The Red Flags Of Foreclosure Investing | Part 2

If you want to learn How To Buy Foreclosures, make sure you know the red flags that could sink your project.

How To Buy Foreclosures Red Flags To Look Out For Part 2As you already know, buying foreclosures is a great way to get a house for well under market value. And, since the economic crash of 2008, purchasing foreclosures has never been more popular in the real estate community.

However, not every foreclosed home is a worthwhile buy. Some properties will cost so much in rehab that you will end up losing money on the venture. Even if you break even, you will have essentially spent a great deal of time and energy fixing up a house for someone else for free.

To find out if a particular foreclosure is a bad buy, make sure you know the red flags that will sink your project.

The Red Flags Of Foreclosure Investing 7-10

In part 1 of this series, we discussed red flags like disgruntled previous owners, unpermitted changes, ceiling stains, a cracked foundation, and a long period of vacancy. Below are 5 more red flags to keep an eye out for.

6. The Neighborhood Is Becoming A Ghost Town

As you’ve probably heard before, one of the most important factors to consider when buying a property is its neighborhood. House flippers will often try to find a house in an upcoming neighborhood, or even buy the ugly duckling in a good neighborhood.

However, if the neighborhood is on its way out, you should try to stay away purchasing a house within it.

What happened in many neighborhoods after the economic collapse was that a few houses were foreclosed upon and became abandoned. Then, other residents of the neighborhood started to leave, exponentially decreasing the value of each house on the street.

The fewer occupied houses in a neighborhood, the less the value on each house is. So, while you might be able to find what seems like a “steal” on a house, you also might not be able to sell it for that much on the tail end of things.

People with families don’t want to raise their children in a ghost town. Always avoid areas like this so you’re not stuck with a home that nobody wants.

7. Low Water Pressure

When you are assessing a house for the first time, you should always make sure you check the faucets. If there is low water pressure, or even worse, gurgling, you might have trouble on your hands.

Problems with the faucets like this could mean that the pipes are old and need replacing. New piping for a single room is usually around $1,000, and $2,000 for a wet room. Refitting an entire house with new pipes can cost over $10,000 and could leave you in a deep financial hole, without a way to get out.

In addition to checking yourself, make sure you have the inspector take a look at it as well, especially if you have any reason to believe that there could be a problem.

As a house flipper, you can never utilize the inspector enough. Get your money’s worth out of him before you purchase a property.

8. Extreme Septic Problems

As mentioned before, a vacant property can cause a number of different problems. One of the most common problems has to do with the septic system.

If the property hasn’t been used for a while, that means that water hasn’t run through the pipes recently. Sometimes, in situations like this, waste and debris hardens and backs up the septic.

In other cases, improper winterization can result in cracked pipes and tanks.

Any form of septic failure can be troublesome. A septic leak can damage the outside soil and contaminate the surround area, like the backyard.

The whole ordeal can often be costly, so make sure your budget is equipped to handle the expensive if you do decide to buy the house.

9. Infestations

Just because an unmaintained home is often sealed off, doesn’t mean animals can’t get in. Most commonly, insects can be a major problem in foreclosed properties.

Sometimes, when people are evicted from their home due to foreclosure, they will leave behind whatever they don’t want to take with them. Sometimes they leave food in the house to rot, attracting a different type of inhabitant: insects.

While fleas are a nuisance and require an exterminator to fix, termites are worse. Termites can eat their way through the wooden support beams and compromise the integrity of the entire house.

If a home that you are considering has a termite problem, you might want to forget about the property and live to fight another day.

In addition to insects, other animals like rodents, could take shelter in the abandoned property. Although mice hide in the walls, you might be able to spot their droppings on the floor.

Sometimes, you might even find a raccoon or squirrel hiding in the chimney!

10. Environmental Hazards

Something you should always be on the look out for are toxic hazards in and around the property. Usually, you will have to pay the inspector an extra fee to check for these hazards.

Things like a carbon monoxide leak, or high levels of radon can be dangerous but are relatively cheap to fix.

With other toxins, you might not be so lucky. If the house is covered in lead-based paint, you will have to pay to have it peeled and have all traces of it removed from the property. Then, the house must be repainted again.

If the property contains asbestos insulation, you are required by law to have any and all of it removed from the property.

Finally, a bad mold problem might require you to replace the walls, floors, or hardware that it is present on if the problem is bad enough.

Paying the extra money to get these hazards inspected is always worth the while, especially for a foreclosed home.

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Mike LaCava

I'm a full time real estate investor, proud Dad and husband. My team and I are working to restore communities - one house at a time. House Flipping School is my way of sharing this vision with other investors who want to do good for their community, and make money flipping houses.