Mold in basement - what would you do??

Question

I BP! I'm actively looking to buy my first rental and found an off market deal I would like some advice on. The basement of this property has wood paneling covering the foundation and there is very evident signs of moisture and mold. I contacted a company that does foundation repair to see if they could go walk the property with me, but I'm afraid if I wait for them (1.5-2 weeks) the property might be gone. I am waiting for the wholesaler to get back with me as to when I can do a walkthrough. This property is in Indiana. I'm fairly sure this is a foundation issue causing the water/mold. The numbers seem to work (providing I calculated them right...just over 10% COC and cash flows over $230/mo.) See pictures below.....

What would you do? Thoughts and advice??

Kevin Sobilo · Answer

@Amber Titus, my guess is that there is no foundation issue. What you had was a homeowner issue.

Looks like an older home and back houses were not built with the intention of making basements ready to finish. Many people tried finishing their basements in old homes with varying degrees of success and eventually a LOT of them end up in the state you have in your subject home.

If all you intend to do is make it an unfinished basement space, you probably only have the cost of demo.

If you want to try to finish the basement again, then you will probably need to address the water intrusion and there are a lot of ways to do that. So, I would add an above average cost for that and see what the deal looks like.

Also, look at the exterior of the house to see if there is anything that can be done there to help. Things such as gutters, downspouts, grading etc all can be simple changes that make a big difference with water intrusion.

Justin Hoggatt · Answer

Amber, it seems as though you're asking the right questions and looking at this correctly.  The property doesn't look that scary to me for your picture, but it's what is hiding behind those panels.  My guess, though, just from the pictures, is water intrusion/flood in the basement at one point and it was never dried up correctly.  Even the ceiling panels look like they have water damage.  I would definitely be curious to know what the wholesaler is basing his $22k remodel on.  That seems pretty low to me, but I guess it also depends on the area.  What does the rest of the house look like?  You can always try and get it tied up with the wholesaler pending inspection, but that's usually something they want to avoid. Also, this looks like a huge project and personally, I'd want to consider something that would cash flow higher than $230/mo after taking on that size of a project.  With that being said though, action is always key in this game and if you just get started, you'll learn the proper lessons along the way and continue growing.

Brian Kantor · Answer

Mold in and of itself is not a big deal. A mold remediation specialist can take care of this pretty cheaply.

With that said, the cause of the mold could be a bigger issue if there is, in fact, an issue with the foundation. @Kevin Sobilo brings up some good points in that sometimes this is also an easy fix. Gutters, downspouts and grading are relatively cheap as well. (I had grading done in Michigan for $1.5k along one outside wall, which solved my problem.)

BUT, if there is a serious horizontal crack in the foundation, that could be an expensive repair ($10k at the low end). If I was in your shoes, I'd make sure to put your offer in "subject to inspection" and have a pro check it out for you. If he/she does fond a foundation issue, you can either get the price discounted, require that the seller handle, or back out of the deal without an issue.

Something to be mindful of, though, is that since the basement appears to be finished, the interior wall is likely hiding the potential problem, and a typical inspector is not going to rip open the wall to confirm, so they may tell you they can't give you a definite answer.

Without clarity, I would walk away from the deal. There will always be another house, and the risk is high if you have to repair the foundation and it doesn't fit in your budget.

Amber Titus · Answer

Thank you all for your advice.  We have not been able to get into the property for a walk through because the current tenant is not being cooperative.  With that on top of the mold issue and not knowing the cause,  we have decided to walk away from this property.  We will be looking at other properties that will hopefully be more promising!

Billy Smith · Answer

You have a water issue that usually is simple to fix addressing gutters, cutting back trees ,haul in dirt around foundation .If it is a high water table then you are talking sump pump plus what I mentioned .

Wendy Patton · Answer

@Amber Titus I have had to remove lots of mold over the years and I have a good MI mold guy if you want to reach out I will gladly share his contact info.

Brian Kantor · Answer

@Amber Titus, if your plan is to do a cash-out refinance after the renovation, then you are correct. You'll want to do 70% of the ARV. I think BiggerPockets has a "BRRRR calculator" specifically for these types of deals.

Worth noting, that just because in Year 1, you don't have positive cash-flow, it isn't the end of the world if you can cover the difference in the sort term. If you plan to hold this for the long term, at some point with rent increases, your cash-flow should flip into the positive.

With that said, there are plenty of deals out there in which you can cashflow from Year 1, so again, this may not be the right deal. Tough to say in looking at your analysis, because your renovation assumptions are what this hinges on.

Amber Titus · Answer

Thank you all for your advice.  We have not been able to get into the property for a walk through because the current tenant is not being cooperative.  With that on top of the mold issue and not knowing the cause,  we have decided to walk away from this property.  We will be looking at another property tomorrow that looks more promising!

Alecia Loveless · Answer

@Amber Titus That is definitely mold. I’m under contract on a property now and my inspector told me a white substance I had in one area was mold but the specialist I had in today told me mine was actually a mushroom and the only way to get rid of it was lime.

If you’re concerned about the cost and the scope of work on your house please find another property. I know it’s hard waiting for another deal to show up but sometimes it’s just for the best.

I’m going to back out of my deal because by the time my contractor and the specialist were done today they told me to ask for $100,000 off the asking price and to have two things repaired. I’ll speak with the realtor but I don’t think it’s worth the effort.

The mold remediation is usually fairly easy but foundation work can get expensive very quickly.

Joe Splitrock · Answer

@Amber Titus this mold is a great negotiating tool. Tell the seller that the mold is worse than you thought and will cost more than expected to remediate and prevent in the future. Negotiate more money off the price.

It probably looks worse than it is. First step is having the walls and ceiling gutted. Spray surfaces with bleach to kill any surface mold on the concrete or floor joists. Then seal any mold on remaining wood floor joists with mold blocking primer. Whomever does it needs to wear protective gear and respirators. They will need to treat airborne with ozone and air purifiers.

Once you have it cleaned up, you can evaluate the source. Check for leaking pipes above. Fix drainage issues with proper grating and down spouts. The foundation can be treated with a water tight sealer that will keep water out, unless there are larger cracks or other issues to deal with. If there is pressure on the foundation, installing drain tile around the interior foundation and a sump pump can fix that issue. Running a dehumidifier may be a solution too.

I wouldn't put finished walls or ceiling back in the basement, at least not until you have gone through some major rain storms and know 100% the source of the problem is addressed.

Mold freaks people out, so use it to your advantage in negotiating. Hire professionals to remediate, because it is dangerous.

Mold in basement - what would you do??

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