Catch What You Can’t See

When dealing with distressed properties, it’s hard to conquer your fear of the unknown. Your heart pounds even faster when a property needs plenty of work. You don’t know what lies beneath the walls, ceilings and other places that you can’t see. Basically, you don’t want to encounter any unpleasant surprises.

However, there are ways to get around this. For example, look for the things that you can see. Also, consult with experts and give yourself plenty of room to account for possible mishaps. Learn how to make informed estimates by following these three steps.

Look for the Obvious

Use common sense. Most people have it, but they don’t use it. When viewing distressed properties, look for the obvious problems first. Some things stick out like red flags. They indicate there may be more serious issues waiting around the corner. Sometimes you don’t have to see an entire system to know there’re a problem.

It could be a hidden heating, plumbing or electrical issue that you can’t see. I like to break down my inspections into those major categories. This is where I’ve found the most problems. In my opinion, properties with the most obvious problems are those with unfinished basements and attics. They have plenty of exposed ductwork, plumbing and electrical components to inspect.

Let’s focus on heating, plumbing and electrical systems because they have many problems that lurk behind the drywall. You’ll most likely have plenty of questions about these systems. For instance, how old are they? The older a system gets, there’s a higher chance that it needs repairing or replacing.

• A majority of heating systems have the date stamped directly on them.
• For the plumbing system, inspect the supply lines and basement pipes. Are they cast iron, copper or pvc? Unfortunately, cast iron pipes are much older, which means they’ll probably require immediate attention.
• For electric open junction boxes and outlets/switches, what type of wiring is used? If it is aluminum or cloth, this is also a much older system.

However, dealing with local building codes is also another thing you’ll have to tackle. Even when nothing is wrong with a system, some building inspectors won’t grant approval because of its age. For instance, cloth wiring isn’t allowed in many areas where I want to purchase distress properties. Most cities will automatically fail you.

In addition, if you’re planning on doing a major remodel, the city might make you bring everything on the property up to the current code. Sounds unfair? Well, that doesn’t matter. If you don’t plan for this mishap, it could be a major problem in the future.

But then again, just because something is older, this doesn’t mean it doesn’t work. Also determine its condition. It may need immediate repair. Sometimes a property is missing a needed item of functionality. For instance, some need heat sources in bedrooms and bathrooms. Or maybe the current heating system is configured incorrectly. The heat doesn’t reach all areas of the property. The sad thing is that some apartment buildings only have one electric wall heater that heats the whole unit.

Many older buildings were not built with enough outlets or switches. Adding new ones is quite expensive. Once again, determine the condition of each outlet or switch. If outlets are burned or charred, this is a sign of wiring issues. The same thing can be said if you notice lights that flicker constantly.

Corroded pipes can tell you about past leaks. Look for signs of other leaks as well. Do the walls or ceilings show signs of water damage? Are there soft floors? These are all indicators of hidden leaks due a leaky roof, window or other unknown source. You’ll know whether you’ll have to dish out money for major drywall or subfloor repairs or replacements based upon these leaks. Always pay attention to any leak.

Water damage causes all types of hidden problems. Below are a few photos of a bathroom that I had to gut due to a leak from an above bathroom and a leak from the tub. The leaks had caused mold to grow all over walls and the subfloor to slowly rot until you could literally stomp a hole through the floor. As you can see, water can cause a lot of damage. All in all, look for obvious problems. This will save you tons of money. Learn to be observant.

Pay for an Expert

You don’t have to do everything by yourself. Most importantly, understand that you don’t know everything about everything. Hire experts that can help. At a minimum, hire a general home inspector and a general contractor. They can catch a majority of problems that are associated with distressed properties. Many things aren’t very noticeable if you aren’t an expert, but they are always very expensive if a repair or replacement is necessary. For instance, think about hiring a good roofer or plumber.

Also, make sure these experts are knowledgeable about local building codes. Each local municipality has its own requirements and codes, and they may differ from other municipalities. Hire experts that know the codes associated with your particular property. Do not skip this step, or you’ll regret it later.

Margin of Safety

Unfortunately, things can go terribly wrong, even if you follow a plan. Maybe the project takes longer to finish, or your contractor walks off the job. When rehabbing properties, you should always expect the unexpected. The price paid should account for the worse case scenario. So, if anything goes wrong, at least you won’t be completely wiped out.

For actual repair estimates, allow for a fudge factor. Always increase your final repair estimate by as much as 20 to 30%. The difference depends on how well you deal with estimates. If you’re a beginner, then go as high as 50% or more.

It’s easy to get cocky and think you know everything about estimates. However, this is when the worst crap happens and knocks you back down to earth.

In Conclusion

Buying distressed properties can be frightening because you don’t know what problems lurk behind walls, under floors or other areas. The best way to tackle this is to perform all inspections and look for the obvious first. When problems crop up, don’t try to handle everything on your own. Hire experts that can help. Also, incorporate a safety margin when estimating costs. But most importantly, always plan for the unexpected. If you follow these simple steps, investing in distressed properties doesn’t have to be as scary or stressful.