Flipping houses is one of the most common ways to earn money in the real estate industry. In fact, a lot of real estate investors start their careers fixing and flipping houses. This is mainly because compared to investing in multifamily lots or buying rental properties, flipping houses is a relatively more affordable endeavor, especially for investors working with limited capital.
But flipping houses can be just as financially risky as other real estate businesses. Even though you may be buying a fixer-upper at a very low price, there is still a chance of minimizing—or sometimes even eliminating—your profit margins if you choose the wrong house with the wrong price tag.
To avoid throwing down your investment into a money pit, here are a few signs to look for when evaluating a prospective fixer-upper:
1. Completely ruined siding
If almost all of the house’s siding is ruined, be it by age or weather damage, you may want to walk away right then and there. Why? On average, siding on a 1,500 square foot home can cost up to $8,000 to $11,000 to replace—and if you’re on a tight budget, an expense like this can eat it up very quickly.
But if the siding has damage on a few small areas only, good siding repair can restore it to its former glory. The cost of which will depend on the extent of the damage, but it is far more affordable than a complete redo.
2. Foundation problems
Issues in the foundation are not always obvious unless you are specifically looking for them. When you tour a potential home, keep a lookout for these signs of foundation faults:
- Doors and windows that won’t close or open all the way
- Cracks in the interior or exterior walls
- Cracks in the foundation
- Sloping floors
- Rotting wood
- Expansion joint separation
- Cracks in tile floors
- Walls pulling away from the house
One or more of these signs indicate that there is a problem with the home’s foundation which can only grow worse over time. Savvy home buyers will also be looking for these potential issues and won’t be too keen on offering you a good price if they find any. That said, if you are not ready to spend thousands of dollars repairing (or replacing) the foundation, you probably want to move on to your next option.
3. Extensive roof damage
The average roof lasts for around fifteen to twenty years, depending on its material. Check the home’s records to see when the last time was the roof was replaced and ask the seller if there were any repairs made on the roof while living there. If you are unsure about the age of the roof, hire an inspector to check its condition and determine if it needs replacing.
A new roof can cost around $5,000 to $12,000, depending on the type of roof material as well as the size of the house. To cover some of the costs, ask the seller if they can lower the asking price during negotiations—if they agree, then you probably don’t have to take the property off your list just yet.
4. Pest infestation
Getting rid of pests can be expensive in and of itself. But when there are pests in the house, there is also likely to be damaged from their infestation. For instance, active termites can incur high extermination costs, but their presence also indicates lower structural integrity as well as extensive damage to wooden structures in the home.
A rodent problem may also come with additional costs other than extermination fees. Rats like to chew on electrical wiring, and if they have managed to damage the home’s wiring extensively, you are in for a whole new world of repair expenses altogether.
When touring a home, look for these signs of pests:
- Carcasses, droppings, eggs
- Sawdust piles near wooden structures
- Chewed up wiring
- Grease marks and tracks
- Live pests
- Unpleasant odors
- Holes or chew marks
5. Major systems that are too old
If you are eyeing an older home, check the major mechanical systems (e.g., HVAC unit, boiler, and ventilation fans) for their age and condition. Replacing these systems can cost an arm and a leg, so think twice before buying a home that is in obvious need of mechanical updates.
All houses are potential money pits, even the ones that look “okay”. If you want to maximize your flip and get the most ROI, look out for these signs when touring each prospective home. If you find them, then you may be looking at a very expensive flip.