First Flip Opportunity - unknown septic condition

[Kevin Degnan]

Hi folks,

I'm thinking of making an offer on an REO in Massachusetts (Middlesex County). This house has been on the market for a while, with a couple price drops. It's a 2 bedroom, 1 bathroom, 1000 square foot house, on a small lot (under 1/4 acre), and definitely needs some major updating. The issue is the septic system....I have no idea what kind of condition it's in. I contacted the town Board of Health and there is no record of any previous Title V inspection. There is also a private well on the property, and no town water available nearby.

I see a ton of potential for the house, but I'm worried about the septic system.  I know the lot is too small to accommodate a new construction, but I believe the existing house will be considered "grandfathered" even if the system has to be replaced.  I would love to expand to 3 bedrooms, but the town might restrict me to 2 bedrooms because of the size of the lot. 

One idea I had is to make an offer about 20k lower than asking price due to the likely need for a new septic system.  I thought about including a contingency for MA Title V approval (or at least a remediation plan), but that might not be necessary because I already suspect that the septic is failed, so why waste money on an inspection, right? 

So, my fellow investors/rehabbers/etc.....what would you do?  I would love to hear from anyone, especially local gurus like @Shaun Reilly, @Justin Silverio, @Ann Bellamy, and any other awesome folks out there.  Should I just save money and skip the inspections?  Or, worst case scenario - is it possible that the town will never approve any new septic design, thereby leaving me stuck with a house I can never sell??

Thanks!