We believe that in some cases, flipped houses can be a good investment, but buyers do need to take extra precautions on the front end.
If you turn on the TV these days, it seems that everyone is flipping over flipped houses. From the flippers who are feverishly working on the project to the buyers who are scooping these properties up at auction or through traditional sales, the bargains that can be had – and the updates that are done on these properties – seemingly make them a great option for those seeking an older home with modern conveniences.
Some folks hesitate when it comes to purchasing a flipped home, because they feel as if the sellers are pocketing all the profits. Those who do buy, however, believe that these flipped properties will continue to escalate in value as the market climbs. What’s more, they love the character of older homes but relish the convenience of having all the remodeling work done before they move in.
We believe that in some cases, flipped homes can be a good investment, but buyers do need to take extra precautions on the front end. Why? Because some flippers own the property and act as their own general contractor but are not a licensed general contractor. These flippers are investors who want to spend as little as possible to update the home and sell it quickly, in order to increase their net profit when the property is sold. As such, they may be quick to cut corners on materials, methods and labor.
As a licensed, General Contractor we offer a warranty on the work we perform; however, an unlicensed person flipping a house may not warrant their work. Sure, new appliances, fixtures, etc. will be covered under a manufacturer’s warranty for a certain amount of time, but with an unlicensed contractor, their installation and any work that you can’t see behind the walls may not be guaranteed. That means that improper work may become your problem.
How can you make certain that what’s behind the shiny new surfaces and paint is solid? Our advice for ALL homebuyers (whether the home you are buying is flipped or not) is twofold: review building permits and get a home inspection. Here’s why those steps are vital:
Whenever virtually any type of remodeling is done to a home, a building permit should be pulled. If it’s obvious that a kitchen, bathroom, or any other area has been redone – either recently or over the years – check to see what permits were filed for that address. If there are no permits, consider it a huge red flag. Many flippers will try to save money by doing renovations themselves, and some will not pull a permit before they do so. That’s doubly dangerous. Since many flippers are not professional contractors, they may not know what they are doing – and that can create a potentially dangerous situation for an unsuspecting buyer. Over the years, we’ve seen issues like ungrounded, loose wires in electrical connections; unvented lines that were releasing gases back into the home; and even open water and/or sewer lines that leaked moisture into crawl spaces, walls or floors. Many amateurs view pulling a permit as an unnecessary expense and delay. As a buyer, you should see it as insurance. A permit means that someone from the municipality’s building office checked the work as it was being completed to make certain that everything was done properly and to current building code. That’s essential because even an experienced flipper may not be aware of what code requires in all circumstances.
That brings us to our second necessity: hiring a recommended professional home inspector. The reason we advocate this so strongly is that a qualified professional home inspector can spot problems that consumers simply don’t know how to look for. This step is essential no matter what type of home you’re buying, but it’s critical in a flipped home where things might be redone for the lowest possible price and under deadline pressure. Want to know more about the types of issues a home inspector can find? Read one of our latest blogs about a friend who was considering a home in an up and coming area of Charlotte and what his home inspector found. Plus, a home inspector can also set your mind at ease by honestly explaining whether the things you do notice are small cosmetic issues that can easily be addressed or costly potential problems.
We recommend these steps to all buyers of existing homes. There are so many inexperienced do-it-yourselfers working on homes these days that you never know what you may encounter. Remember, if you discover an issue before you buy, the seller may assume financial responsibility for fixing it if they want to make a sale; find it later and you will be the one paying for any corrective steps that are needed.