Homebuyer’s Beware of that New Car Smell

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The salesman hands you the keys and says “take it for a spin”. You are now sitting behind the wheel of that new car you’ve been dreaming about. You melt into the seat, the radio plays softly and the smell, oh that new car smell!

Buying a new car and a new house have many emotional similarities with one exception, there is no Lemon Law for that new house you just spent several hundred thousand dollars acquiring. It’s yours with all of the amenities and all of the problems. “Problems, what problems” you say?

The lure of a new house with its freshly painted grass, manicured flower beds and new granite kitchen is hard to resist, but underneath all of that spit-shine and polish, are you Buying a House of Cards?

Real estate flips, buyers and investors who buy a property, fix, remodel and resell have become commonplace in the last few years. Thanks to the highs, then lows of the real estate market, distressed properties for sale, short sales and bank foreclosures have offered increased opportunities for wealth. These properties are usually very easy to spot.

5 Common Characteristics of the Flip

1. A Shiny New Appearance – new paint, new windows, new yard, refinished hardwood floors, new kitchen, remodeled baths.
2. They are Vacant – the previous owner probably lost the home due to the inability to pay the mortgage
3. Few Disclosures – don’t look for a lot of comments and in depth explanations. It’s hard to define the history of that 80 year old house when you have owned it for 3 months.
4. Short Sale or Trustee Sale -the current owner purchased the property through a Short Sale or Trustee Sale. It’s much easier to add value and make money if you buy below market price.
5. Entity Ownership -lastly, the current owner maybe a corporation or some form of Business entity.

Okay, we have identified the characteristics of the real estate flip, but so what?

At this point, most home buyer’s would walk in and immediately succumb to the new car smell. But what is under the hood, what kind of gas mileage are we talking here?

Systems of the House

It’s very easy to address the things you see and have an immediate attraction. But what about the things you may not be so familiar with. What about the systems of the house, more specifically the electrical, plumbing, foundation, HVAC (heating, ventilation and air conditioning) and the roof.

These are the not so glamorous parts of the house. These are items its harder to place a value on because as a home buyer you tend to place a value on the things you see. You can see the value in a new kitchen, but can you see the same value in new copper plumbing?

Chances are you cannot and this is why that shiny new home may have some underlying issues you need to carefully investigate. Real estate investors / flippers are in it solely for one reason…profit. The more money they put into the house, the less that goes into their pocket.

New roofs are expensive as are new copper pipes. There is a certain amount of money someone will invest to turn it around and make money, so you put it into the amenities that add the most value.

The best way to protect yourself is to hire a very good and thorough home inspector. But don’t just stop with a general inspection, check the fireplace and the sewer lines. These require specialized inspections and may prove very costly later on if you are facing repairs.

Of particular note, if some parts or areas of the house, don’t exhibit the same quality as the remodeled interior, that may be a tip off. The owner may have reached their budget and decided to leave those repairs up to the new homeowner.

If that’s you, just make sure you have investigated the condition of the house as best you can. Lemons are for ice tea!