In some ways the purchase of a car is similar to the purchase of real estate. Like a car there are generally less concerns when buying new. Older cars and buildings can have deferred maintenance issues. You will soon see there can be many other issues as well.

As investors we commonly check that a used property is sound and fit to be used as a rental. Sometimes though there are hidden surprises that are harder to see or take more digging to find. If they are not found before you purchase the property they can prove to be hidden time bombs.

I recently spoke with an investor that bought a property in Maine. The home had recently been remodeled looked quite well and was sold as an energy efficient building. As winter rolled in my friend discovered the home had little to know insulation – a huge problem in Maine. Can you say unhappy tenants and big utility bills?

This kind of surprise usually sees the light of the day early on. Other surprises can be just as costly or more costly and lay hidden for years.

When buying used property one of the things you learn early on is to check the county records. You may be surprised to find out how many times the county records don’t agree with the property you want to buy. There can be many discrepancies sometimes they are minor and sometimes quite major. Common examples are differences in square footage of the land or buildings, the heating source may be different, number of bedrooms or baths may be different, etc. It becomes more difficult when the county or municipality you live in has poor records.

So why do care if there is a difference between the county records and the home that you buy? Well sometimes it is indication that work was done on a property that was unpermitted. Sometimes inspectors and appraisers fail to note unpermitted work. In my experience if you place trust in an appraiser catching these things you will find that it gets missed when you buy the property but becomes an issue when selling it. You also don’t want to count on a county’s poor records as a way to avoid costly fixes.

Recently, I corresponded with an investor that went to refinance an investment property and was rudely awakened when the appraiser noted discrepancies between the county records and the home they were appraising. The appraiser checked for permits and found none. Unfortunately the county became aware of it and it became a costly problem. The county wanted the unpermitted work brought back to its original state. The county didn’t know the original state and the investor couldn’t find anything to document the original state.

Buying an older property with a permitting problem is only one of the risks. Sometimes we as investors create our own problems by doing some rehab work without permits. Repair work can become even more costly when it is discovered that lead paint, mold or other hazardous condition exists.

Another very real time bomb can be underground oil tanks or heaven forbid the do-it-yourself auto repair person that discards the oil they change in the back corner of the property. Environmental issues are becoming a bigger and bigger concern especially in some communities.

You can protect yourself by doing your due diligence up front. You will want to inspect your properties periodically to be sure that tenants aren’t creating liabilities. When you hire or perform your own repairs or rehab work make sure to get any necessary permits and be sure that a final inspection is completed and signed off.

BawldGuy Here: This post is especially timely for my family. My daughter is about to close on her first home. The inspector I sent her to immediately noticed the need for a complete reroof. The appraiser’s report? Not word one about the roof. There’s no debate about it either. Yet FHA has built a rep over the decades as a stickler when it comes to needed repairs. FAIL. It’d been reroofed with comp shingles over original comp shingles, which is acceptable. However, it wasn’t done to code, not even close. There were key materials omitted for Heaven’s sake. If missed, the cost for a new roof was around 2% of the home’s purchase price! The buyer’s agent caught it the first couple minutes there. So did the inspector, who’s the best of his industry I’ve personally known.

Then there’s my need to acquire a new place to live, due to the need for guest quarters. BawldMom needs to be closer. Earlier this week I found the perfect solution. One problem though. The ‘granny flat’ they’d built, and pretty well I might add, isn’t mentioned by the county tax assessor. In fact, the assessor makes an unequivocal declarative statement that there is only one building. I’ve been there. The two buildings are literally over 20 feet apart. The only thing connecting them is the dirt on which they’re both built. Now, even though I’d love to ignore this new knowledge, I hafta call the listing agent. I don’t wanna cause his client any problems by talking with the city about it. Are there permits? Did it used to be another kind of building they later converted? Who knows? I sure don’t. Tell ya what I do know — I know I’m not gonna buy it only to be told later by the powers that be, after Mom moves in, that it must be torn down.

This post is excellent. Chuck speaks truth.