If you’ve ever binge-watched HGTV, you may already have caught the home-flipping bug. The whole thing sounds so seductive: Buy a fixer-upper at a bargain price, renovate it fast, and sell. Doing so can be lucrative: According to RealtyTrac, the average flipped home in the U.S. is bought for $129,200 and turned around for $190,000.
And if you’re the one buying a flipped house? “It can be exciting,” acknowledges Desare Kohn-Laski, broker/owner of Skye Louis Realty in Coconut Creek, FL.
It’s a fully transformed home, after all. But such a purchase can also come with risks if a house flip was done with haste, resulting in rushed repairs that might not stand the test of time. So before buying a flipped house, make sure you ask these questions to assess whether it’s in good shape.
1. ‘Who’s the seller?’
“Is it an individual or an LLC?” is something every buyer should ask, advises Edward Griffin, an attorney in Maryland and Washington, DC, who’s currently working on a case involving a flipped home sale gone bad.
“Some people use a one-off LLC to purchase a foreclosed home, renovate, and then sell the property. After the sale, the LLC is then liquidated,” he explains. “Months later, when a buyer finds a defect in the property, the LLC has no assets and no longer exists.”
Translation: You have no recourse.
LLCs can be used as an appropriate vehicle for a home bought as an investment for a flip, Griffin clarifies, “but [they] can also be used by less scrupulous individuals to try to avoid liability.”
One way to tell one from the other is to ask how long the LLC has been in existence; a longer track record of at least a few years suggests it plans to stick around.
2. ‘What was the scope of the renovation?’
“This question is open-ended and encourages the owner or agent to begin talking,” explains Michael Otranto, a real estate investor and experienced rehabber near Raleigh, NC.
For instance: Were any walls moved—or removed—to “open up” the floor plan? Any major electrical or plumbing work done? And how old, exactly, is the roof and HVAC system?
“Most smaller rehabs focus on flooring, paint, and renovating kitchens and bathrooms,” says Otranto. “However, major renovations, if not done properly, can be very costly to repair later on.” Case in point: moving walls could compromise the structure of the home. And usually, Otranto adds, “the roof and HVAC unit are the most expensive items to repair.”
3. ‘Were permits issued?’
If major electrical, plumbing, or structural work was indeed done, “ask if the appropriate permits were issued, and if the seller has a copy of the permits or inspection reports,” says Otranto.
Don’t necessarily rely on what you’re being told—check with the city to see what permits are on file. (Many municipalities allow you to access this info online.)
“Not having the appropriate permits can mean that substandard work was done,” Otranto explains. “This tends to come up if you ever decide to sell or rent the property. If the city finds out about nonpermitted work, they can require you to open the walls to allow for an inspection, leaving you with an expensive mess.”
4. ‘Who owned the house previously?’
Why, exactly, does this matter? “There’s always a home buyer trail, and more than likely you can get in touch with the previous owner to inquire about any issues with the home,” notes Kohn-Laski.
Some questions worth asking former owners: When did you replace the roof? Any leaks in the basement? Has the home always had three bedrooms and three baths?
“Make sure you know of every change that was made, since sometimes flippers can be in a rush to sell and may not complete certain jobs,” Kohn-Laski says.
5. ‘How long was the house vacant?’
“How long the home has been vacant can tell you a lot about potential headaches down the road,” says Emile L’Eplattenier, a real estate analyst for FitSmallBusiness. “Leaks, freezing pipes, and vandals can do serious damage to a home if left unchecked for a long period of time.”
For example, a quick rehab job of a house that sat empty for years might have simply covered up a previously flooded and damp basement. And while you might not notice now, this provides the perfect environment for mold to grow and spread.
6. ‘Can we head outside?’
During your tour of the home, don’t forget to head outdoors. Problems in the yard can be pricey as well.
“Check that the fencing is good,” advises Victoria Shtainer, a broker for Compass Realty in New York. “And if there’s a pool, you’ll need to inspect it, too. Cracks, for instance, can be expensive to fix.”
How to buy a flipped house
All in all, hiring a licensed home inspector to check out a flipped house is a smart idea. You might be blinded by the gleaming new vinyl inserts in all the windows, but a home inspector will be able to point out the rotting wood around them no one cared to replace.
If you do find problems, that doesn’t necessarily mean you should walk away from the property. Just present an offer that reflects the costs of the repairs, and buying a flipped house could be a bona fide bargain.
Joe Barbee – ABR,MRP
Associate Broker/Property Manager
Posted on August 7, 2017 at 2:01 pm by Joe Barbee