2nd Opinions on my First Property?

Question

https://www.zillow.com/homedet...

I am new to Bigger Pockets, started listening to the podcast 3 months ago, and I've learned a lot but I'm diving down this rabbit hole on my own. So, I thought I'd try soliciting the kindness of strangers to see if I am on the right track or missing some things.

Mostly I want to know what might come up in the home inspection that would be a(or maybe more than one) red flag. I'm thinking of pluming issues or foundation problems.

The gist:

Price: $171,000

Down Payment: $8000

Est. Rehab Money: $30,000 - $40,000 (I am prepared to do the bulk of the work myself, with assistants, over the next year)

Est. Potential Value (base on comps in area for 4-5 bedroom 2-3 bathroom house): $230,000 - $250,000

Est. Potential Rental Value (base on comps..): $2250 - $2500 per month

Est Mortgage payment (including property tax, insurance, and pmi): $1300 per month

Est ROI: 20-30+%

Matt R. · Answer

Disclaimer: I am not a home inspector. I am going by the pictures, and things that have happened to me before.

From the photos:

The central air may be not working at all or not working well - you can see the outside unit at the back of the house, but there are window or portable air conditioners in two of the bedrooms and the living room. The home inspector should be able to tell you the age of the central A/C by looking at the serial numbers. If it's original to the house, or 20+ years old, the cheapest thing to do may be to replace at least the outside unit, inside coil, and lines. I would plan on at least a couple of thousand dollars for this.

I can't tell exactly what the siding is. If it's aluminum or vinyl, or even wood, you are in good shape. If it's "fiber cement" siding, it may contain asbestos. I have an idea (which I'm not exactly sure about) that the "shingle" type of siding is more likelyto have it than the "long board" type, but that may not be true. As far as I know, the current thinking is that if it's in good shape, and not shattering or splintering or crumbling anywhere, the best thing to do is leave it alone. You might check to see if the city or county has any requirements about removing it, especially on a rental property.

The "popcorn" in the popcorn ceilings of that era may also contain asbestos. You can scrape off a little of the popcorn and have it tested to find out. I had this in my previous residence, several years ago, and at that time the EPA guidance I found online was that one of the valid ways to deal with it, if it was otherwise in good condition, was to paint over it. Again, check with the city or county for any requirements they have.

A couple of the downstairs bedrooms appear to have egress windows. You might check on the local code requirements to make sure those are legal.

One of the upstairs bedrooms is either missing a chunk of drywall (not hard to fix) or has had its closet walled off, which might make it not-a-bedroom anymore, legally.

In 1970, the house was probably born with grounded outlets everywhere, which is good. It might have some aluminum wiring - the home inspector may or may not be able to confirm this. The way to tell for sure is to take off the receptacle and switch covers, and the breaker box cover (carefully), and look at the wires, but not all home inspectors will do this. If you do have aluminum wiring, think hard about rewiring, at least for the circuits that have it.

There is no visible outlet near the sink in the bathroom - this is required by code. (Or, it might be out of view to the right of the picture.) When the house was built, it may have been in the base of the light fixture over the sink, and then got removed when that newer light fixture and cabinets were installed. Modern code would be for there to be a dedicated 20 amp circuit with a GFCI receptacle. This is usually not too hard to add.

The circuit breaker panel looks like it might be newer than the house - this is usually a good sign. You might cast a more critical eye on the wiring in the basement that was done after the house was finished. Usually, in my experience, the wiring that was done at the same time as the house was done correctly to the then-current code, but wiring added later is of more variable quality.

There's a silly length of flexible pipe instead of a gutter downspout, to the right of the front door. This may simply be the current owner not wanting to buy a downspout because they're selling it, and it's at least an attempt to keep water away from the foundation, but that might also be telling you that water comes in on that corner.

This is tricky to do, but if you can schedule an inspection or visit an open house right after it's rained a lot, you can sometimes see if the basement has a water problem. If it's occupied, also look for dehumidifiers down there. The home inspector will look at the visible parts of the wall inside the basement for cracks and evidence of past leaks.

It looks like it has an attic fan. If it's working, it can save a little money vs. running the A/C for a few weeks in the spring and fall. However, the tenants have to know how to use it - mainly that they should open some windows before switching it on. If they don't, it can sometimes blow out the pilot light on the water heater and furnace (if equipped). If you don't want that, it may be better to remove it, if it's not a requirement in your market.

In general, for a 1970 house:The drain plumbing might be cast iron.  If so, parts of it have probably already been replaced with plastic (it rusts out).  You may need to replace more of it - the horizontal runs go bad beforethe vertical runs, in my experience.  This is not too hard to DIY, but sometimes you need two people, just because the pipe you're cutting out is heavy.I hope this helps!

Jared Bryan · Answer

At this point, I'm planning on backing out of the deal. Thank you @Sam Shueh for making me take a harder look at my numbers, and thanks again to @Matt R. and everyone else who gave such great feedback and information!

I was on verge of making a few lethal mistakes, over estimating the resale value and underestimating the repair costs. If the resale value is more like $200,000 or even $210,000, after the cost of repair, some of which I would need to finance, my profits would be low to negative. Leaving me stuck house hacking or renting at best.

If had other properties generating passive income, or connections on getting materials at a discount, I could see this being a good deal. For me right now, I don't have flexibility in schedule or room for failure on my first purchase to take on this property.

Thanks again, I've learned a lot!

John Teachout · Answer

The listing calls the house a 3/1 but you're using comps for a 4 to 5 bed with 2 to 3 bath homes. Are you planning on adding an addition?

Sam Shueh · Answer

Jared,

I hope I did not mess your deal up.  You can add on in a predominant urban area where increase a room will instantly mean $100-200K more like here in Silicon Valley. Before a flipper will just add a bath, central a.c without waiting for a  construction permit that will take 9-12 months to get approved. These days a few remaining investors want instant gratification meaning he has to put it back on the market in 3 month. The profit margin used to be obscene is less than 10% today. As most investors are leaving flipping business, the only ones are looking are only interested in rating 10 schools like Fremont, CA. Palo Alto is just 9 rating and the Asians are not coming these days bringing their cash anymore.  The neighborhood of interest is too far out from major job centers. I know Twin City somewhat.

All the best,

Sam Shueh

Matt R. · Answer

A/C stuff:

You can shut off the power to the outside A/C 
unit and open up the wiring compartment.  The capacitor is usually a big
 silver can, not quite as big as a Coke can, with wires on the top.  
Normally, the top of it has a lip, and the top panel where the terminals
 are  sits flat, maybe 1/16" or 1/8" below the lip.  If the top is all 
puffed up, above the lip, then the capacitor is definitely bad.

If the capacitor looks OK, you can try something else... if you're careful.  :)  Find the contactor in the wiring compartment 
that turns on the outside unit.  It will have 240 V AC wires from the 
house on one side, and 240 V AC wires to the compressor and fan motor on
 the other.  Often it has a plastic button on top that you can push to 
close the contacts, even when the thermostat inside the house is not 
calling for cool.  By hand, spin the fan blades up as fast as you can.  
TAKE YOUR HAND AWAY FROM THE FAN, and then push and hold the button on 
the contactor.  If the fan motor starts spinning the fan faster, then 
the capacitor is bad.  If the fan doesn't spin on its own, then probably
 the fan motor is bad.  Take your finger off the button when you're 
done.  (If you're not sure which way to spin the fan, try it both ways.)

If
 you decide the capacitor is bad, take the old one to the friendly local
 HVAC supply store and ask for another one.  Grainger also has them, and
 you probably shouldn't pay too much more than Grainger's "web price" 
for it.  You may be able to source the exact Lennox part (more money) or
 use a generic fits-all (cheaper, might have to modify the bracket).  
The microfarads (uF) should be the same as what you have now; the 
voltage should be the same or higher (370 V and 440 V are the common 
ratings).

If you decide you need a fan motor, check Grainger's 
price, and compare against the local HVAC supply store.  Again, there 
will probably be an exact Lennox part for more money, and a generic for 
cheaper.  The generic might require you to crimp your own terminals on 
the ends, or select from more wires than the Lennox part had - usually 
there's a sticker on the new motor that will help you figure it out.

2006 is new enough that there might
 be a circuit board in the outside unit, and sometimes those go bad.  If
 you can make the fan motor and compressor run by pushing the button, 
you might disconnect the 24 V wires to the contactor from the circuit 
board, and connect the 24 V wires from the indoor unit directly to the 
contactor, bypassing the circuit board altogether.  Once you do that, if
 you can make the thermostat inside the house call for cool, and the 
outside and inside units both come on, and you get cold air, then the 
circuit board in the outside unit is bad.  Once again, there are exact 
parts, and (sometimes) generic parts.

If you don't feel 
comfortable doing any or all of this, an HVAC tech knows how to do all 
of it.  Some of the cost of that knowledge will be subtracted from you. 
 :)

Outlets:

1970 seems really late to not have grounded 
outlets, but I guess it's possible.  (I think the electrical code on 
this changed in the early 1960s, but not every city adopted the new code
 right away.)  You may find that the original kitchen and bathroom 
outlets have grounds and nothing else does, because those outlets were 
required to be grounded before the rest of the house was.  Note that for
 early grounded outlets, sometimes the ground wire was split out of the 
cable outside of the box, and then wrapped around one of the 
nails or screws that held the box to the stud.  The receptacle gets 
ground via its mounting strap being screwed to the box.  (The kitchen 
receptacles in my 1956 rental were done like this.  The modern way is 
to bring the ground wire into the box where you can see it.)  So, if you
 take the cover plate off and don't see a ground wire in there, that 
doesn't mean it isn't grounded.

A simple check for grounds is to 
use a 3-prong-to-2-prong adapter, and one of those 3-neon-lights outlet 
testers.  Remove the center screw, plug in the adapter, put the center 
screw back (through the tab on the adapter), and plug the tester into 
the adapter.  If the two "good" lights come on and the "bad" light stays
 off, then you have some kind of ground.

A better (IMHO) test is 
to use an incandescent lamp in a socket with wires on it.  Use a 100 W 
lamp if you have one.  Take the cover plate off, and then plug the wires
 into the receptacle slots.  The light will come on; notice how bright 
it is.  Now, unplug the wires.  Touch one wire to the metal box, and 
then try the other wire in both slots of the receptacle.  Only one slot 
should make it come on.  It should be about as bright as you remember.  
If it is, then you have a good ground at that box.  If it's dimmer, or 
flickery, then the ground connection is a little shaky.

If you don't have grounds at the 2-prong outlets, the deluxe way is just to rewire with new cable with ground.  That's what I did on mine, and it rents for less than half of your "potential rental value".  A probably-OK way is to install a GFCI outlet as the first outlet on each 2-prong outlet circuit; it's not quite as good as having a real ground, but it helps prevent some possible failures.A 1970 house may not have been born with a dishwasher or Disposall.  Sometimes those were added on to an existing circuit.  (My house was that way when I got it; I'm pretty sure it would have popped breakers if you were running those appliances and then plugged in a clock radio in one of the bedrooms. :)  )  If that's the case, you might think about splitting those out onto their own circuits.

@Don Meinke also raises many good points, in particular the FPE breaker box, lead paint, and outside receptacles.

You can do a simple test for lead paint yourself with some 3M "Lead Check" swabs from the hardware store.  They look like a cigarette; you rub one end of them against the paint and the chemical in them turns colors if there's lead.  You can also scrape up chips and send them out to be analyzed.  Some home inspectors have an X-ray gun they can use on the paint to see if it's lead.

I added front and back outside receptacles to my rental.  Mostly this was that so tenants wouldn't run extension cords through windows and doors... and partly it was so I could run my nuclear-powered lawn mower while I was doing rehab.  :)  In Minnesota, if people still have block heaters on their cars, that might be another use.

Don Meinke · Answer

Don't finish the basement till you know for certain you have 3 wire receptacles.  Easy to do with unfinished ceiling. Run extra plugins of modern 3 wire you can.  Put some out where you can see and get to them,  vacuum cleaner etc use. Goal is to have a 3 wire plugin every 5 feet so no need of extension cords.(which cause fires)

Make double darn sure you don't have a fire causing Federal Pacific breaker box.  Google that if your unaware.

Why would they close off basement egress?  And how weird to walk thru bedroom to get to basement.  How do you get up and down now?

Kitchen is a mess.  Any way to tear out some walls and make all open space ( like they do on tv with every house)

Put electrical boxes with GFIC by a.c. unit and front and back exterior doors.  Like to vacuum the car, run Christmas lights etc

Take out all galvanized iron horizontal runs.  They are corroded shut by now

When you next reroof make sure you get rid of the cast stack.  All turns should be long turn elbows with clean outs. The more clean outs The less you NEED them.

1970 puts you in the possible lead paint issues.  I was thinking newer than 1978 and no lead paint

Check runoff on concrete, NO water sloped to foundation.  Add dirt to have a 6 inch run off ,drop, in first 2 foot and no puddles within 30 foot.  Does a lot towards dry basement, less humidity

NICE starter home.  Check insulation and add as needed.  Good luck and have fun making it Right!!!

Jared Bryan · Answer

Thank you Matt! I appreciate those insights. Your observations are very good. The inspection went better than I was expecting, but my expectations were pretty low. I haven't gotten the full report back yet, but I'll briefly clarify what I can based on the walk through. I can post the full report when it comes in. The bones are good but there is just a ton of stuff to do and redo. This house has been purchased at least twice with rehab loans, and there are some goofy things that have been done or half done.

A/C unit - turns on but the fan doesn't turn. Might need a new capacitor or motor. That and the furnace are both lennox and appear to be installed in 2006.

Siding - compressed board in good condition. Needs to be caulked and repainted.

Popcorn ceiling - I'd send that, along with the glue holding the tiles in the entryway and kitchen, out to be tested.

Egress window - correct height from the floor and plenty tall and wide. The wells are not quite 3 feet back from the window and don't have ladders. Inspector said they might still pass since they are so shallow, not even 2 feet deep.

Upstairs bedroom - has a closet in the left corner out of the picture. That apparently was once the door to the basement.

Most of the outlets around the house are two pronged so I hope you are correct about them being grounded. Changing to three pronged outlets is easy as long the ground has been run. I didn't happen to look for one in the bathroom, good call on that though.

No idea about aluminum wiring upstairs, but it might be in the report. The basement has new wiring. It appears to have been run by a professional because there were notes on the wires about where they were going to and things like that. The inspector said it wasn't something amateurs typically do. However things are not finished and would definitely no meet code, like exposed electrical boxes.

The gutters around roof are in decent shape, could be cleaned and resealed. They are rusting though, so they're not aluminum and are probably original. The spout might have completely rusted away.

Foundation is in good condition. No leaks or signs of moisture in the basement, we did have torrential downpours earlier in the week. There is a lot of settling going on below the walkway. The steps are on the foundation and haven't shifted, but yeah there is a giant crack between the walkway and the foundation. Could be sealed with foam, mortar, and caulk. It will be a skating rink in the winter though.

The attic fan does work. I have never seen one before. It probably won't stay though.

All the visible pluming is copper, except for the waist pipe coming from the bathroom is galvanized. The inspector indicated like you said, it shouldn't be a big job to replace with plastic or whatever.

That was a big help! Thanks again.

Sam Shueh · Answer

Unless I read the inspectors rpt or crawl inside, I will not know. One thing evident is the circa 1970s 1050 sf 1 bath has a finite value it carries. Get a realtor or appraiser come up with a definitive market value. In midwest finished basement is not included in the gross living area. You can put a bedroom in the basement it will not count toward gla. City planning needs to approve your plan and may take awhile to complete the construction, inspection etc. 2020 will have a new market price in rating 3 or 4 school neighborhood.

Jared Bryan · Answer

One concern is the inspector found loose decking on the roof and an oversized hole cut for the turret. The only sign that water might be coming was small stain about the size of half dollar on the ceiling of the bedroom directly beneath the turret. The inspector said the decking could be secured from the attic side. Anyway, the house might need a new roof and/or new insulation.

The other thing is the radon test came back at 4.3 and will need to be mitigated.

Jared Bryan · Answer

John, the basement has two nearly finished bedrooms and pluming for 1 maybe 2 bathrooms.

My plan is to remodel the kitchen, finish the basement, and rebuild the garage. That would make it a 5 bedroom, 2 bathroom house with a little over 2000 finished square feet and a 2 stall garage. I guess the size of the lot might suppress the value, so I should adjust my estimated appraisal value to $225,000+?

2nd Opinions on my First Property?

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