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Residential Real Estate
Nov 15, 2016

Beware The Flip Gone Wrong

Sponsored Content provided by Patrick Stoy - Mortgage Consultant/Owner, Market Consulting Mortgage

Similar to a witch enticing children with a house made of gingerbread, cakes and candy, a property flip with the latest and most highly sought-after amenities could potentially conceal a slew of hidden problems.  

Just because the hardwood floors are sparkling, the kitchen is decked out in granite and there are brand new stainless steel appliances, doesn’t mean costly structural issues or electrical problems do not exist.

Part of the reason buyers should be wary is that investors who purchase homes with the goal of flipping them are motivated to do so in the fastest way possible. This means applying popular fixes that not only can be completed easily but will also help to ensure the home sells quickly. 

Maximizing the net profit and reducing the carrying costs associated with owning the home are paramount to most investors. The natural outcome of this economic reality is that sometimes, unfortunately, a rotten subfloor might not be considered a concern, so long as it’s solid enough to hold up some brand new travertine.

For lack of a better term, some of the more high-value and important fixes simply aren’t sexy.  Updating the plumbing in a home can be an extremely expensive and time-consuming repair.  Updating an electrical system is no different, but let’s face it - a Realtor who talks for too long about how the previous owner spent thousands changing the wiring from aluminum to copper almost certainly risks being met with blank stares and bored expressions from disinterested buyers.

If a beautiful granite backsplash is placed on top of a moldy wall, does the leaky pipe causing the problem really exist?

How To Protect Yourself

One of the first steps is to hire a good buyer’s agent. An agent who specializes in serving buyers will have experience identifying many potential areas of concern. Agents who have been in business for a while will more than likely have knowledge about the quality of work performed by various local flippers and builders. 

Positive and negative feedback has a way of getting around. If an investor or flipper has done shoddy work in the past, it’s probable the agent has heard about it and will be able to advise their clients to stay away.

It is always worthwhile to review any building permits that were pulled on the home during the renovation process. This will provide insight into whether a significant change was made to the floor plan or structure of the home, such as removing a load-bearing wall. 

When a lender is involved in the transaction, a home inspection by a licensed professional will be required. Even when a seasoned investor is involved in a cash deal, however, it is advisable to pay for a home inspection. Doing so can help identify many potentially troublesome areas.

In some cases - as with a property that is extremely old, for example - calling in a specialist for a more in-depth inspection of major systems could be an effective strategy for avoiding costly repairs down the road.

Many tradespeople and service professionals are willing to stop by and provide an assessment about a system’s condition as well as an estimate of repair costs for a nominal fee. Most people would agree it’s better to spend hundreds versus thousands, so this is money well spent in the scheme of things. 

For more information about the home purchasing process, contact me at the number below.   

Patrick Stoy (NMLS Numbers 39527 and 39166) has 16 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.
 

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