Abandoned property falsehoods…

When searching for abandoned properties to invest in, it can be easy to get swept away with the concept of making the great “deal.” However, as most experienced property investors already understand, this is a foolhardy approach to investing. As I have mentioned in a recent article here on the abandoned properties game, “if you’re into high-risk property investing techniques that may return higher yields than the more traditional forms of property investing, then by all means consider investing in abandoned property.” I have also said that since these are typically houses that have fallen into disarray due to owner neglect and ensuing abandonment over a lengthy period of time, they will not be on the market for sale. So your real estate agent will not be able to help you out in your searching. In fact, locating a potential money-making abandoned property will eat up much of your valuable time, since you’ll have to do all the search work yourself. However, if you happen to pass by areas with what look to be abandoned houses, then by all means try using these techniques to scope them out further to see if they can be potential cash cows.

Spotting an abandoned house

I have previously instructed here about how to spot an abandoned property, making the approach and contacting the owner of such a property. But most importantly, I have written about how novice property investors need to be vigilant when they are on the lookout for abandoned properties. I have noted how “abandoned properties, whether they be abandoned properties in CT, NY CA…you name the state…are certainly worth investigating. Just keep your laptop or pen and paper handy to write down their addresses as you pass by them when driving. It’s a good idea to take photos of these houses from the street for easier reference back to them later, as you cull through the most viable ones for investment. In addition, be wary of going inside any abandoned property without permission. Abandoned property law still considers it trespassing if you don’t have the express OK from the owner to go inside.”

What I did not go into detail about in prior articles here on abandoned houses, are the host of environmental concerns you need to be aware of as well. They can greatly sink the potential profitability of any new project. Consider an abandoned property as full of environmental booby traps. Here are some of the basic dangers you should be looking or when investigating acquiring any abandoned property…I’ve also written about these concerns in prior articles on environmental dangers. Here are just a few of the most important environmental issues you’ll need to check out with any abandoned property.

Tainted wells

One danger endemic to many areas is tainted wells. With so many houses still utilizing well systems for their drinking water, wells should be tested every two years for potability. It’s possible for coliform to accumulate, and your body can get used to this harmful bacteria.  Well testing would determine the level of this bacteria in the water supply. And coliform problems can be rectified with simple chlorination of the well water. Potability tests can also uncover any potential problems with fecal bacterial levels. Sometimes older septic fields built too close to the well supply could account for this problem, and would need to be addressed.

Lead paint

The majority of homes built prior to 1978 have some amount of lead paint in them. Property investors can check for lead paint themselves using a simple swab test kit, or by using a home inspector to run the test. (Swab test kits can be bought at most home or hardware stores.)

By rubbing the swab on walls, wood sills or door trim, the test will identify any existing areas with lead paint in the house. It’s important to note that the mere existence of lead paint does not make it hazardous. This test will not determine how much lead paint a house may contain. But when paint chips off and becomes airborne, it can become a hazard. And of course, children and paint chips are an obvious concern.

The two ways of dealing with chipped lead paint in the house are encapsulation or removal. With encapsulation, the area of chipping paint is painted over and sealed with a protective paint. Removal of lead paint, on the other hand, requires a certified lead paint abatement company to strip the paint off and prevent it from becoming airborne.

Asbestos

One of the simplest environmental hazards to find is asbestos in the house. When checking the basement of any property, make sure you look for asbestos-covered pipes. The off-white colored asbestos is a known carcinogen, and if the asbestos is fraying, it’s certainly airborne – and an immediate danger to anyone breathing in that basement. If you’re still not sure whether the investment property you’re scouting out has asbestos-lined pipes, a home inspector can determine it for you. Also, licensed asbestos handling companies can not only tell you if there is any asbestos in the house, but what condition it’s in as well. And they are the only ones that can legally remove and dispose of the asbestos.

It is routine for the seller to pay for the removal or containment (encapsulation) of the asbestos. However, if the property is a foreclosure, or a short sale, the owner may not be able to perform the remediation, and you’ll have to include the removal as another cost of purchasing the property. It’s always best to have the asbestos removed, rather than encapsulated. While encapsulation is certainly less expensive than removal, you could have an issue when it comes time to sell the property. After all, what happens if a water pipe that was encapsulated develops a leak? In that eventuality, the asbestos will have to be removed in order to get at the pipe. And most buyers will not want to deal with that possibility. So removal makes far more sense than encapsulation.

Radon

Another potential danger facing property investors is the presence of radon gas in the house. Since radon is odorless, it can only be detected by testing for it. Like lead paint, there are radon test kits that can be purchased at local home stores to check for the presence of the gas in the house. And home inspectors routinely check for radon gas as well by placing test kits in basements for a period of two to three days to get an accurate read on radon levels.

Any hazardous levels of the gas that are detected can be abated with the aid of radon mitigation companies. To lessen any high levels of the contaminant, a technique known as “sub-slab ventilation“ is used. This solution involves placing perforated pipes under the slab foundation of a house to help vent the radon away from the property.

Underground oil tanks

Another leading concern for any investor purchasing a property is underground oil storage tanks. The risk of an oil leak due to the age of a tank poses a public health hazard due to the potential for soil and water contamination.  It’s best to check with local oil companies to see if they offer an Environmental Loss Protection insurance policy if you’re considering purchasing a house with a buried oil tank. This type of insurance customarily protects you against costs associated with tanks that develop leaks, and their subsequent removal and soil clean up. Before issuing any policy, the insurer will run tank tests (paid by you) to determine the current tank’s status for insurability.

Many oil companies or secondary insurers use privately licensed environmental companies to perform tank tests. Some will take soil samples to be tested to look for any oil seepage; others will run tank tests to determine if the underground tank has developed any leaks.  If a test comes up negative, you may want to consider avoiding future problems (and paying for tank insurance as well), by either abandoning or removing the existing tank. Abandonment means the tank would need to be emptied, cleaned out and then filled with a special foam-like expansive material, sand or concrete, and all lines leading to the tank would be cut.

If the test is positive, the seller and the company that ran the test would need to notify the Department of Environmental Protection. Then arrangements would need to be made to have the tank and any affected soil removed. When you visit a property, look for the fuel source. If it’s oil, look for where the storage tank is located. If you can’t find it in the house, then look outside as well. If you still can’t find it, it’s probably buried. Regardless, always ask the seller if they have knowledge of any current or prior buried tanks. Many times sellers will abandon oil tanks in the ground illegally, while installing new oil tanks in their basement. If there is an abandoned oil tank on the property, or if one was removed, it must have documentation from the Department of Environmental Protection that it was properly removed or abandoned.

Be prepared

As you can see, the property investor must be aware of these most basic of environmental hazards that lurk within any potential property deal…especially with abandoned houses. And you’ll need to plan for the potential costs of remediation if needed. Just know that these costs can be extremely expensive to take on when you’re making that seemingly wonderful “steal” of a deal on any abandoned property. And that could mean a major financial disaster for you if you don’t plan accordingly for the worst.

 

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