Non-Permitted Work: A Fix and Flip Investor's Nightmare

March 23, 2017

 

My spider senses were tingling.

 

Something didn’t feel right. It didn’t look right, either.

 

The house, located just east of the Milwaukee airport, had a lot of curb appeal. The sky blue vinyl siding was brand new. And the roof was flawless. The houses on each side, and across the street, were adorable. The price was definitely right.

 

But, stepping inside the cute little Cape Cod style home was a total fix and flip investor buzz kill. I could tell everything was wrong.

 

Clearly, the former owner had built an addition on the home. This addition went out and up. And, it was a total hack job. Besides the new square footage having no functional flow, none of the framing, electrical, or plumbing work inside the house was done correctly.

 

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Now I’m no building code expert or home inspector, but I’ve seen enough houses to know when someone cuts corners.

 

If it looks like a duck and quacks like a duck, then it’s probably a duck.

 

My hunch was verified with a 2-minute phone call to the city building inspection department. The former owner never pulled a permit for the addition. However, his electrician did. Unfortunately, this electrician never closed it out.

 

The city inspection clerk proceeded to tell me that the former owner was contacted numerous times about the illegal addition, including a sternly worded letter ordering him to tear it down completely.

 

Fortunately, I hadn’t committed to purchasing the property from the wholesaler.

 

Can you imagine buying it, then finding out after you closed that the entire addition would have to be removed? Keep in mind, had it been done properly it would have added at least another $40,000 in value to the home.

 

I Should Have Known Better

 

You’d think I would have learned from this situation.

 

Just a few months later, I bought a bank-owned house in West Allis, Wisconsin with a legally finished attic (or so I thought). Everything looked good. No obvious signs of corner cutting.

 

After closing, our rehab crew went to work on the property, including a major cleanup of the attic.

 

However, when the city building inspector showed up to do a rough inspection of the work we found this notice taped to the attic entrance:

 

 

Apparently, the former owner never got a permit to finish the attic. And the city inspector says it’s unsuitable to use as a bedroom (without this space the home only has two bedrooms, which dramatically reduces the resale value of the property).

 

Oops.

 

The 3 Non-Permitted Work Areas in Any House

 

You can bet that from now on I’ll be extra careful to uncover any non-permitted work in:

 

  1. The attic

  2. The basement

  3. Anywhere else in the house with an obvious addition

 

As a matter of fact, when it comes to the attic and basement, I now assume the homeowner never got a permit, and then calculate my budget accordingly.
 

And how to tell if there’s an unpermitted addition? Check the tax records.

 

If the house appears bigger than the tax record states, chances are the homeowner never got a permit for the work. For example, at a property in Phoenix we looked at buying recently, the former owner did a huge master suite addition. But, the extra square footage and bathroom weren’t in the report.

 

Of course, the best way to verify ANY additions or improvements were made legally is to check directly with the city.

 

Otherwise, you’ll find out the hard and expensive way, just like I did.

 

Would you like to see how the house turned out? Check out the before and after transformation video we did at the property we now call "The Aggravating Attic House".

 

 

 

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