10 Warning Signs Before Buying A House: Be A Thorough Inspector

Before buying a house, you should look out for various warning signs or red flags. As someone who has purchased and sold multiple homes since 2003, let me share 10 main warning signs to look for. If you find issues, you need to have them fixed during the contingency period or ask for a price discount.

Every buyer must be a thorough home inspector. The last thing you want to do is bid an enormous amount of money for a home and then have to come up with large unexpected costs.

After inspecting hundreds of houses and buying and selling multiple properties over the years, let me share with you some sneaky things sellers deploy to make a house look better than it really is.

The more tips you know before buying a house, the better. A house is likely going to be your biggest financial asset. And if you're going to take out debt, then all the more reason to beware of as many warning signs as possible.

Warning Signs Before Buying A House

Selling a property is stressful. Anything can happen during the ratification process, especially if you accept a no-financing contingency and no-inspection contingency offer.

Your goal as the seller is to make your property look as good as possible in as cost efficient manner as possible. Therefore, the cheapest and easiest things to do are paint, change light fixtures, clean, and redo the floors. As a buyer, you need to look beyond the cosmetics to see what's really going on.

Everything is generally fixable when it comes to a home. But you need to have a good understanding of how much things cost to fix. These warning signs can easily be discovered by you. You can then hire a professional home inspector to look through the issues as well.

Here are the 10 warning signs before buying a house. They are not the end all be all. If you like the house, just be aware and negotiate the price accordingly. When it comes to property, there's a saying that money is made on the purchase, not on the sale. In other words, negotiating is key.

1) Exterior cracks and tilts.

The inside can smell fresh from that wonderful floor varnish and paint, but problems with the exterior could cost you a fortune if you don't pay attention. Before buying a house, you must inspect the foundation for cracks and title.

Here's an example of a Victorian house in San Francisco that was purchased for $1.45 million. It looks OK, right? But when the owner went to get a permit to remove some decayed siding and a rotted door, he found more serious foundation issues.

warning signs before buying a house - foundation issues

Below is what the house looks like a year later. What went from fixing up some siding ended up being a complete demolition of the entire structure! Why? The foundation.

Because very often when you start rehabbing a property, the deeper you dig, the more problems arise. Once you're in there, you figure you might as well replace more and more stuff until you might decide to demolish the entire structure.

Fixing The Foundation Is Very Expensive

If you didn't initially budget to spend six figures destroying the house as a buyer, your financial situation will be seriously compromised.

On the other hand, if you did have plans to sneak a demolition in to save on permit fees to build a massive structure for a flip, then maybe you'll be just fine. Just make sure to have a wad of cash to pay off the building department employee who has to approve your new structure!

Bring a leveler, preferably with a laser pointer. Make sure the cracks aren't much more than 1/4 inch wide. If they are, you should get a structural engineer to inspect. A lot of sellers will attempt to mud over and paint the cracks, so look out for a paint or surface mismatch as well.

demolished house - warning signs before buying a house

2) Ownership history – high turnover is a red flag.

Just like when you see a resume which shows a new job every year, a home with high turnover is also a serious warning sign. I consider high turnover as any home with an average ownership length of three years or less per owner. For perspective, the average length of ownership for a home in America today is about 11 years. You can easily check homeownership turnover online.

It's really hard to truly know what it's like to live in a home until after you've taken possession. My biggest fear about buying my old SF rental property was that it was on a busy street next to the busiest street in all of San Francisco. My then girlfriend and I camped out for hours during the day and evening before making the purchase.

Yet even then, once we took ownership, we discovered we had underestimated the constant honking, rattling manhole cover, and tremors from the traffic. I ended up spending $10,000 for sound deadening windows. They were installed behind the original windows which I also replaced with dual panes for another $10,000.

Having multiple owners in a short period of time is one of the biggest warning signs before buying a house. It should really make you wonder why the previous owners didn't hold the property for longer.

3) Look for water damage concealed by paint. 

If you conceal water damaged areas with paint, you trap the moisture in the walls that will likely lead to mold. Black mold is unhealthy to breathe.

Look carefully at the underside of drawers and sinks in the kitchen. Look at the base of the tubs and toilets. One of the biggest culprits is the sheetrock underneath window sills. If you see soft or warped sheetrock, you know there are leaks.

Also look for peeling wall paper and bubbling in walls that are underground or backed up to soil. If there is peeling and bubbling, the wall is damp and needs to be opened up and fixed by a reputable company.

During my 10 years of ownership, twice I hired a handyman to cut out the sheetrock, replace with new sheetrock, mud, sand, and then paint. In preparation for my sale, I also did some of my own patching and sanding work as well. Nevertheless, I still had to disclose the leaks in my disclosure package so they couldn't use the lack of information to back out.

Ultimately, you want the source of the water leak fixed from the outside. A seller omitting items in the seller's disclosure package is a red flag. A seller should be as open and honest as possible. But of course, not all sellers are. Buyers must be diligent in reading all disclosures.

Black Mold And Foundation Damage From Water

Black mold, dry rot, and patchy walls are a warning sign the house has a leak. The longer the leak, the more water damage there will be in the interior of the house.

Always ask the listing agent about any potential previous leaks. They must disclose this fact in the disclosure statements. Also, some rain storms are stronger than others.

You never really know how much bad rain and weather a house can withstand until it goes through some severe storms. Hence, it's better to buy a house after experience a particularly terrible winter or storm. If the house is OK, then it stands to reason the house will hold up agains weaker storms.

Over time, pooling of water can also damage a foundation. Look out for standing puddles around the house and puddles close to the foundation. Ask if a house has French drains installed so that water can be whisked away from the house's foundation.

Water damage is the most devastating to a home's safety and value after fire.

Black mold damage is bad for you - warning signs before buying a house

4) Uneven or bouncy floors.

No home is truly level. However, some homes are more level than others due to settling. Bring a marble to an open house and place the marble around different areas of the floor of each room. The older the house, the likely the more uneven the floors. Sometimes a house will aggressively settle, creating a hump in the middle.

Deflections may be costly to fix because you've got to rip out the existing floor, correct the support columns, find a matching floor, and finish it to match the original flooring. And if there are very uneven floors, foundation work might also be needed.

It is natural to have uneven floors for older homes that have settled over time. In fact, an older home where the foundation has settled may be safer than a new home where the earth has not yet had a chance to shift. If the previous homeowner has obviously done foundation work, like install a concrete I-beam and a steal beam for support, you are likely good.

Either way, you need to make sure during the ownership history, the owner has done something to bolster up the foundation. Concrete I-beams and steal-beams are always good. So is earthquake proofing the home.

Floor Deflection is Serious - warning signs before buying a house

5) Beware of room fresheners. 

Some stinky people wear deodorant or perfume. Therefore, some stinky houses are often sprayed or decorated with scented candles or potpourri. Your mission is to find out whether there is an insidious odor emanating somewhere in the house. It could be a leaky pipe, mold, sewage, cat and dog pee, etc.

6) Beware when music is playing in each room.

The agent/seller is trying to mask the noisiness outside. I know, because this is exactly what I did when I had potential buyers come over. I turned on the central fan to create some white noise and played some music in the master bedroom. Insist that all music and AC be turned off so you can determine the noise level yourself.

7) Areas the seller won’t let you see.

If a seller won’t allow access to the crawlspace or a room in the property until you are under contract, they probably have something to hide. The listing agent should let you see and inspect everything. Otherwise, this is a big warning sign to be aware of.

8) Sellers providing incentives to waive inspection.

There is no reason to waive inspection unless there is something big to hide. Always have an inspection contingency. It is your leverage to get out of a deal or negotiate your price lower.

That said, in a strong housing market, putting in a home inspection contingency may make your offer uncompetitive. Therefore, if you do waive the home inspection contingency, make sure you thoroughly inspect the house during each visit before putting in an offer.

Water proofing leaking light well - Warning Signs Before Buying A House
Water proofing a leaking light well before I sold with Flexall sealant

9) No permits for work done.

Doing a lot of remodeling without permits is one of the largest warning signs before buying a house. If the seller hasn't used any permits, what other shortcuts could the seller be doing without telling you?

You should always ask to see the Report of Residential Building Record aka 3R Report. The 3R report is like the report card for your property. If the seller says they added a new deck, the new deck should be in the 3R report. If it's not, then there is a chance the deck was not built up to code. You don't want to mess with safety.

You should have your inspector thoroughly inspect everything that was done without a permit. There are some things that really don't need a permit, such as remodeling a bathroom or changing windows. But for major structural and electrical work, a permit is very much preferred.

The biggest reasons why homeowners don't get a permit are due to cost, time, and ongoing higher property taxes. Personally, I won't buy a home that did anything major without permits. Major items include building a deck high off the ground, kitchen and bathroom remodels, and electrical re-wiring.

10) Spray painted hedges.

Who the heck would spray paint their hedges? It looks so fake. Yet here I was, minding my own business on an afternoon stroll when I saw a realtor do just that. They also bought new grass for their once dead front lawn. Smart on the natural grass, but not so smart on the spray.

Curb appeal is very important. Landscaping ads value to a house, so does a great deck. But they must be done right. If they are taking this shortcut, what other shortcuts could they be taking?

spray painted hedges - could be a red flag
Spray painted hedges is a red flag!

More Warning Signs To Look For Before Buying A House

Thanks to Financial Samurai reader feedback, here are even more warning signs to look for before buying a house. Everything is fixable, it just costs more money and time.

  • Visibly rotted wood on the siding/trim
  • Wood rot on the deck
  • Peeling roof shingles (hard to see from the ground)
  • Deteriorating landscaping/retaining walls
  • Number and types of electrical outlets and whether the electricity has been upgraded
  • Seeing light through a closed exterior door or window means it's drafty
  • Doors that won’t fully close
  • Slow or clogged drains
  • Leaky pipes under the sinks
  • Presence of roof and window flashing, which is important for preventing leaks
  • Clogged gutters
  • Cement sloping toward the house/low spots near the foundation.
  • Abestos, especially with old ducts and furnaces
  • Galvanized plumbing that is getting rusty or falling apart (copper and PVC preferred)
  • Old electrical main and sub panels with old wiring
  • Mass exodus from the neighborhood. Don't let a home's curb appeal keep you from glancing down the street
  • Bad smells (inside or outside)
  • Locked doors and blockades
  • Foggy or nonfunctioning windows

The more warning signs you can recognize before buying a house, the better. And if you're looking to upgrade homes, you need to be even more vigilant because you're spending more money.

Be Super Vigilant With Your Home Inspection

Now that you know the warning signs before buying a house, you can now buy with more confidence.

Each time you visit a property you want to buy, put your inspector's hat on. Test the electricity and water. Inspect the foundation. Look at the electrical box and see if it is properly labeled. Bring a marble and a needle to inspect the floors and sheetrock. Look at the ceilings to see if there is any new paint spots. Don't forget to bring a notepad too.

A good disclosure package will highlight all the problems of the property. But it's up to you to verify the problems are what they say they are, and not something worse. Having a home inspection contingency gives you an out. You should make it your mission to find even more problems and use them as leverage when negotiating.

Negotiate On The Purchase Price

After coming up with a detailed list that needs fixing, you've also got to come up with a detailed remodeling budget. This is when you can negotiate on price before ratification or after ratification.

Write a price concession letter if you find too many things wrong with the home. Also write a real estate love letter as well to create a connection with the seller. I've written both types of letters to the sellers for my past three homes. As a result, I've saved hundreds of thousands of dollars in the process.

If you keep detailed records of your finds and present them to the seller, the seller should be amenable to some type of compromise. The last thing the seller wants is for the deal to fall out of escrow.

Also consider your short and long term housing needs. Your forever home may be a great fit now. However, those needs will likely change down the road.

My Previous House Had Deferred Maintenance Issues

Part of the reason why I sold my old rental house was because I didn't want to spend more money fixing it up. The house was on a busy street, so no matter how nice I made it, I knew manny potential buyers would balk at the location.

My kitchen and a couple of bathrooms hadn't been remodeled in 25 years. My HVAC unit was 20 years old. Further, my roof had a couple of weak points, which after 12 years, needed some professional maintenance beyond me getting up there and spraying everywhere with a roof patch. I didn't want to spend $200,000 – $300,000 updating the house, especially because it was a rental.

Although home prices should continue to do well over the long run, I'm happy I sold to reduce my homeownership headaches. The sale proceeds have all been re-invested in completely passive investments.

Inspect A Home Thoroughly

Always take your time to properly inspect a home before buying. Find a professional inspector or someone who is at least knowledgeable about the home construction and remodeling industry. You should be able to go back multiple times to inspect the home, take pictures, and take videos.

Finally, carefully read all the disclosure documents. The seller and the selling agent are required by law to disclose everything about the house that is possibly known. If you want to understand more a particular disclosure statement, simply ask.

Take your time in carefully evaluating a property. A real estate purchase will be one of the largest purchases you will make in your life. If there are other warning signs before buying a house we should know about, I'd love to hear them.

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Shop Around For A Lower Mortgage

Always check online for the latest mortgage rates. It’s free and takes less than three minutes to get real quotes. The more qualified lenders who compete for your business, the likely the lower the mortgage rate you will get.

Mortgage rates are finally coming down, which also opens up another real estate buying opportunity. By the time mortgage rates decline by another 1 or 2%, I suspect the demand bidding wars will be commonplace again. The pent up demand is growing as life goes on.

NMLS ID# 1681276, Address: 320 Blackwell St. Ste 200, Durham, NC, 27701

About The Author

86 thoughts on “10 Warning Signs Before Buying A House: Be A Thorough Inspector”

  1. Simple Money Man

    Awesome list of things to look for; thank you!

    Do you think a lot of the risk of these issues can be reduced if you just decide to purchase newer property – brand new or up to 10 years old? What about buying a condo with a property management company that has uniform rules for the owners and takes care of repairs – would that provide additional comfort?

  2. Two items that are worth mentioning… 1) get smart on drain systems, mid 1970’s homes in the US transitioned to PVC which does not corrode. Previously cast iron was the standard, if maintained, cast iron can last a long time, but if you have a bad cast iron pipe sunk in slab, this is a major repair. 2) get smart on termites, especially in California – at least in the coastal areas, due to the weather they never really die. A home may be great in all the areas Sam commented on but the wood can be near hollow.

  3. Excellent and timely article. Just what I needed to hear. Do you recommend doing an official home inspection before making an offer?

  4. Purchased a house in Honolulu in 2021 – had a few disclosed foundations issues. Had to weigh the repair cost + discount against passing and risking higher rates and home prices. Went ahead with the purchase – foundation repairs will cost about $60K but in the end I think we made the right decision given where the market is now.

    1. $60K not too bad for foundation work. Glad you’re enjoying your home!

      Wish I bought a Hawaii house in 2019 before the pandemic. Coulda! But bought a fixer in SF instead. At least it generations good cash flow.

  5. Why didn’t the RE agent just trim the brown leaves? Oh well. Two other things in older homes: potential asbestos and galvanized plumbing.

      1. Galvanized plumbing is famous for corroding from the inside out. Was used a lot in the 50’s before PVC.

          1. Copper is more expensive and is used mainly for the water supply. PVC, is generally used for the drains and major pipes. PVC is also very easy to work with.

              1. Sam – you should look into pex plumbing, miracle product, especially for remodels, economics and durability of copper don’t hold up to pex

                1. You should do another one, remodels are where the $ is, all the best property has already been developed long ago, unless you are building on a huge tract of land embrace the demo and remodel!

  6. We bought our first house two years ago and it has been a whirlwind of fixing deferred maintenance since then: new roof, new siding, insulation, electrical, landscaping, new water line, gutters, and a lot of caulk. I wouldn’t have called the house a fixer, but it certainly has taken a lot of our time on weekends. Since we mostly DIY it hasn’t broken the bank, but it hasn’t been cheap either. I think there is a light at the end of the tunnel finally.

    If I could go back, the things I would look for in addition to your list is visibly rotted wood on the siding/trim, peeling roof shingles (hard to see from the ground admittedly), deteriorating landscaping/retaining walls, number and types of electrical outlets (how does anyone get by with one outlet per bedroom?), seeing light through a closed exterior door or window (drafty!), doors that won’t fully close, slow or clogged drains, leaky pipes under the sink, presence of roof and window flashing, clogged gutters, cement sloping toward the house/low spots near the foundation.

    There often isn’t enough time to check everything but it can save you the headache of going through an offer if you find a lot of things on your first visit. Often times we’re too focused on the finishes and not enough on the foundations. Going through this has taught me a lesson about what to look for when we’re ready to move again. I might just pull out our old inspection report so I know what to look for!

    1. Thanks for adding to the list! I will add them to my post to help everyone before buying a house.

      It’s good you are a DIYer with the time and skills to do so. Most homebuyers do not!

  7. I’ve been planning to sell my residential home; that’s why I’m having it inspected already, so I will be able to fix any problems right away. I never knew that uneven floors indicate that the foundation of the house must be repaired already. Since my floors are not in great shape, I guess it’ll be best to hire a foundation repair service.

  8. My sister would like to buy a single-family house, and that is why she would like to hire a real estate agent. Well, you made a pretty good point that it would be best to have the property inspected first. It’s a good thing that you clarified here the importance of checking the home for any foundation issues.

  9. rachel frampton

    My husband and I would like to buy a residential house this year, which is why we would like to buy home insurance too since this may protect us, just in case damage occurs. This article is excellent when it comes to explaining that we must check whether the prospective property has a high turnover. We’ll also keep n mind to scrutinize its exterior for any damage.

  10. I’ve been wanting to buy a newly constructed house, which has three-car garages and an outdoor fireplace. I agree with you that home inspection is mandatory because this will help me determine if the prospective property has decayed siding or a rotten door. You’re also right about the importance of checking whether the sheetrock is still in good condition.

  11. Adam Golightly

    My aunt has been thinking about buying a new home so that she can move and live in a better neighborhood and it can be a lot safer. She would really like to get some help from a professional so that she can find a house that fits her needs but is still within her budget. I’ll be sure to tell her about how taking notice of how often the home changes owners can be really important and indicate if they are any problems or the street is loud.

  12. Alice Carroll

    Thanks for the tip that I should diversify the kinds of properties that I’m buying for real estate investment. I’m thinking about buying my second house next year and I think it would be great if I can find one that I can use as a rental home for some passive income. Perhaps I should look into buying vacation homes for my next purchase since my father told me that those tend to appreciate in value at an increased rate.

  13. Rebecca Gardner

    Thanks for mentioning that sellers may try to turn on noise or a fan to mask how noisy the house is. My husband and I want to start looking at three-bedroom homes for sale because our two daughters have been asking about getting their own rooms for months now. I’m glad I read your article and learned some helpful warning flags to keep in mind as we find an agent and start looking at residential homes for sale!

  14. Tamaki Auckland

    While buying new property you need to look numerous things which are important however you need to plan at what budget you can buy new house and then for extra things which makes you home as perfect place to live in.

  15. Greta James

    Thank you so much for your advice to look for moisture that could be trapped in the walls. FOr the last few days, my sister has been telling me how much she wants to find her dream home and buy it. I wonder if she should look for surveying companies that can make sure the building is sound before she buys it.

  16. Derek McDoogle

    I like how you suggest to always inspecting a house’s exterior because it can have severe damages on the foundations. My brother told me that he is ready to start looking for a house to buy. I will share this article with him so that he can be careful with the house that he chooses.

  17. It’s interesting to know that one of the things that you consider when buying a house is to find any unpleasant odors that are a sign of mold, sewage, or a leaky pipe. My husband is thinking about buying a house for my mother, and we are looking for advice to find the right house for her. I will let her know about your recommendations to help us find the best house for my mother.

  18. very informative and helpful ,just a question i just moved in a house only to discover the drain is blocked ,im not even a month in this house drain problem it looks like was hidden.

    as its only two weeks after occupation can you help please

  19. Wow I am very impressed with this article and want to thank you for all the details you have listed. i truly believe that you just saved me from making a huge mistake in buying the wrong house. Looking at homeowners history as well as the permits and structural issues along with permit problems causing violations ion the property then having to deal with all of that would be a nightmare. I’m glad I ran into this info! Thank You so very much:-)

  20. Kate Hansen

    I never thought about looking at the ownership history when buying a home. My daughter and her husband are wanting to buy a home for the very first time and that want to make sure that they buy the perfect ones for them. I’ll make sure to pass this information along to them as they search for homes.

  21. Derek McDoogle

    One of my best friends got married and he wants to buy his wife a house. I like how you said that some sellers provide an incentive to waive the inspection. I will advise my friend to make sure to have an inspection before buying the house.

  22. Dylan Peterson

    It’s good to know that you should make sure that any house that you look into buying doesn’t have any cracks or foundation issues. My wife and I live in a sketchy neighborhood, and we’d like to move to a nicer one. We’ll be sure to keep this information in mind so that we can find a quality house to live in.

  23. Interesting tips! As someone who has never owned a home, these tips are very helpful. I will definitely keep these tips in mind whenever I’m finally in a position to purchase a home!

  24. Priyanka Patel

    Hello Sam, I have never come across such resourceful article on the things to look out before buying a property. People mostly talk about price and loans but home inspection is also an important aspect. Thanks for sharing these amazing tips!!

    1. Just watch some Holmes on Homes tv episodes. They will scare you silly.

      Mike Holmes has tv shows centered around fixing homes that are not up to code or where inspectors or purchasers missed costly flaws prior to purchase (like drainage and structural issues). Watching too much could actually make you too scared to buy any house since few are well built and he often show the ideal, above code way to water proof, etc. It’s set in Canada but his books about what to look for are helpful regardless.

      The spray painted bushes is new to me! :) I’ve smelled a moldy house before and couldn’t figure out how you’d think you could get away with leaving it like that after flipping it. Clearly a problem was painted over at best.

  25. Stefan Bradley

    Thanks for mentioning that you should only buy a house if the seller allows you to see the entire thing before you are under contract. My wife and I are looking for a new house that is close to work and we wanted to know what to watch out for when looking for potential houses. We will make sure that we see the entirety of a house before making any purchases to ensure that we get what we are paying for.

  26. Steven Apell

    I recently moved from abroad to the USA. Its interesting reading these things. American homes use a lot of porous material to build …. wood , sheet rock etc. In my country we use bricks and concrete and tile floors instead of carpeting. So all these problems of a water damage and mold are not a bother. We have had same water heater for 35 years no problem. Makes me wonder if American homes like cars are not built to last ?

  27. Thomas Jameson

    It’s good to know that you should search for water damage concealed by paint when you’re searching for a new home. My wife and I are in the market for a new place to live, and we want to make sure that there aren’t any hidden problems lurking in the home we choose. We’ll be keeping an eye out for water damage as we continue our search.

  28. Thanks for helping me understand that the cracks must not be more than 1/4 inch wide to ensure that it is still in good condition, and it would be best to hire an inspector as well. I will follow your advice now that we have saved up enough money to buy our own house this year. We have saved up for this since 2015 so that my husband and I will not be renting anymore. This will ensure that we will be able to pick the right house out there.

  29. Hello! Thank you for this article. My husband and I are wanting to buy a house at our next duty station in either San Diego or Norfolk/Chesapeake/VA Beach area. I saw the previous comment about not buying in the SD area unless staying there for many years.

    Would your advice be the same for my situation? We’d be living in VA or CA for at least 4 years and do a VA loan. Our goal is for a home below our housing allowance to either invest, save, or put towards our mortgage.

    I would appreciate any thoughts you would have on this! Thank you for your time.

  30. William Feldman

    I’m curious…what’s your take on using savings to pay off a mortgage (put more towards principal) vs using that money for another investment (another real estate downpayment, bonds, etc.)?

    My grandmother always preached to get your first house paid off ASAP so that nobody could ever take the roof above your family’s head away.

  31. Michael Alacantra

    Excellent post. Please post more like this–very informative and much better than the usual–oh, get an inspection, oh get a good real estate agent posts.

  32. Hi All,

    Thanks. Sam. for this excellent post! It has so many helpful tips that I’d not thought of and will add to my list of things to hunt out when home searching. All these tips are very useful for renters, as well.

    For a healthier home, would like to include to notice how close by any cell towers and antennas might be, as they emit RF radiation. Also, if the interior walls have been “freshly painted” and new carpet put in, to be aware (depending on type and brand) can contain VOCs and out gas for a long time = indoor air pollution. Mold and radon tests would also be helpful.

  33. Hi Sam…some good points…however….
    In our area, just about ‘all’ of the issues that you have mentioned are now taken care of by simply hiring a ‘professional’ home inspection…a trades person who ‘knows’ and has the equipment to test for issues like moisture or settling problems …this is ‘always’ a condition of purchase in our area…and there is usually a clause that would allow for ‘revisiting’ the price if the cost of repairs goes beyond a certain amount… all of this for a cost of about 5 or 600 bucks!
    This safety net is in addition to the mandatory Property Condition Disclosure statement that makes up a part of the Contract to Purchase…that disclosure speaks to a wide range of issues from having obtained the necessary permits to water intrusion …illegal grow ops…etc etc…
    …so the only other critique I would offer is I thought the article started off a little cynical by suggesting that you would have to pave the palm of a local building inspector to possibly get your plans approved…if that was planned humor it fell short …if that’s the way things get done in your Town…you have my sympathies…

  34. Hey Sam,

    Thanks for articles!

    Just curious, when you were buying your first property what were cap rates/prices and how does that environment compare to present day?

    I’m a young buck (28) living in San Diego and I keep looking at SFRs and duplexes, but none seem to offer any sort of attractive return (cap rates are ~3%, maybe 4% in inland areas). I keep hearing from local investors on BiggerPockets that say prices here have always been high but we have one of the best long-term ROIs in the nation. I just don’t buy it. The numbers just don’t make sense unless you bank purely on appreciation. It seems like you’re passed the landlord stage, but wanted to hear your thoughts on buying at this point in the cycle, and in particular, buying RE in CA with super low cap rates?

    -Dan

    1. Hi Dan,

      When I bought my properties, the cap rate was closer to around 4-4.5%. Now they are at 2 – 2.5%. You couldn’t cash flow positive w/ 20% down when I bought in 2003 and 2005. It took about 2 years to break even. So back then, it was an appreciation play as well. But I found SF to be CHEAP relative to Manhattan, where I was for two years in 1999-2001. Therefore, I decided to buy all I could afford with the prediction SF would get just as expensive as Manhattan one day.

      Now, I’ve redeployed a lot of my SF rental house sale proceeds with RealtyShares to buy up heartland real estate with ~10% – 15% cap rates. No maintenance headaches, no property tax I have to directly pay, and no tenants to manage. I’m feeling great so far about my real estate crowdfunding investment.

      I don’t think now is the time to buy SD real estate. But if you plan to live there for 10+ years, it’s probably OK.

      Sam

  35. All this is very why I’m so happy I bought a co-op. Yes, I had to be mindful of the inside when looking at the property (and am responsible for any interior maintenance issues), but the building itself is maintained by a large property management company.

    Sincerely,
    ARB–Angry Retail Banker

  36. Nice guide.

    Where I live settling is pretty common in houses but it’s usually not a problem. I’m sure it’s a lot easier to see foundation issues in a single-family home with space all around it rather than a SF house with no space around it.

    One thing I’ve seen is in flipped houses if you find construction supplies around the house it means that things were done as fast as possible and the last 5-10% of the job rarely gets completed. I had a crumbly asphalt driveway with about 100 nails on it that I didn’t see for a while. Luckily I removed them all with a magnet on a stick before I got a flat tire.

    And another thing is when the property doesn’t physically let you see the whole place. If there is a garage on the property line the neighbors rarely maintain your garage for free and it’s a lot harder to maintain when you have to lift everything over the fence and possibly move the neighbors junk.

  37. So much wisdom, I feel my brain growing! thanks Sam this post is awesome. I am a newbie debt-free real estate investor and here are some things I would add to compliment your insights. Please do a follow-up to this post as time progresses.

    – Windows: If you live in a cold state, use a thermal laser to see the leaks.
    – Roof: Are there shady DIY repairs? Get those inspected. Low Quality work can really cost you down the line.
    – HVAC Systems and duct work If your system is older than 15 years, chances are, it will need to be replaced. Also, look into the engine for mold.
    – Toilets: Pull the toilets up and see if there is any rotted wood. This is also a great opportunity to replace the seal (be preventative).
    – If you have a porch, how is the condition? Do the railings wobble? That could be a costly lawsuit if you have neighborhood kids acting like chimpanzees and they injure themselves due to a railing break.
    – Garbage disposal. Make sure the darn thing isn’t leaking. Also, clean it out thoroughly. An old repo home I flipped had hair, yes, hair in the kitchen sink causing all kinds of chaos.
    – Water Drainage. Is there flooding or any damage caused by past floods? Also, do you see the gutters poring water into the side of the home? That is a good sign that the crawlspace or basemen may have moisture (which leads to mold).

  38. Thanks a lot for your posts. I really enjoy them.

    When people have to resort to spray painted hedges, it makes you wonder if we have not reached the peak of the SF real estate bubble. I had never seen that trick before.

    You already touched upon this but it’s really worth emphasizing how important a good disclosure package is. Nobody wants to spend time to argue and money to sue. In the end however, that might be the only option left to recoup losses.

  39. Talking about online real estate, I keep hearing about the online real estate company Fundrise. Would love to hear if you have any advice on that.

  40. I really enjoyed this one. I remember looking at a condo once where every room had its own air freshener sending out powerful masking odors. That, and spotting a bong in the bathroom and Grateful Dead paraphernalia everywhere (love the band, not so much the lifestyle), just sent up way too many warning flares for me to move ahead with an offer. What would the place really smell like when all was said and done…..?

    Sadly, you can’t assume people are being transparent in these transactions.

    Totally with you as well about underestimating noise. That’s a bummer when it happens.

  41. Hello FS,

    I am fairly new to your blog, but I already learned so much. I presume that I am not as knowledgeable as others here when it comes to invensting (im a medical professional) so forgive me if my comment or question seems elementary.

    You mentioned in your newsletter that just like the recent FANG stocks, that real estate market can correct even 20% in what seems like overnight where most places say that it takes years to hit the bottom.

    Please let me know your thoughts. My husband and I are a hardworking fairly young family expecting twins who are trying to leave high rent (and daycare) NYC for Long Island suburbia but the single family real estate prices are outrageous IMO. I grew up there and I can’t even stand to pay these prices right now because they are so overvalued.
    Are we kidding ourselves to think that this might correct pretty rapidly?

    Best,
    Teresa.

    1. We know from all the data that New York City rents and home prices are coming down. But if you cannot afford to buy in the Long Island suburbia area, my fear is that you will super stretch yourself with debt upon debt to try to buy.

      It’s one thing to buy if you can afford to another words, home is 3-5X max your household income. But it’s another thing to try to buy at much higher multiples at this point in the cycle. Renting is cheaper than owning in place but another thing to try to buy much higher multiples at this point in the cycle. Renting is cheaper than owning in many places now.

      If you don’t have at least 30% of the property in cash for a 20% down payment and a 10% buffer, I wouldn’t buy no way.

  42. Really helpful post!

    We will be in the process of buying a home in the next 6 months. So, this was helpful. We’ve already looked at a few homes (before slowing down) and notices some of the things you mentioned.

    Appreciate the heads up,

    TPP

  43. I forgot to mention there were a handful of these trees. The one that was dying would eventually have to be removed or you’d risk it falling over and crushing you and your home. Also the gutters were not clean and full of pine needles. A sign the owners were lacking in maintanece of the house. It was a 3 year old home but the gutters were full on pine needles/debris. (Clear red sign)

    1. Unfortunately, I was one of these buyers who spent $9k to remove very tall trees after buying a Bay Area home :(

  44. Don’t forget what surrounds the home. We were first time home buyers and almost bought a home with many large trees. The inspector nonchalantly mentioned a dying tree in the yard and for some reason that kept bothering me. Luckily the deal fell through for us due to a higher offer that was accepted and the owner not wanting to help pay to remove the tree. We’re from Canada and we’re talking about huge Douglas for trees. What can you say… the joys of being a newbie home owner.

  45. Todd Whitley

    Great advice Sam! We’ve bought and sold 6 properties over the years. In our experience, the home inspection was very important, but also even the home inspectors will miss problems if you’re not careful (as you point out).

    Example: in one purchase, the inspector refused to enter a bedroom because he was”allergic” to the perfume smell in the seller’s master bedroom. Huge red flag. We discovered pet urine damage, which was relatively easy to fix, but we got the sellers to cover the cost of new carpets, and fixing the damage. $2000 was a relatively low cost, but why should the buyer have to pay for that? It would be an injustice!

  46. Great post Sam. It’s reinforced that REITs will probably remain how I get real estate exposure. :-) Shouldn’t many of the findings (mold, frame damage, etc.) be discovered by the inspector?

    If they missed finding those flaws, do you think there’d be any recourse?

  47. Love your suggestions! You covered everything I could have thought of and so much more. Spray painted hedges?! Omg I can’t believe they did that!!! Major warning sign. Looks so much worse than if it was naturally brown. Crazy things people do…

  48. SR71 Blackbird

    There are also tricks that are local to area you are looking in. For example, in my part of the country, we have clay soil that expands and contracts with each rain and dry spell. The author Eudora Welty called it a “slow motion earthquake”. In some places the clay is closer to the surface and causes more problems. In other places it is deep underground and causes little problems.

    The trick is to look at the streets. If the streets are buckled, even if newly paved, the clay is close to the surface and you will have foundation problems.

    However, water problems are always the worst. I always look for that when buying a house. If I can, I go look at a house on a rainy day.

  49. Yes I agree this is an amazing guide. I’ve looked into real estate inspection advice before since I’m usually so paranoid but I found your guide about 200% more helpful than those other ones on Houzz or something written by a freelancer probably.

    Those pictures are super helpful too. I can’t believe $1.4 million gets demolished like that. Was there a lawsuit? It did look very iffy because…who paints and coats the entire house in blank white!

    They say to look at the length of ownership and the gentle small details in the house – did they clean the air vent? Small things like that.

    I agree with the hedge painting, it’s tacky!

    1. The San Francisco building inspection department is very tricky. There is a lot of roadblocks and bribery that goes on. When I went to get a permit back in 2005, I hired a permit expediter to help me get the permit through because people said it would take forever. One year later, the permit expediter was sent to prison! I had no idea that he was The San Francisco building inspection department is very tricky. There is a lot of roadblocks and bribery that goes on.

      Which is why I plan to buy a fully done house next time with at least a year warranty.

  50. Wow this is such a great guide to inspecting/buying a house! Thanks for sharing your perspective, Sam. People say with experience comes wisdom, and I think it’s particularly true in this case.

    The Victorian house story is SO scary! Who would have thought such a lovely home would come down like that after a couple of months >_<

  51. I really need help with the inspection. This list is a great starting off point. I’ll look for these the next time we buy a house. Now, we’re looking to cut back on real estate too. Hopefully, we can cut down to one property in a few years. Being a landlord can be stressful sometime.

  52. Your point about ownership history is an interesting one that I wouldn’t have thought much about. We moved two years ago and we bought a home that was about 27 years old, but the same couple owned the home since it was built.

    When we were looking at house water damage was one of the biggest things we were trying to pay attention to. We saw a few nice houses that seemed like they had water issues in the past, and we stayed away from those house. Right now I’m really glad we did because our area is currently flooded after several days of hard rain. Any house that had water issues in the past probably has really serious issues right now.

  53. Great tips for real estate inspection. I would not thought of the trick of bringing a marble to a home but that is absolutely brilliant.

    I knew real estate agents would sometimes have fresh baked cookies to create that homey smell but didn’t even think it was to mask an unpleasant odor.

    I too like online real estate better and probably will not go into physical ownership any more because the potential extra money that I lose as a passive income investor is not worth the hassle of being a landlord.

      1. Just curious, how does the marble work exactly? You put it on the floor and hope it doesn’t roll? Sloping floor detector? I hope to buy a house in the next 2 years so this was a great read.

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