Cheap Housing Caveat Emptor Stuff

I have been looking at cheapo abandoned real estate just to see what's there.  In my city if you are handy you can get a house near the city for $5,000 right now, and then fix it up.  This was also true before the crash, but you get more house for the money now.  Such a house would have been $10,000 or $15,000 in 2005.  I once bought a house for $2,000 back then, but it had a lot of building orders on it, and the building inspector was a right bastard.  It also had a title problem.  Be careful buying one of these junkers, the problem may not be so much the house itself as the city officials, or the title, or something like that. That house was a mess, though.

Buying a house cheap for cash, especially if it's a FSBO and not through a realtor, is a temptation not to cross all the T's and dot the I's.  Don't be penny wise and pound foolish.  Always research down at the building department for orders, look also for utility liens (like at the water dept.) and also get the title done by a title agency to see if they will sell you owner's title insurance on it.  Having owner's title insurance is a lot of peace of mind for a couple hundred bucks.  Having a property with a cloud on the title can be extremely expensive and frustrating.  And the insurance covers stuff that they wouldn't find in the title search, like fraud or unknown lost heirs.  At best a title cloud would cost you $1500 for a quiet title suit, or you'd have to track someone down and ask them to sign a quit claim deed.  At worst, you wouldn't really own the house after all.  Have the title agency do the closing for you.  They're good at it.

There are title agencies and then there are title agencies.  If you use creative financing, you will need a title agency that is used to it.  You can probably figure out who they are by going to your courthouse and looking up the recent closings, look for cheaper houses that sold, and look to see who conducted the closing.  A title agency will often put a preparation statement or some other mark on the deed.  Or just ask other real estate investors, if you know any. (call the I Buy Houses signs you see).  For a cash deal, you can use anyone, but it's better to use someone more established, and not a title agency that is captive to a mortgage company but rather one that belongs to a law office.

Another thing to do, especially on houses where there are no fixtures, is to make sure the sewer is not collapsed, or nonexistent. (I speak from experience).  If you are unsure, get a plumber to put a snake in the sewer and look around.  It might cost $250 for the pleasure but you might save yourself from buying a place that needs $5,000 in sewer work.  

I was once defrauded by a seller who sold me a house with no sewer.  The house was gutted inside. Someone had placed a toilet in one of the smaller rooms, I assumed it was the bathroom, but the toilet was just there for show.  There was no plumbing whatsoever and the house had NEVER had a sewer. (old house)

I am convinced the listing realtor must have known.  She acted really funny when I brought it up - actually tried to throw me out of a community council meeting.  I didn't even accuse her of knowing, just mentioned that the house had no sewer!  This woman was a real dragon lady.  I've got some really juicy other dirt on her but I think I'll refrain.  This is not a gossip column and I don't see as it would do any good anyway.

A whole house inspection is worth the money.  (also a termite inspection). Even if the house is a wreck and you know it, get it done.  A whole house inspector may find foundation problems, weird "home improvements" that are dangerous, coverup jobs, etc. and even if you plan to fix up a wreck of a house, you might not realize the extent to which the house is screwed up.  Here are some things I, other investors, or various inspectors have found in houses: Make sure you go through a house with a fine tooth comb if you are going to rent it to someone! Some of these were life threatening.

• A roof built over another roof, where they laid new rafters on top of an old roof
• Cracked foundation hidden behind/under the front porch. Was invisible/inaccessible unless you crawl under the porch
• Do it yourself septic line (it was stinky)
• The Termite Society World Headquarters
• Wiring made by running an extension cord through the wall and plugging it into an outlet in the next room, then wiring the other side to the back of an outlet
• 220 volt wiring run on the outside of a wall instead of inside the wall, down near the floor at the top of the basement stairs where little kids might play
• 3/4 of the outlets in the house had only 6 inches of wire on them, and that's it, the wire didn't go to the panel.  In other words, someone took old outlets they ripped out from somewhere else, and cut holes in the wall and put them in to make it look like the house had more outlets.  Or they pulled wire without attaching new wire to it first.
• Outlets not grounded for some reason, even though the wire had a ground wire.
• Wire splices in basement that are not in a box and wire not going through the joists but just sort of hanging there in mid air
• Clogged downspouts, water pours over edge of gutter (can't see until it rains hard)
• Broken glass and razors in sink P-trap
• Tenant has dislodged P-trap and instead of screwing it back on, has stuffed shower curtain in sink cabinet to "absorb" graywater (different house, and this wrecked the ceiling below).
• A house with no heat will not show a roach problem until you turn the heat on.  You can spray all you want, but they're not going to get poisoned until they come out.  Put the heat on 80, see if they come out, then spray.
• Burst pipe from the cold
• Cleanout trap on drain pipe removed in basement, graywater going onto basement floor
• Basement floor drain collapsed, full of sand
• Basement floor drain clogged, full of hair and grease
• Kitchen cabinets screwed into drywall but not into the stud (fell on tenant)
• Ceiling fixture screwed into drywall but not the joist, ceiling has 2 layers of drywall on it so a 2-inch screw is necessary, idiot who installed light used 3/4" screws, same house (fixture fell on a different tenant)
• Ceiling fan wired with dimmer switch (dangerous, can cause fire, but typical DIY mistake)
• Metal stand up seam roof painted with latex house paint
• Guy I flipped a house to tore up the floor and found old bones and a rusty gun.  The homicide squad was there for 3 days, and he couldn't get in to renovate.
• 14-2 wiring on 15 amp breaker, in outlet under a window where a tenant will probably want to put a large window air conditioner.  (Also make sure they tilt it out so it doesn't drip into the wall.)
• Non-GFCI outlets above kitchen or bathroom counter near sink
• Soil stack made from old shop vac tubes!
• Vents for furnace system not attached all the way to registers, heating the inside of the walls or crawl space
• Hole in exterior wall of closet with furnace in it gets fixed, tenant starts getting headaches, turns out there is a gas line problem, if worse they could have died.  Get the gas lines checked.  Hole in wall was ventilating closet enough to prevent CO poisoning.  Fix one problem, find another.
• Clogged chimney causing CO problems.  Keep your chimney traps cleaned out every year.  Sometimes a bird will fall in and die in there and if you can't find the source of the smell, look there.
• Someone cut a big hole in the outside sheathing of the house to get at the soil stack instead of cutting the drywall on the inside, then put the siding back over the hole without fixing the sheathing, making a 1 foot wide by 8 foot tall hole in the side of the house.   But you couldn't see it, it was covered up with siding.
• Drop ceiling concealing the top of the above-mentioned hole in the wall going to the exterior
• Drop ceiling concealing toilet fill line leak, someone installed 2 drop ceilings one lower than the other, to hide the leak from this $10 plumbing part that just screws in.  Or maybe to hide the hole in the side of the house.
• Someone built an addition over a crawl space that at the end is only 3 inches deep, exposing the bottom side of the floor to too much moisture, etc.  End propped up on a row of loose bricks.  Not much can be done about this except slap cement on the bricks to stabilize them, but floor may need to be replaced every 15-20 years or so at which point, dig deeper and put pylons.  Hopefully this work can be done from indoors, but probably getting no rent while doing it, and at great expense.

You get the idea!  Get the house, the title, and the utility liens inspected.  The total cost may be around $500 to $1,000 but you may save yourself $10,000 or even more.