Investing in a distressed property can be a strategic move that allows you to sharpen your skills as a real estate investor and cultivate value in your portfolio. While distressed properties often have the greatest potential for return on your investment, they are also some of the riskiest investments you can make.
To minimize your investment risk and ensure you see a return on your distressed property, consider a few common problems you should look out for before you buy. It doesn’t take an expert to see these potential problems for what they are, but it does take a careful eye to spot them—especially if they’re being hidden from you on purpose.
Most common issues at distressed properties
When you purchase a distressed property, you don’t expect everything to be perfect. But, you have to be mindful of the kinds of repairs that are necessary to rehab the property. Taking on a property with extensive repair and rehabilitation needs might cause you to exceed your budget and miss out on the profitability of your property.
Understanding some of the most common issues that come up in distressed properties can help give you a better idea of what to look for and what to avoid when you’re looking to invest. Here’s where to pay very close attention.
Distressed properties are notorious for having plumbing issues that can be difficult to identify at first glance. Leaks in plumbing can be located anywhere and you might not be able to find the source of a leak until it becomes a major problem.
You should pay special attention to the condition of the plumbing system in the property you are considering purchasing. If you don’t identify any plumbing issues within the house, you can check the water meter to help you determine what the pressure of the water is when all of the fixtures in the home are turned off. If the meter is spinning even when there aren’t any appliances or fixtures using water, it’s a sign there is a leak somewhere in the plumbing.
Water damage is one of the most serious issues that can occur in a home and it’s not always easy to spot if you don’t know what to look for. Aside from obvious leaks and water damage out in the open, keep your eye out for mold growth underneath sinks, water lines in the basement and warped flooring in bathrooms and kitchens that indicate water damage.
Keep in mind, water damage may not necessarily be a plumbing issue. Bad grading on the property can leave it vulnerable to flooding and water intrusion after a storm. Or, a previous one-time plumbing incident may not have been properly re-mediated, leaving behind lasting issues.
Broken sewer lines
A broken sewer line can be an incredibly expensive and labor-intensive issue to repair. Sewer lines can be damaged by debris being flushed into the system, overgrown tree root systems or erosion. Regardless of the cause, you don't want to get stuck with a property that has a broken sewer line.
Since you can’t necessarily take a look at the sewer line to see whether it’s in good condition, you will need to look for signs of damage from the surface. Check for any depressions around the line that indicate erosion and line collapse, pay attention to greener grass growth above the line that indicates a leak and look for signs of digging nearby.
Dealing with a pest issue is the last thing you want to do after you purchase a distressed property. Depending on how long the pests have been on the property, it may be challenging to get rid of them completely and keep them out in the future. By the time you actually identify and eradicate unwelcome guests, chances are that they have already done damage to the property's structure and foundation.
You can look for rotten wood, sawdust, tiny holes and other signs of nesting and burrowing, which indicate the presence of pests in a home.
Electrical wiring is incredibly important in a home, but can also be incredibly dangerous if it isn’t in good condition. Electrical wiring that’s old, out of date, corroded or simply doesn’t have the capacity necessary to support he electrical needs of a property can cause electrical problems and increased fire risk.
Find out as much as you can about the existing wiring at the property you are considering so you can avoid purchasing extensive wiring damage and repair needs along with the home itself.
Keep your wits sharp while you inspect
Investing in a distressed property can be a great choice, but extra caution is necessary to ensure your investment pays off. Taking the time to inspect a property and check for major issues before you buy can save you the headache and financial loss of excessive repairs and rehabilitation later on.