5 Red Flags When Buying a Fix & Flip Property
Knowing what red flags to watch out for when searching for a Fix & Flip property can help you avoid unanticipated costs and even a possible flip bust. Here are 5 tips to keep in mind when looking for your next project.
- Concerns with the property’s title report
A title search can give you the information you need to make sure you have a clear title when purchasing your investment property. There are some rather common issues with title and it’s important to know what to watch out for. Errors in public records can cause issues with the title, as well as administrative or filing errors. It may sound obvious, but a seller can only sell the rights they own to a property. Sometimes the problem comes down to more than one property owner. For instance, multiple heirs can inherit a property, and one seller may not have the consent of the other heir(s). You must also watch out for liens, judgments, or bankruptcies which may affect the transfer of a clear title of the property to you, the buyer. It’s also good to note any potential restrictions or allowances on the property that could affect your rehab plans or ability to flip. Other issues like boundary disputes with neighbors could also create setbacks in buying the property.
- Improvements with no permits
The state of California has stricter home improvement contracting laws than some states and are intended to protect the consumer. If the property has improvements without the permits, it could end up costing you additional time and money. The improvement could be constructed in a manner that is not up to code, unsafe or perhaps illegally, putting up a roadblock in your project. For example, if a previous homeowner added an additional room unto the back and it is not permitted, then that additional square footage would not be included in the appraisal of the property – potentially affecting the resale value of the home as well as insurance coverage. If you are looking to buy a property with an ADU, you want to make sure that it is a legal addition. You can often times get permits after the fact for an unpermitted ADU but it will cost you extra time and money. To read more about ADU’s read here.
- Moisture leading to possible mold issues
Moisture can cause a variety of issues, all typically bad for properties. Moisture breeds mold which will need to be removed from the home. Mold can even be dangerous and cause serious health issues. Moisture can be an issue particularly near the ocean and large bodies of water where if not properly ventilated can cause mold to form. Other factors like a home flooding, foundation dampness, or a damp basement can also be sources of water to create a moldy environment. Make sure to take a look around and look for any signs that mold could be a potential issue. Also look out for any warping or water-related damage that has a high chance of having created a mold issue.
- Asbestos is present
If you buy a house older than 1980 than it more than likely has asbestos in it. This is really only an issue if you plan on doing remodeling that disturbs the material that houses the asbestos and prompts it to aerosolize. Once this happens it can be extremely hazardous to human health. For detailed information on asbestos from the Contractors State License Board click here.
If the property you’re renovating does in fact have asbestos, account for the time and money for its remediation.
- Pests and possible infestations
Clearing out unwanted pests and infestations is another factor that can cost you money and time. The last thing you want to do is tent a property for termites and fix costly wood damage. You want to make sure you have accounted for the pest removal and damage in your budget and project timeline. Sometimes there is no way to know until you have already bought the property, but there are some signs that you can look out for. Look for pest droppings, holes around the property, dead bugs inside, unusual smells and sounds, mud tubes and other termite signs like blistering wood, and even odd sawdust piles that could results from wood destroying pests.
These are just a few major red flags to watch out for when prospecting new flip projects. No one red flag means it should be a deal breaker, but it could impact your budget and profitability. For more Inspection Tips & Tricks for Your Real Estate Investment property click here. https://pivotalcapitalgroup.com/2019/05/29/inspection-tips-tricks-for-your-real-estate-