfort level? What is the difference between a major fixer and a light rehab project?  For example a major rehab would be a project that has foundation issues or where all electrical needs to be replaced.  A light fixer maybe something where we only have to replace kitchens cabinets, minor carpet and paint.  The real struggle comes from actually being able to inspect the property properly and not getting stuck with a major real estate fixer when we are expecting to only buy a light fixer. 

This was a light fixer near El Monte, Ca

The first step is obvious; bring your contractor.  As we know contractors can be flaky and sometimes when you set an appointment to view a property and the contractor doesn't show up, you don't always have another chance to view the property.  Setting another appointment may end up having you lose the deal to another Investor who is more prepared.  So as real estate investors we must become good at being able to inspect our own properties. 

Here are some tips on how to prevent yourself from buying a house that you think is a light real estate fixer and ends up being a major fixer: 

1.)  Most houses that you visit that are light fixers may not have electricity or water running at the time and this can cause a problem during the inspection.  Electrical and Plumbing should be one of your biggest concerns because this could end up being one of your biggest costs in the project.  To make sure that the electricity is working if no power is available look for signs that the wiring has not been torn out or vandalized.  The house that has been secured is most likely to have working Electricity.  Electricity and wiring typically do not break down except by normal wear and tear.  So it's typical to expect that some electricity may be bad with normal wear and tear but it should not be a complete rebuild of the entire electrical system.  The only time this is the case is when we are dealing with a rehab that has gone bad or vandalism. 

2.) Another big factor in inspecting the property is checking for water damage. Some homesellers will try to cover up water damage with paint.  It is still possible for you to see the water damage below the new paint by looking very carefully and looking for dark spots.  Try to pound on the walls and see if they feel soft, look for spots where the paint job may have been sloppy.  In these sloppy spots try to look for water spots or dark patches. A bad roof will also tell you that it's possible that there is water damage somewhere in the house. Check under sinks and see if there's any noticeable water damage under the sink.  A wet sink underneath me tell you that there has been water leaking in the past.

The Front of this house looked perfect but when we got inside it had no roof or guts.

3.) Look for foundation issues. Walk in the house and see if any part of the house feels like it's sinking on one side.  If one side of the house or the corner of the house feels like it is sinking or as you walk that part it feels like you are going lower, this may be a sign of a foundation issue.  Some investors will panic at the word "foundation issue" but obviously it is a very easy thing to fix and all it takes is money depending on how bad the foundation issue is.  There are times when a foundation issue can be fixed very easily and there are times where you don't need to fix the foundation issue at all.  You can contact an inspector and have them come look at the property.  If you are still fearful that it could be a bad foundation issue then have a foundation expert look at the problem spot.

4.) In California mold has been a scary topic when it comes to purchasing a house. The scariest part about mold is that it cannot be seen with the naked eye.  But you can still check for mold when doing a house inspection. One great indicator is water damage; if you find water damage than most likely you probably have mold.  Although mold cannot be seen you can smell mold and it will have a pungent and musky smell. If you can, while inspecting the house try to lift up carpets, look behind cabinets & refrigerators and go to places were its dark and damp. Look at exposed pipes and see if you see any mold laying on the pipe.  Try to pull back any drywall or check inside the ducks of the house.  If you think you have mold then you have no choice but to hire an inspector and have him run a mold test before closing escrow.

There are many other things that you need to check out as well, but this is a quick reference guide on how to tell whether something is a major real estate fixer or a light fixer.  I hope this helps you and as I mentioned at the beginning the article one of the best tips I can give you is to bring a licensed contractor to your inspection.  Once you have the contractor with you drain his brain and try to find out all you can about what to look for in the future. 

Happy Investing.

FHA Foreclosure are probably the next big thing.