Location Location Location – Some properties have it all – Or do they?

Have you ever wondered how honest the bank, REO agent, Or Fannie Mae are about the investment properties they are trying to unload. A short time ago a Denver Real Estate Investor went out and put a great investment house under contract. This Fix and Flip house looked great. The property had a complete rehab completed just 10 years earlier. The carpet was stained ( with hard wood floor underneath) and it was missing a couple of cabinet drawers in the kitchen. And you could pick this property up for $100,000 to $150,000 under value. This Denver investor property was a quick flip in the making.

Or was it?

Let’s take a closer look at this investment. This was an old plaster house with a bunch of additions. And great mountain views. But the original plaster texture was gone from every room. Why would someone do that. We pulled the old permits. It seems this Denver wholesale house had some serious foundation problems and they jacked up the house and put it on piers. Great the work’s already done. But hold on, The concrete block walls do not look right. Always, always bring in your structural company and have them review past work. This wholesale property investor brought in two of his contractors. One said run as fast as you can. The other contractor said it’s nothing that $50k for half the job or $100k for the complete job couldn’t fix. Wow this Denver investor deal is not looking quite so good anymore.

So the investor house in Denver still might be a good deal right. Well not really. When a closer property inspection was done it was found that this investment property in Denver had a major condensation problem that had gone on for years. There was mold throughout the house. Both in the main house and the attic. Now go try and sell that fix and flip house to someone. The master bedroom would require the drywall to be demo’d to actually fix the framing and venting issues. Of course if an investor was not ethical, a coat of paint would cover up the problem for a couple of months.

So could this investment property become a good deal. Hardly. Our investor thought the best thing to do was tear it down at this point. Though that might be a bit drastic.

But this leads to the other question. How did the bank, Fannie Mae, and the Denver real estate agent deal with the bad news from the inspection. They didn’t, that’s how. They refused to accept any information that informed them of the problems. They even stated that they would accept nothing that noted there was any mold issue. There was so much water flowing into the crawl space that without the sump pump it filled rapidly with water. Since the Denver Real estate agent successfully kept the investor from informing the bank of the property issues they could go sell the house to an unsuspecting homeowner or investor.

So what’s the moral of this story. Be sure you do your due diligence. Just because the Denver investment house is an REO and it’s is sold well below ARV, does not make it a good deal. Get your inspectors out there. Even as investors we can fall in love with a Denver investment property and over look a few minor (but expensive) items.

And most importantly never trust the seller to disclose anything they know. If you haven;t figured it out yet. The banks are in this for themselves and do not care who get’s hurt in the process.

So go find a property – And get it inspected.