This afternoon I went over an looked at the property I’ve been watching for a few months. From the outside looking in, it appeared to be a rehab project that simply ran out of money. It’s typically opportunities like this that widen the margin on a deal, as most of the expensive stuff has already been taken care of by someone else.

Walking in through the front door, it was evident that the place had been lived in since the renovations took place. The carpet was dirty and stained, and there were remnants of belongings (crayons, broken pencils, etc) left in the kitchen drawers.

The walls in the front living room were cracked (as they typically are for the area) and are in need of a patch job and paint, but all in all it didn’t look too bad.

The basement reveals all.

Then I took a trip down stairs. The basement will always give you an idea of what’s really behind the walls because it provides the most access to the structure.

The plumbing had been redone fairly recently, as the new-style PEX (essentially plastic) plumbing that all the new houses are being built with today was running among the floor joists on the ceiling. The electrical had evidently been redone recently as well, as the 100 amp breaker box still shined and the wiring still looked new.

The furnace and hot water heater were new within the last couple years, so there wasn’t much risk in all the basic services and utilities.

A quick look between the joists and everything went south. About half of the joists were brand new, indicating to me that someone really did an overhaul on the major structure. It’s not easy to just replace a bunch of floor joists, especially on the lower level, as these joists typically bear the load for the rest of the structure. Replacing them is like swapping out the bottom level of blocks in Jenga. It’s a very delicate procedure that carries significant risk. The question then becomes: why were they replaced in the first place?

At first, it appeared that the sub floor was rotten. Perhaps water damage rotted the floor, and while the floor was being replaced, it was a good time to replace some joists that were over 100 years old. My curiosity kicked in, and it was while digging around in the rotten floor that I noticed that this was no water damage, this was termite damage!

Termites had turned the old sub floor to a fine dirty powder in most places, and a soft wooden sponge almost everywhere else. Yikes. I was starting to become deterred, but not completely put off. I could pull the carpet up (it needed to be replaced anyway) and replace the rest of the sub floor, no problem.

One thing about termites, though, is that if they had enough time to chew out an entire floor, chances are they didn’t just quit eating after the first coarse was through.

Back on the first level, I noticed there was a small hole in the wall in a lower bedroom. I stuck my finger in the hole to see if the lathe was still in good shape. I ended up poking at a dry spongy material inside the wall. What once was the lathe behind the plaster was now leftovers from the termite feeding that I was now standing on.

The entire structure of this house had been dissolved from the inside out by termites!

If it weren’t for the termites!

The house had so much potential. All the expensive components had been fixed, remodeled or replaced. All it needed was carpet, a few patches in the walls and a fresh coat of interior paint… and oh yeah, it needed to be gutted and rebuilt.

There is now way my conscience would let me rent this place out to college students knowing there were some major structural problems with the floors and walls, and completely re-doing the structure would not leave me with enough margin to rent.

Oh well, there are other fish in the ocean, and I can afford to be picky.

Tags: investment property | Real Estate | rehab | rental | termites

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