How to Spot a Money Pit
Buying a house is expensive enough without having to sink thousands and thousands of dollars into additional repairs. When trying to avoid a money pit, start at the bottom and work your way up!
Money is pretty good—or at least it’s good when you have it. Needing it but not having it is pretty not great. Pits, on the other hand, are more situational, but they tend to be pretty bad. And what could be worse than a pit that swallows all of your money?!
Yes, that’s right, a money pit is undeniably bad. It describes a house that you purchase, only to later realize that it will need a lot of money in repairs to actually make it liveable.
Of course, realtors and sellers aren’t likely to be too forward about all the problems the house they’re trying to sell is suffering from. That’s why you need to train yourself to spot a money pit before you put your money down. That training starts now.
A strong foundation.
Much like Drake, you’ll want to start from the bottom.
“There are a few things worth checking out before deciding to buy a property,” advised Bryan Stoddard, director of Homewares Insider (@homewaresinside). “From bottom to top, the foundations, the flooring, the walls and windows, and the roofing.”
“When it comes to foundations, look for a steel-reinforced concrete foundation, the best thing is to consult a professional. When looking at the floors of the property, notice any bumps or uneven surfaces as they could be a sign of a bad structural setting.”
And he wasn’t the only one to emphasize the importance of the foundation.
“There are a host of potential profit killers when dealing with a fixer-upper,” warned Jeannie of Real Ventures Inc. “The biggest and most obvious to house flippers like us is the foundation. Imagine buying a used car that needs a new engine the second week you own it. OUCH! And it’s a huge expense that doesn’t add value, it makes it functional. That’s what unplanned foundation work is like.”
She included the following signs that a building’s foundation is no good:
- “Vertical cracks in drywall above windows and doors
- “Lateral cracks in the foundation itself
- “Sagging floors in one area of the house.
- “Settling pretty much always occurs with a house (it’s not always a major issue though).
- “Cracks in drywall .. if they are large or grow over time, you’ve got a big issue.”
“Lateral cracks in the foundation indicate serious issues that must be addressed immediately,” she added, “because the soil is likely eroding from one area and the weight of the house is pressing into the void.”
Moving on up.
Even if the foundation is looking great, there’s still an entire house on top of it that can be filled with problems.
“When assessing a ‘fixer-upper’ you really need to break down what projects the home needs into three categories,” explained John Bodrozic, co-founder of HomeZada (@HomeZada). “The first category is the house’s major systems like the roof, exterior walls, HVAC systems, windows, etc. These tend to be very costly to replace.”
“The second category is major lifestyle renovations such as kitchen and bathroom remodels. Maybe everything is out of date and you want to replace it. Another concept here is whether you are planning on changing the layout of the interior walls. These are discretionary projects but also ones that can be quite expensive depending on the details on the home and what you want to do with it.
“The third category is smaller finish projects. Projects like replacing the flooring with new tile, wood, or carpets or painting rooms and new light fixtures are relatively smaller projects and thus each one is less costly.”
Here’s Stoddard’s take on the rest of the house:
“Check the conditions of doors and windows. Do they look maintained, and do you feel a draft coming from them? Try to open and close all the doors and windows, so that you’re sure they’re functioning properly.
As for roofing, check out if the previous owners have maintained the roof, and also try to look for moisture inside the property. Look for cracks and damage on the building as they’re a sure sign of neglect.
“Also, if the property is older, make sure the pipes are not made out of steel since they have an inherent problem with draining water away. Concerning electricity, look for any exposed wirings as a warning sign not everything is ok.
Also, flickering lights can be a sign of faulty wiring in the building. Consult an electrician to check it out.”
Not every issue will be apparent just from inspecting the house. That’s why it’s important to do your research and due diligence before even considering a purchase.
“Another tip is to do some planning upfront if you are considering a fixer-upper,” recommended Bodrozic. “This involves listing out all the projects you want, and determine a realistic budget by doing some research on products, brands and price points.”
“In addition, plan out the timing of the projects because you probably can’t afford them all at once, so you can prioritize which ones come first, and which ones you can still live in the house with for a few years before you can tackle them.”
But that’s not all!
“Another big issue is permitting,” Jeannie told us. “Has the house you’re considering had an addition to increase the living space and was it permitted?”
“If an addition was done without permits and you’re doing work such as electrical rewiring or replumbing the house and in inspector comes out, they may find that the addition wasn’t permitted. You might have to completely demo that illegal addition.
“Research before purchasing can be done online sometimes but not in all cases. Phone calls to the county or city permitting office may be enough but an in-person visit might be necessary.”
Know who you’re working with.
In addition to the details of the house, the details of who you’re working with can be as or even more important.
“The most critical and sometimes not realized pitfall until it’s too late, is having a reliable and good contractor,” urged Jeannie. “A bad contractor can literally destroy your budget and your dreams of the finished product.”
“Imagine having to not only fix what’s wrong but redoing the things you’ve already paid for. We’ve gone through this in our business and it DOUBLED the budget.”
And of course, as we mentioned earlier, it’s vital that the sellers you work with are trustworthy.
“As for the final advice, if the seller is uncooperative and unwilling to help you make these checks, he’s hiding something,” warned Stoddard. “So better make sure you’re out of there before you buy and later regret it.”
Take care of your money.
On this blog, we frequently write about how people can improve their financial outlook by avoiding short-term no credit check loans like payday loans, cash advances, and title loans. But getting stuck in a money pit could easily be far more costly than any of those predatory bad credit loans could ever hope to be!
Buying a home will always be expensive and come with its own set of risks. But the more careful you are and the more research you do, the better your odds will be of avoiding a money pit—and the better your financial outlook will be moving forward.
To read more about saving money on home maintenance, check out these other posts and articles from OppLoans:
- 6 Ways to Keep Your Home Warm for Less
- How You Can DIY Your Way to Cheaper Home Maintenance
- 9 Tips for Keeping Your Security Deposit
- 12 Tips for Getting Rid of (and Selling) Your Extra Clutter
|John Bodrozic is a co-founder of HomeZada (@HomeZada), an online and mobile home management solution. HomeZada strives to educate and provide resources for homeowners in all areas of home management, including home inventory, home maintenance, home finances, and home improvement projects.|
|Jeannie is a married, stay at home mom in Atlanta and is currently pregnant with her second child. She’s also a real estate investor. In her free time, she loves to travel, read, go for walks in nature and go to the movies.|
|Bryan Stoddard runs a website called Homewares Insider (@homewaresinside) that explores all things related to homes, interior design, furniture, and gardening. I’m also a passionate home designer that loves to tinker with DIY and design schemes.|
The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.