Due diligence in single family

We found two investment property opportunities on the same street of Yarmouth, Maine, almost next to each other. What luck! I already envisioned somehow getting both and creating a convenient strip to manage in this upscale Portland suburb. New zoning was about to be passed that would make both of their lots sub-dividable- cha-ching! What could go wrong? 

One was a nice 1600 square foot gambrel with an open floor plan and the other was a cute little 1200 square foot cape. After a careful inspection of both with our expert realtor, we decided that since they were about the same price in the mid 200s (remember, this town has the #1 school district in the state so it's pricey) we decided to make a low offer on the gambrel which had inexplicably sat on the market for 60+ days in a town where things can go for above asking on the first day. Red flag # 1...

I had coffee with a woman I met on BP who specializes in mold detection and she offered to look at photos of the property to see if there were any possible issues. Where I had seen none, she spotted about 14 possible ones from poor attic and bathroom venting to potential sill rot and a mossy roof with potential moisture penetration issues. She had mold horror stories and was admittedly hyper-sensitive, so I took this with a grain of salt. Red flag # 2...

Since the 1600 SF gambrel would rent for at least 2K, we made an offer than was about 20% below the asking price (which was already about 15% under market). I had my real estate lawyer look over the deed to the property and he spotted something unusual on this 1 acre lot where the house sat by the road with a huge 1 acre back yard and then there was another house behind it. The rear house's driveway actually sat on the gambrel's property and access was granted via an easement. In order to sub-divide and sell the gambrel's back lot, it would have to connect into the neighbor's driveway easement, which might create a legal battle. Red Flag # 3...

We got an amazing email from our realtor. The seller was so offended by the offer that they took the house off the market and fired their realtor! Red Flag #4... and BLESSING IN DISGUISE #1!

Months later I was catching up with a custom builder friend, Ben Love of Cairn Building, and he had gone through this very house for a client who was considering buying it. Shocker- it was still on the market! "Oh man, that thing was full of mold and rot, you would've had to sink ten of thousands into it, thing's a nightmare!" It was a nightmare with no obvious signs to the untrained eye of its internal freak show. The horrors were hidden in the walls, siding, roof and other places that realtors and buyers aren't trained to analyze.

So I've learned two great ways to dodge bullets: have your attorney read the deed with a fine toothed comb and if you're not a building expert, bring one with you to visit the property either before the offer or during inspections to give you on the spot estimates. 

-David Holman

Yarmouth, Maine