When I got the inspection report back on my third BRRRR property, highlighting the deficient items with all the red ink made my head spin and palms sweat. I was just getting started with this stage of my investing and hadn’t really tackled many previous repairs to cosmetic and mechanical items. If you can work the numbers, those repairs are slam-dunk wins.
But for my third BRRRR the inspection report flagged a major foundation repair. My heart sank.
On paper, the property is still pretty well laid out – even though I had to sink $40,000 into foundation repairs. But was I ready to take on such a challenge? What could possibly go wrong?
If you’re dealing with foundation damage, you’re probably panicking, too. Trust me – I feel your pain. For both homeowners and real estate investors, foundation damage is one of the scariest things you can face. This damage manifests itself in a number of ways, from foundation cracks to damaged concrete slabs to leaks in basement walls.
Regardless of the severity of your foundation damage, here’s how to assess and deal with the problem.
First: signs of foundation issues
While you should always hire a structural engineer to evaluate any and all properties with questionable foundations, there are some easy clues visible to the naked, uneducated eye.
- plumbing problemsLeaky pipes don’t always indicate a foundation problem, but they Doing Always indicate that further investigation is necessary. Dripping water can damage concrete over time.
- poor drainage: The slope of the land toward the house—also called negative drainage—can cause pooling of water. Remember: Water is Plus Foundation Always Bad News. If one part of the property is situated on loose, wet soil and another part on compacted clay soil, for example, this difference can cause movement. This happens when parts of the foundation shift in opposite directions, causing cracks.
- Tree: If there are trees too close to the property, keep an eye out. Tree roots can push against the foundation or dry out the soil, causing your foundation to shift.
- hairline cracksSpills: These can be common, especially when they appear in the mortar between bricks or concrete blocks, but they can be a sign of foundation issues. While sometimes these are due to seasonal expansion—particularly when located around window frames and doorways—make sure a structural engineer evaluates the view.
Connected, The investor’s guide to quickly and accurately estimating home repair costs
Know what you are prepared to handle
When you dive into real estate, you need to understand what problems you’re prepared to deal with — and which ones you need to walk away from. This list may change depending on your investment stage. Most first-time home buyers will want to skip properties with foundation warning signs. Seasoned flippers who have made a serious deal, however, are no big deal.
Technically anyone can do anything. However, every investor will eventually find that sweet problem they love to solve… and that make their skin crawl. Besides foundation damage, other big-ticket items include:
- electrical damage
- termite damage
- extensive mold damage
- fire damage
- flood damage
Your list may grow as you encounter more problems during your real estate journey. Personally, I’ve had raccoon infestations and trees break through the second story.
However, be aware that being rigid with your “don’t” list can hinder your investing success. Sometimes, what makes a deal so ‘smoke’ is the fact that there is a bigger problem to be solved than the deal. Think financial crisis, owner crisis, or asset crisis. A deal where all three perils exist? This could be a home run… if you’re up for the challenge.
Back to my 3rd BRRRR, with that awful inspection report. In this case, I had all three: a probated property where the family couldn’t afford the repairs and a cave-in foundation.
making an informed decision
So how do you know when you should tackle a major crisis like foundation repair?
Hire a Structural Engineer
If you are buying a home, hiring a structural engineer in your due diligence phase can be of great help. (Yes, other than your home inspector, who can identify a possible sign of foundation damage but can’t always explain the cause.) Why,
Even if you’re working with an existing property, don’t discount their expertise. They will examine the structural components of the home and determine the extent of the problem. Then, they’ll help you decide whether you want to proceed, create a report, and develop a proposed action plan.
It’s tempting to skip this step, but when you’re dealing with foundation damage, a structural engineer is always money well spent. You’ll pay around $200 to find out exactly what’s going on.
For example, the engineer may tell you that corrective action is minimal. A foundation repair company may try to sell you on unnecessary services. I got a $50,000 discount on my offer because one of those companies told the owner it needed major repairs… but it turned out the property only needed $1,000 in downspout and grading work.
Ask your engineer if this problem can be solved with a simple repair. Or should you expect to deal with future issues? Some water table issues can be alleviated with a sump pump. But perhaps you are dealing with shifting soil that is beyond your control. Ask your engineer, “Is that okay?”
Connected: The real estate investor’s guide to putting together a work area
interview foundation employees
Talk with several different Foundation crew. Ask them to tour the property, assess reported damage, and provide an estimate of the cost of repairs.
Don’t have a go-to foundation crew? No problem. Most people don’t! Ask other investors or your real estate agent about the best foundation repair crews in the area. And also prepare your budget. This is not the time to be cheap!
Make sure you and your crew are clear on your timeline for fixing the problem, especially if you’re planning a flip. Before doing any other work in the house, the foundation should be fixed first. (If a contractor tells you differently, run away!) Fixing a foundation can take days to weeks, so factor this into your overall renovation timeline.
Before signing an agreement, research the foundation company you choose. Evaluate their work on other projects, ask about their track record for warranty claims, and talk to referrals. If a company won’t provide referrals, that’s a red flag. Here’s what you should be asking:
- What is their warranty process? Warranties make you feel all warm and fuzzy—think of that scene from Tommy Boy and brake pads. They’re also a good sign that the company will stand by their work. What happens to the warranty if the company is bought out or closed? This can void your warranty overnight.
- Can I see an engineering report and repair estimate? Be sure to check out both of these reports before purchasing. I’ve seen investors “guess” with their realtor or contractor…and many, many more. Very Close.
finalize your budget
Add a contingency budget to your entire construction budget to account for any surprises. Most experts recommend a 10% contingency, but you may want to add more to this budget, especially if this is one of your first investment deals.
Finally, make sure your numbers still work! Now that you understand how much your foundation repairs should cost (with that contingency included), run your analyzes again. Does the deal still work? Has your return on investment changed? Make sure you are still happy with the numbers.
Correctly solving the foundation will increase the value of the property. In some cases, a new foundation means you can add additional living space to the basement and make it a more attractive rental or flip. Doing foundation repairs the wrong way will damage the property and cause future headaches.
Foundation damage was a problem I ran into. Now, I’ve bought several homes with varying issues requiring work for anywhere from $1,000 to $40,000 – and fixing minor foundation issues ($1,000 to $10,000) is my sweet spot.
More importantly, I have sold these homes without any issues or affecting the value of the property because the work was done correctly.
But I certainly don’t buy every property with foundation damage. i always make sure to check off All of the above points.
A parting pro tip for investors: If you must take on the challenge of foundation repair, partnering with the right foundation companies can create a hot source for off-market deal leads.
As an investor, what do you do when foundation issues arise on a potential property?
Share with a comment below!
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
