I've been helping my clients and investor friends excel in rural distressed property projects. The demand for homes with a bit of land and a shop is high where I live, leading to a larger buyer pool and quicker sales. However, the biggest challenge is dealing with well and septic systems, which can cost $15K - $75K to fix. Here’s how to navigate these issues and negotiate with "AS-IS" sellers.
Step 1: Asking the Right Questions
During the initial phone call or walkthrough, I ask the seller key questions to assess the condition of the well and septic systems:
- Do you have any well reports, logs, purity tests, or flow tests?
- When was the last time the septic was pumped, and were there any issues?
- Where are the well and septic located?
- Have there been any repairs to the well, including the pump or pressure tank?
- When was the system installed or the well drilled?
- If we find that the well and septic need replacement, are you willing to negotiate on an all-cash offer?
Asking these questions helps frame the importance of accepting a good "AS-IS" offer versus risking the termination of the transaction due to unresolved issues.
Step 2: Ordering Inspections
Once we determine the seller's flexibility on price, we order inspections. This step prevents us from wasting money on inspections if the seller is not willing to adjust the price. We categorize the problems into two groups:
- Deal Killers (or Deep Discounts): These include complete system failures, such as needing a new well or septic system, which significantly impact the bottom line.
- Deal Modifiers (or Small Repairs): These are minor repairs like hydrojetting the drain field, installing a new riser, repairing baffles, or replacing pumps/tanks, which can leverage a lower offer.
Step 3: Making the Final Offer
We make our final offer only after a full system evaluation with remedies. This approach demonstrates our commitment by showing we've done the necessary inspections. If there's competition for the property, you might need to provide a price first and renegotiate later, especially if you have a contingency for well and septic issues.
Step 4: Fixing the Systems
After securing the property, we start the permitting process for well and septic repairs immediately. We avoid escrow holdbacks for distressed properties and instead reduce the purchase price. Timely repairs are crucial, as they can take 90-120 days. Once fixed, we get everything tested and documented, ready to list the property.
Step 5: Documenting the Process
Packaging the deal is critical. We gather all documentation into a Google Drive folder for potential buyers, including:
- Renovation details (brochures, warranty cards)
- Pre-listing inspection report
- Pre-listing appraisal
- Well system documentation
- Septic system documentation
Sharing this folder with agents and on the MLS helps create transparency, leading to bidding wars and waived inspections, often resulting in offers over the list price and fewer repair concessions.
By identifying properties that fit the rural buy box for entry-level to mid-priced buyers and tackling major expense items upfront, we remove risk from the transaction. This thorough process ensures higher chances of getting the desired price and timing. If you don’t address these issues at the acquisition stage, you could end up with significant unexpected costs and delays, i.e. buyers not closing on your deal!
GO FIND EM and GOOD LUCK!
