Should I walk or am I overthinking?

Question

Hey everyone!I am in the process of purchasing my first investment property! It is a three family home, I plan on living in one of the units while the other two units already have tenets. I am currently under contract and just finished the septic and home inspection. After both inspections I don't really know how to feel.Keep in mind, this house was built in 1800.With the septic inspection, the inspector was only able to inspect the tank, but not the leaching fields. The 1,000 gallon tank seemed to be in good shape, estimated to be 50 years old and no signs of ever flooding. The last time it was pumped was June, 2016. Unfortunately, the leaching fields were said to be five feet to six feet deep in the ground and the inspector did not have the tools to measure that deep. He said the only way to check it was to have a crew come in and start digging up the yard. I left the house not really sure how to feel. Also, he only charged me half of what I was told the price of the inspection would cost, so that plays into me not feeling like I got a real inspection done. My realtor, who is a very successful real estate investor, says she uses/recommends this inspector for every house. I AM NOT questioning the inspector, I am questioning if it is too much of a gamble to not know the conditions of the entire septic system.On to the home inspection, AGAIN keep in mind the house was built in 1800. The inspector was very thorough and did an excellent job going through each unit. My main concerns after everything was pointed out - I would need an air duct cleaning for each unit. The pipes tend to freeze. The floor is uneven in the first unit (I am scared of a foundation crack since we could not find a crawl space under that unit). The insulation in the attic needs to be replaced. Electric problem in one unit. Big window in first unit needs to be replaced. Possible crack in furnace (not determined yet). These are just a few of what I consider the "major" issues. There are other issues, but are easy fixes. Again, this is my first home so I have never been through this process before. It was very overwhelming, but I understand that every house has problems. At this point I am trying to determine if I should walk because it could be a money pit or if I stick it out because every house I run into will have problems that are going to be addressed at some point. The property was priced well, it is in an excellent location, and has A LOT of potential to be a great investment.Looking forward to your advise and/or stories.- Sean

Mike Cumbie · Answer

As a side note: If the buyers agent came to me and said "We are digging up your yard to do a more in-depth septic test". Our contract specifically states how much the buyer is placing in escrow to return the land to it's same condition. This often is $5,000 or more. If your contractors break a pipe, you are stuck replacing it (Even if you don't buy). It's almost worse if they don't find any problems. You pay $2500 to verify a septic that would cost $5000 to fully replace is fine.

Mike Cumbie · Answer

Hi @Sean Llewellyn,Septics in different areas are different. I have redone Septic tank/fields complete for $2500. I have also seen $23,000 (Had to be a raised bed system to new code etc). I guess the mindset is that you called a couple experts and they gave you their opinion based on the limited amount of information they had. Neither sounded like they saw huge issues. Just "They didn't know" and you pay them to throw everything they see as a possible issue at you. They had at most a couple hours and were confined to "Non destructive" means. The beauty of that is, if the seller knew there would be evidence of their destructive means...... I won't tell you to go ahead or not go ahead, I will say that there are always unknowns. You can only work with the information you have. You can most likely keep paying hundreds/thousands to keep digging, but at some point you have to leap (Or keep paying people to dig until they find something really bad, then back out and keep paying them). I am in a market with a ton of 1800's houses. Most of the time they are some solid structures that aren't going anywhere. Luckily there is usually a solid set of handypersons that are well versed at keeping them on life support. Sometimes for 30 or 40 years limping along. I never recommend "Bringing one to it's former glory, with the crown molding and the stain glass, preserving the natural.... blah.) If it has gone down the road as a livable dwelling, then Keep it there.Just my 2 cents and good luck in whatever you decide.

Dan Weber · Answer

Hi Sean, a couple of things to note here. There are enough legitimate things here that your agent should be able to help negotiate these items and get you some money back should you decide to move forward. Things I would definitely do - hire another inspector specifically to finish that septic inspection at the leach field. When schedule, make sure they have the tools to finish that job. Septic issues can be expensive. Not necessarily scary, but definitely something you will want to negotiate money for if there is something wrong. Crack in furnace - figure out what is going on with this because this is a big ticket item - negotiate accordingly. Get into the crawl space and get a look at the foundation crack. Personally, being a New England native where our housing stock is very old, the unlevel floors could just as easily be due to the fact that the home is 220 years old and thats how old homes are. So don't freak out about the crack prematurely, but definitely get some eyes on it. The other things you listed aren't a huge deal but do need to be addressed after moving in. The septic, furnace and foundation crack should be items that come up on every buyers inspection so the seller shouldn't have a problem fixing these items for you because if you walk, the next buyer will request the same fixes.

Kathy Henley · Answer

Welcome @Sean Llewellyn As an investor, you need to gather facts and avoid feelings. You are describing a possible money pit and it is important that you know facts so that you can weigh the risks. Analyze the expense for each of the repairs - ductwork, windows, insullation etc. These are things that you know about. Old houses hid many things that we don't know about. Electrical problem in one room requires an electrician to trouble shoot and prepare a cost estimate for repair. You will make an offer with these costs in consideration - along with the usual expenses of insurance, utilities, maintenance. Assess the rental income and see that it covers the monthly expenses. Ignore the property list price. Make an offer that covers the risk of putting this property back together and make some money doing it.