When you put a house under contract to buy, you enter into a period known as “due diligence”. This gives you have a few days to check out the property. If you don’t like what you see, you can walk away with no questions asked. Most buyers will send a home inspector out to look at the house and an exterminator to check for termites.
If you are purchasing the property as an investment, you need to do more than that.
If you are going to hold the property as a rental, you must find out how much it will rent for. Ashley and I do this by driving around the area looking for “for-rent” signs. When we see one, we call the number and find out how much that house is renting for. After a few of these, you have a good idea of the fair market rent.
If you are reselling, you need to be running comps to see what the house will sell for once it’s fixed up. It’s a good idea to have contractors giving you estimates and time frames on how long it will take to complete the project. You will also want to check to see if there are any back taxes or other liens.
Regardless of whether you are renting or selling, one of the biggest things you can do is go talk to the neighbors.
The neighbors are a wealth of knowledge. They can tell you about how former owners treated the house, what kinds of repairs have or haven’t been done, if it has ever been on fire, had termites, meth labs… you name it. They can tell you all kinds of information that the seller themselves may not even know.
Case in point: we were going to buy a house out in Plantation Place from a wholesaler from Chattanooga. We got the house under contract and went out to inspect. While I was there, I went by to talk to the neighbors.
They told me something very interesting. They said the house was great but that it had a water issue. When it rained, water backed up from the drainage ditch across the street and into the yard. They said it would get so deep that their kids could go swimming in it.
I thought they were kidding. They weren’t. It literally makes a wet weather pond in the front yard about five feet deep.
Five feet! An in-ground pool was not listed as one of the amenities.
As it turns out, those five feet didn’t accumulate during times of flooding. That was just normal rain fall. This past month we’ve had some serious flooding.
From the pictures I saw on Facebook, the water had risen out of the yard, above the street level and was blocking people from getting to their homes. Someone had bought that house when it was dry and was now desperately asking for help fixing the issue.
You see the drainage ditch and the land across the street were caught up in a crazy chain of title. Basically they were owned by a company that went out of business. Afterward, neither the bank nor the county wanted the land because of the water issue. So the land has been sitting for years in the name of a company that no longer exists.
We literally couldn’t get permission to fix the land because the owner doesn’t exist. That is why we cancelled our contract. If we hadn’t talked to the neighbor’s, we would have bought a property with a problem we couldn’t fix.
Anytime you are looking at a house, take time to talk to the neighbors. As you can see, you will be glad you did.
Joe and Ashley English invest in real estate in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com