5 Unknown Unknowns
As we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know. – Donald Rumsfeld
There is always going to be a level of risk with any investment vehicle, and buying a house is no different. Hopefully that risk is a calculated one. No one wakes up one day with an itch to run out and buy a house. You spend a great deal of time and energy doing your homework. You’re getting advice from your realtor and the people in your life who have gone through the process. You Google, you read blogs (like this one!), and you watch hours of HGTV.
But through everything that you’ve learned and continue to learn, there are things that you not only don’t know, but you don’t even know that you don’t know them (I promise this is not some Confucius riddle – it’s a Rumsfeld-ism). Think about that for a second. There are going to be secrets hidden within the walls of a house, that the seller may or may not have known, an investor may or may not have discovered, your realtor will never find on the MLS listing, and the home inspector will not uncover. Secrets that the house will tell you, when it’s good and ready, and usually when it’s the least convenient for you.
With the clarity of hindsight and through the experiences of other brave families that have taken the plunge on an investment property, I’ve listed 5 steps you can take to hopefully minimize your risk when buying your home. (Disclaimer – some markets may be so hot that you don’t have the luxury of performing an X-file investigation, especially when homes are receiving multiple offers or even offers above asking price.)
1. Talk to your potential neighbors.
You can learn the history of a house through a friendly chat with a potential neighbor. Most importantly, if the neighbors have seen the inside of the house before it was sold to an investor, they may be able to paint a picture of the original layout and features which will give you a better sense of what’s been changed. Heck, ask them to view the house with you and your realtor. I’m sure they’re equally as curious to see what it looks like now.
After we had moved in, we asked our neighbor to look at the house and fill us in as to what was different. Turns out, there was A LOT of work done. What was originally a 2BR/1BA was now a 3BR/3BA! Also, the layout of some of the rooms was different. Where there was once a chimney, now lived a fridge. The back of the house used to be an open-air work space and now is the master bedroom. Once we knew what had been changed, we knew what details to pay attention to, and get a better sense of the quality of workmanship. For example, had we known that our house was originally one bathroom and now had three, we would have paid close attention to the new plumbing installed. Similarly, when you know that a bedroom was originally a covered porch, then you may want to pay attention to the HVAC system to determine if it’s adequate for the converted space.
Neighbors are the most underrated source of information that a potential buyer can have. Go say hello. You’d be surprised at how willing people are to share their stories and experiences.
2. Check for permits.
Now that you know what’s been altered in the house, you should probably do your due diligence and see if any permits have been obtained for all that finished work. Every city/municipality is different, but I’m pretty sure that most require that a building permit be obtained as part of any major remodeling work. For example the City of Tampa requires a permit for a number of situations including (but not limited to) the following:
- New construction, additions, remodeling of any building or building system;
- Plumbing work on any building, water/sewer lines, septic tanks, wells and fire lines; and
- Any electrical work.
A quick search of the City of Tampa’s online portal for accessing the status of building permits (https://tampa.civicinsight.com/) showed that there was not a single building permit obtained for any work done on our house. So what exactly does that mean? It could means that work was completed by contractors that weren’t licensed. Are you okay with that? Also, in certain instances, the city can hold the new owner (you) responsible for any violations and associated fines for un-permitted work completed on the property and require you to foot the bill to bring things up to code. Are you comfortable taking that risk?
3. Use The Google.
The internet is your friend, so do the research. For example, Google Maps has a neat feature called Street View that lets you see a property from the street as if you were standing right there. Even better, the larger metropolitan areas have images that go back a number of years. Our property, for example, has images going back to 2007. If you look closely, you may be able to see major changes based on the exterior of the house. Some easy “tells” of major renovations include: (1) a change in the number of windows or doors, (2) modifications of exterior rooms, (3) addition/removal of attached structures, and (4) changes to exterior utility hookups. Again, just another tool to understand what’s been changed and therefore, what to inspect more thoroughly. Look closely! But not too closely, because that’s just creepy.
Also, research the investment entity (company or individual) who invested in the property (keep in mind that this is most likely not the same person(s) who did the actual labor). Go to the property appraiser’s website to see if they own other homes (e.g., is it a first-time investor or seasoned vet?), check for reviews and feedback from other homeowners who purchased a home from that investor, and check the Better Business Bureau to see if there are any formal complaints filed against them. When was the company formed? Do they have a website? In the age of internet, it’s hard to remain under the radar for very long. Especially if you have a reputation (good or not so good) that precedes you.
4. Turn everything on. All at once.
One Saturday morning, you’re going to wake up and decide to clean the WHOLE house. With both the washer and drying running, you decide to throw a load of dishes in the dishwasher. All of a sudden the dryer shuts off. Okay no big deal, you just popped a breaker so you reset it. You move on to vacuuming which pops another breaker. You realize, you can’t do much else except run the washer and dryer, because a breaker seems to pop every time you try. You call an electrician, and you find out that not only is the electrical not up to code, but it’s a potential fire hazard because someone didn’t know what they were doing when they added a laundry room to the back of your house.
The point of the story? Turning light switches on and off, running faucets and showers for a few seconds, and flushing toilets when viewing a house, may not reveal underlying issues with the utility systems. When contractors add or modify utilities without upgrading the overall system, the additional load to an aging system can cause a potentially expensive issue at the most inconvenient time. When you’re hosting a party or when you have guests visiting, many things will be running at the same time. So don’t be afraid to do this when viewing a home. Turn everything on. All at once. The appliances, the showers, faucets, everything. And if you start a small fire or a flood, hey at least you know it won’t be your problem.
5. Trust your gut.
Many times that intuition that you get when you sense something just isn’t right or that you’re being taken advantage of, oftentimes is fairly accurate (per actual scientific studies). If something is causing a little bit of doubt in your mind regarding the home or the home buying process, and you don’t quite understand why, trust yourself. This isn’t the time to ignore your instincts.
The American Dream
The house buying process can be a complicated one. You’re often putting your trust in a guy/gal you recently just met, hoping they have your best interests in mind, and will give you an honest answer when you ask them a “dumb” question (there are no dumb questions!). As part of your options, your realtor may show you investment properties that check all the boxes. Unfortunately, the home buying process is not a one-size-fits-all approach, and investment properties have a number of different challenges and considerations that you’ll want to discuss with your family prior to making the financial commitment.
I’m talking from experience after all.
In January 2017, my wife and I closed on our first home in the up-and-coming (transitional?) and hot market of the Old Seminole Heights neighborhood in Tampa, Florida. The area is colorful and diverse, with locally owned businesses touting artisan pizza, novelty ice cream, hoppy brews, and handmade doodads all within walking distance. A block from the Hillsborough River and a short drive from all our friends, we landed our dream home that had everything we wanted on our home buying list.
You have a home buying list don’t you?
It reads like a grocery list of everything you want your dream home to have. Almost like the one you made when you were looking for your dream guy/girl, but never actually put to paper. Except in this case, you do. Hopefully with your partner. The top three items on our list included:
- open concept (my wife described this one perfectly – “I want to be able to have a conversation with you while you’re watching TV and I’m cooking dinner”)
- charm (plenty of that in Seminole Heights with rows of historic bungalow style homes) and
- at least three bedrooms and two bathrooms – all of our family lives out of town and they like to visit often (also, we had the unfortunate experience of having a total backup in the sewer line from our one bathroom rental house, but that’s another story).
Perhaps you’re new to all this and our list above seems pretty achievable. However, if you happen to be a bit more experienced, or perhaps you’re a realtor, then you can probably guess that the houses with the charm (a.k.a. old-timey bungalows) generally don’t have open floor plans (in Tampa anyways). Also, those bungalow owners didn’t need all those fancy extras like multiple bathrooms and guest rooms with functional A/C.
Investors to the rescue.
The bungalow style homes in Tampa are very popular. So much so, that even some new construction within the Tampa/Seminole Heights community is built to match the bungalow style exteriors with the convenience of modern interiors. In our case, most of the new construction was slightly outside of our agreed upon budget (very important!) and we didn’t have the dust factor tolerance to renovate an older home, as we live with a little human. Therefore, we focused our home buying search to investment properties.
investor. noun. a person or organization that puts money into financial schemes, property, etc. with the expectation of achieving a profit. (July 7, Google search)
Sure we heard all the horror stories.
But that only happens to other people right? Besides, we had a close friend as our realtor. He had a knack for bringing little details to our attention that we would otherwise not notice. He also was very clear from the start that he would be our smelling salts when we would fall in love with a house which he thought wouldn’t be a good fit or didn’t think was a quality flip (I’ll admit, this happened with the first house we saw).
Too good to be true?
Almost a month went by from the day the investor/seller accepted our offer to the day we sat in a cold office signing a phone book sized mound of paperwork at closing (I’m taking the liberty here that you’re old enough to know what a phone book is). The entire process, for the most part, was uneventful and smooth. The house appraised for almost $10k above our offer. The home inspection had identified some minor items that the seller went over and above to address and keep the process successfully moving forward. The termite inspection identified evidence of termite damage, but the seller paid for a tenting and it’s a wood frame house in Florida, so it’s almost a given that you’ll need to tent from time-to-time anyways. The cherry on top was when the title company gave us a check at closing and we closed with no money down (a V.A. loan topic that is due it’s own post).
Why is there a fart smell in here?
I don’t care how old your house is (ours was built in 1954), there should never be something that your guests identify only as “a smell”. I called it construction site port-o-potty scent. My wife called it farty fart smell. Every few days we would run the sinks/showers, flush the toilets, and open the crawlspace entry panel (our crawlspace is enclosed and not ventilated) until the smell would go away. I couldn’t imagine doing this for the rest of the time we lived here, so my naturally curious mind (I’m an engineer) had me on my hands and knees one Sunday afternoon in the crawlspace. With my wife running the sinks, showers, and flushing toilets at each bathroom (we have three) I tried to identify the source of the smell wafting through our home.
Now, I’m no plumber.
But I’m pretty sure that a toilet should just be sitting over a hole in the floor of your home unless your home is an outhouse. That day, I came to the conclusion that the source of the smell in our home was caused by the waste we were flushing into the crawlspace for the good part of a month. The area below said toilet resembled the murky swamp water of the Everglades. Minus the gators. I took video of this small ecosystem and when I showed my wife, she broke into tears.
Who is at fault?
Well it’s obvious isn’t it? The inspector is at fault. Anyone worth their weight in beans would identify the lack of plumbing at one of the bathrooms as a deficiency, put it into an inspection report, and give the potential buyer an opportunity to rectify the situation with the seller prior to closing. Not so fast. The inspection report caveats the 4-point inspection (electrical, plumbing, HVAC, and roofing) with footnotes along the lines of “inspector recommends having a licensed ________________ fully evaluate ________________ prior to closing”. Well heck, we didn’t do that.
Now wait a minute, it’s obvious that the seller is at fault and should address repairs at their expense. They either missed the poor workmanship of an unqualified contractor or worse, made an egregious attempt to cut corners to maximize profits (good luck trying to prove this one). Did you perform an inspection on the property? Did you have a licensed electrician/plumber/HVAC professional/roofer perform comprehensive inspections on the property as recommended in the inspection report? As part of your due diligence, did you perform a search query to identify if appropriate permits have been filed for any of the work completed on the property? Oh, none of those?
I can only fault myself.
As prepared as we thought we were, with all the advice that people gave us, and countless hours researching the internet, it was only just enough to give myself and my wife a peace of mind about making one of the single most intimidating financial commitments one can experience. We should have done much more. But life isn’t fruitful if you live each day in what-ifs. We learned and are still learning lessons that we never asked for. We can only try to better equip those considering making an investment property their new home with the tools to avoid pitfalls and provide a platform to share personal experiences with others.
We love our home.
I don’t want to scare anyone away from their dream home. There are things we could have done differently, but we have no regrets. I’m more knowledgeable today about how to minimize my exposure to risk if we were to purchase another home in the future…things that you can’t learn from a textbook or find on the Google. And at the end of the day, if there’s anything on this blog that can save you from a little stress and expense, then it’s all worth it, right?
Oh, and the plumbing in our home was ultimately fixed and properly permitted. The financial obligation of our $2,300 fix, breaks down as follows:
- $1,000 – inspection company
- $500 – inspection company’s insurance
- $500 – seller
- $300 – us
I’ll go into more detail in a future post.
What The Flipped House 