Post inspection cold feet on investment property in Portland, OR

[Logan Loughmiller]

Would greatly appreciate input as this is my first investment property and my nest eggs going into it. 

Stats on the place: 2/1 with a completely detached 1/1+office, back lot ADU and detached garage. Main house is 1944 build, ADU is 2017

I paid for a lot for a very thorough inspection and I got just that. 190 pages photos included. Naturally to cover themselves, everything even slightly askew is marked as "should be looked at by a professional" on up to "should be repaired/replaced". 

ADU is golden, no surprise. Issues with the main house, also no surprise. Lots of suggested repairs, most in the $1K-5K and not immediately necessary, I'm ok with those. The numbers work.

Structure on the main house is the big high dollar concern and I'm having a hard time getting past it. I will note that there is no visible problems with the floor/interior, everything is visibly normal. The inspection stated not all was level, but fully functional.

Main problems:

- Low soil clearance or *no* clearance crawlspace - under the entryway and under the bathroom could not be accessed at all unless crawlspace is dug out. There is enough room for someone to get around the rest of the crawlspace. Some beams are on or too close to the ground which is a concern for moisture/wood rot/pests. The bathroom is of specific concern for plumbing access.

- Improper footings/foundation - They have done some work to increase stability but looks as though it was not permitted, as is sometimes typical with early 1900s homes, there are no footings underneath the vertical foundation wall. They added footings to vertical beams around the house, but they're pyramid type footings mostly used for decks, etc. 

Inspector said its not something that would need immediate attention and could (*could*) be fine for years, if not indefinitely. But very costly fix to correct. 

The Value:

I'd be living in the ADU and AirBNB-ing out the front house. I've considered that in Portland, with an average annual equity increase of 5-7%, even one years equity put back into the structure could potentially solve the problem. I don't want to eat that right at the start though. I'd like at least a few years of profit/equity from it before embarking on anything like that. From the inspectors perspective, I'd likely have that. Although if plumbing issues occur in the bathroom with no crawlspace access to it, that could become a very front and center problem quickly.

The value of the property aside from all this is fantastic. As pretty much everything else I looked at even close to the price point were mid 1900s duplexes, several of which were upper/lower and could very well have similar or other issues. This was one of the only detached ADU situations I could find at a good price point. This is particularly ideal for Portland AirBNB's, as the owner must live on the property they're renting for at least 9 months of the year. So there are very few setups where you can STR a full house year round. Less competition. It's also very close to Reed College, a $60K/semester school, so it would be a strong draw for wealthy visitors, campus tours/visiting parents, etc.

Also- my primary job is an online merchant, selling on Amazon/Ebay and I require a large space for daily inventory/shipping prep. No other duplexes I saw had anything that would work for this. A *few* had basements that could work, but not ideal. This place has a detached garage that's perfect.

I realize every house will have *something*, I'm just having trouble grappling with where you draw the line with "this is too much, I'm walking" and "this is acceptable to take on for the value of the property". All input appreciated. 

[Joe Scaparra]

Ok let's take a deep breath and chill for a minuet or two.  I tell everyone getting into real estate that your 1st property is absolutely the hardest to buy!  Doubt FLOODS in and then you get the INSPECTION REPORT!  OMG!  

There is a BIG difference from a " Problem" and a "Potential Problem"!!!!!  If you have never dealt directly with an inspection report it is DESIGNED TO SCARE YOU!  The inspector has to justify his money you are paying him to help you RENEGOTIATE the sale price!  Yeah it can help you avoid a disaster but I use it to renegotiate with he seller.  Now I am an experienced investor and I buy small multifamily in TEXAS.  I usually don't even get an inpection and I look for run down pieces of sheet to buy!  I go into the property ready to improve flooring, fixtures and paint.  Yeah I look for the major foundation issues and you should too.  

But if the house has been there for 80 years and the beams under the house are not rotten, not eaten by termites/pest then it probably is not a big deal.  But you should make it a big deal with your sellers to see if they will compensate you.  You are aware of the POTENTIAL problems;  are there things you can do to make it better, like ensuring water runoff is not making it worse.  

If the foundation is deteriorating and needs to be addressed now; then you need to get some experts in foundation to give it to you straight.  But as you say the profits from one year would take care of the issues and if the issues are NOTRIGHT NOW PRESSING, then bank your profits for the 1st year for peace of mind!!!  Ask yourself, what is the likelihood that this 80 year foundation is going to crap out on me in the next 10 years based on the condition it is in NOW!  

I don't know of a single investor who after the inspection report on a 20 year or more property didn't have serious concerns.   Find someone who has some investment/building experience to help advise you.   I think you are good to go! 

On the other hand, had you said that the foundation beams are rotting and there are a few that fallen away and the floors are uneven to the point that several doors will not close, windows can't be opened/shut, jagged cracks caused by the foundation failing  are prevalent and the roof has evidence of water intrusion then you should be concerned.  

Lastly, don't rely on us internet experts.  You need to find a mentor or a confidant to give you some assurance.  If you think you found a needle in a haystack in terms of a great investment, I would hate for you to lose it over a perceived problem.  Yeah the safe conservative move is to back away.  That's what the guy deciding to open his business or keep working for the man, the safe way is to work for the man.  My past life was a fight pilot, we took risk everyday, but it was always a calculated risk.  Cheers!