Money Pit or Smart Investment: Signs to Watch Out For

 homebuyers and home inspector doing a walk-through

A Chicago couple found a 1940s bungalow that seemed like a solid home. Then they called in Frank Lesh, an inspector, who pointed out that while the house bones were fine, the plumbing needed updating, and the roof was in bad shape. They passed on the house.

Impressed with Lesh’s inspection skills, they called him in again to look at a second house. Cosmetically, the first and second floors were well renovated, but there was a dark disappointment hiding in the basement – asbestos insulation surrounding water pipes, and asbestos on the floor. It would it would have cost a fortune to mitigate the asbestos, Lesh says. A second pass.

But the third property was more promising. Upon inspection, Lesh found the home had been cared for with small renovations made over the years. They finally found a nice house, after having paid me for three inspections, he says. It shows the value of having an inspection, because the first two would have been real money pits.

No one wants to buy into a money pit – a home that needs an extensive investment to update knob and tube wiring, remedy a roach infestation or abate asbestos – or perhaps all three.

A house doesn’t have a ‘check engine’ light, Lesh points out, so an ASHI Certified inspector is your best bet for uncovering problems. But while touring open houses solo, here are Lesh’s red flags that may indicate a lemon of homes.

Examine the Exterior. When approaching a property, Lesh takes in the big picture. If it’s sitting in a valley, the home may be at risk for water problems. “Then I look at the general maintenance of the house exterior,” he says. “Not whether there’s new paint, or flowers, but if the gutters and downspouts are in good condition and directed away from the house, and if the roof is in reasonable shape.” If there are a few missing shingles, no big deal. But if you note cracks in the foundation, or a sagging roofline, there may be structural issues at play.

Watch for Water and Electricity. Water is the biggest problem for a house, Lesh says. Whether due to a broken sewer line or leaks into the basement or attic, water can cause further issues such as mold, rot, and insect damage. Then we’re talking about big money, to repair serious defects, he says. Old electrical wiring can be a shock – both physically and financially – if it requires updating.

Inspect for Insects. Termites and carpenter ants can gnaw away at the bones of a home. A house is made of wood, and that’s what they eat, Lesh says. It takes an expert insect inspection to discover the extent of the damage and checking behind finished walls and ceilings to see if bugs are in the walls and subfloors. A good pest inspector can hear them or use infrared to see if they’re giving off heat behind the walls, he says.

Avoid Asbestos, Mold and Lead. These three can be a costly trifecta. Asbestos is generally not a huge problem if found outside the home, Lesh says – on the roof or siding – as long as it’s not disturbed. Inside the home, asbestos in flooring or insulation can require mitigation by a licensed professional, which can quickly add up. Abating lead paint – often found in older paint – also requires professionals who can contain the dangerous vapors and chips that are produced. Mold is a symptom of a systemic issue, such as water intrusion or poor ventilation, but can destroy a home.

Scrutinize That As-Is Clause. An as-is clause can be a warning sign to get an inspector, Lesh says – you’re buying the home as it is right now, so ensure you’re mentally ready for what you’re purchasing, and your bank account is prepared to pay for any necessary contractors. In tough markets, some homeowners are forgoing inspections altogether, which can lead to pricey surprises later on.

Whether a house is a money pit or smart investment often depends on the money and energy you possess (and are willing to spend) to rehabilitate a hobbled home, and if fixes are cosmetic or structural. An objective opinion can come in handy.

When inspectors are looking at a home, we don’t care which school district it’s in, or if there’s a pink toilet, Lesh says. We look at the house as a system.