THE RISK FACTORS OF BUYING FLIPPED HOUSES and HOW TO AVOID UNEXPECTED HOME REMODELING COSTS
More people are buying flipped houses today and there are many more on the market today than ever before. Often, the initial reaction by potential buyers to a home that has been rehabbed is “impressed”, “excited”, maybe even “enamored”. The house appeals to them because it is clean, attractive, updated, perhaps has an open floor plan, and most of all appears to be move-in ready.
If we look beyond the aesthetic appeal, there are factors that need to be considered when contemplating buying flipped houses. For the purposes of this article, the definition of a flipped home is the purchase of a residential property by a company or individual for investment purposes. The intention is to marginalize repair costs and maximize a financial return on their investment. This is good business sense for the investor but does not protect the buyer. It is important to understand that most property investors do not spend time living in the home they are rehabilitating.
This fact is relevant in that they are not aware, unless disclosed by the previous seller, of any plumbing backups, electrical, hot water heater or heating or cooling related issues. Unless the investor plans on opening every wall in the house, he or she will not know what those problems might be. This is especially relevant in our older homes in Richardson built pre-1990.
If you are one of the many buyers considering buying flipped houses, doing a little bit of research on your end can help you make an educated choice about moving forward.
Q: WAS THE REMODELING WORK PERFORMED PERMITTED?
A: This information can be obtained simply by calling the City, providing the address of the property and asking if there were permits issued on that property. If there were permits, ask what they were for. For example, a remodel, a fence, a pool, etc. As a home remodeling industry standard, it is of paramount importance to have code compliance and structural integrity. It is possible that those priorities, either through inexperience or budgetary constraints, are misplaced. For example, we worked with homeowners on a property in Prairie Creek/Richardson who had purchased their home four years earlier. The previous owner had purchased the property through a foreclosure, renovated it and sold it to our client. After our clients had been living in their home for a few years, they began to have major issues with critters and a mold smell in the master bathroom. In our initial inspection, it appeared to us that updates had been done but that there might have been issues with code compliance. With one phone call to the City, we were able to determine that the bathroom remodel and other extensive renovations had not been permitted. This included a small addition to the master bathroom. As a result of the foundation and addition not being code-compliant, we had to remove all of the previous work and start all over. During demolition we also found load-bearing walls compromised. The impact to this project for our client was $8,000 of unexpected costs from problems behind the walls, invisible in an inspection and only revealed during demolition, problems that would have been avoided with the proper City inspections required by permitting.
Another common area where we find problems is with shower pans. In order to keep costs down, some investors and homeowners choose not to permit when a shower is remodeled. One of the advantages to permitting a shower remodel is that the shower pan that is installed prior to tile is inspected by the City for leaks. If this liner is not installed by a licensed plumber, it is possible that the liner is compromised at install and can leak. What that means for the homeowner is that this shower will have to be redone in a couple of years, framing can be compromised and termites can show up.
Q: WHAT REMODELING CHANGES HAVE BEEN MADE TO THE PROPERTY?
A: You can request a list of repairs that were made on the property as part of the rehabilitation. In the spirit of full disclosure, a seller should be willing to provide details related to the changes that they made. For example, if they tell you that they opened up living space, then you can ask questions related to load bearing walls, etc. It is important that you do your due diligence. You can even be so bold as to ask who did the work and if there is a warranty that goes along with it. Be prepared for them to say there is not a warranty.
Q: DO YOU KNOW THE HOME’S HISTORY AND THE NEIGHBORHOOD?
A: Always consider the age of the home and the original floor plans that were used at the time the home was built. For example, many homes in Richardson were built in the 1960’s and early 1970’s. Those homes, for the most part, were compartmentalized – meaning they had lots of doorways and walls. The reason for this was that the homes were built prior to central heating and air conditioning and the room separation allowed people to heat or air condition small spaces instead of the entire home. In order to modify a structure like that to an open floor plan, load bearing walls are affected. When load bearing walls are affected, a structural engineer should be part of the construction process. So if the home that you are considering looks very similar to the homes around it on the outside but the inside is opened up, that is an indication that major structural work was completed.
A COMMON MISCONCEPTION ABOUT BUYING FLIPPED HOUSES: MY HOME INSPECTOR WILL FIND ANY PROBLEMS.
There are some terrific licensed home inspectors available for hire. We highly recommend you check their reputation prior to hiring them for inspecting any home you are considering. Unfortunately, most people assume that home inspectors can find all major problems. That simply is not true. A home inspector is trained to look for specific indicators for code compliance, insulation, electrical, plumbing, etc., with no different requirements for a home that’s been “flipped” vs. one that people have lived in for 25 years. Your home inspector cannot see through walls and determine what a previous owner may have either hired someone to do or done themselves. This is where your research is helpful in providing your home inspector with any information you discovered. Armed with this knowledge, they can be especially sensitive to what they’re looking at.
In our older cities and towns, as our homes age, one of the ways that property values are able to increase is if the homes are updated. Renovations and updating are a positive socioeconomic sign that a neighborhood is thriving and rejuvenating. This article has not been written to dissuade you from buying flipped houses It is an attempt to help you make an educated decision about an investment you plan on making for your family and your future. So please don’t let new granite countertops, carpet and paint be enough. Ask questions. It is our desire to equip you with information and tools to aid you in making the best decision for you and your family.
If you have any further questions about buying flipped houses, please call our office at 972-669-7807 or email us at firstname.lastname@example.org.