The “As Is” Clause
The first (and most obvious) sign that you might be walking into a money pit is an "as is" clause. The house probably won’t qualify for a conventional mortgage, and if you buy it, you’re agreeing to buy all its problems. Before making an offer, have the house carefully inspected and gather repair estimates. If it’s listed with a broker, ask for a disclosure statement that lists all known material defects so you don't come across unpleasant surprises later.
The foundation supports the entire house, and major problems here can set you back to the tune of tens of thousands of dollars. Foundation walls that bow, moldy basements or crawl spaces, and large cracks or shifted masonry should all prompt a call to a structural engineer for advice before you make an offer.
Old-School Electrical Finds
Updating antiquated electrical wiring is a major expense. Tip-offs that the house you’re looking at has substandard wiring include single, fabric-covered wires on white insulator knobs (look in the attic); an old fuse panel instead of a modern breaker panel; or a small breaker panel with only a few breakers.
Roofing Red Flags
When you're buying a fixer-upper, you can probably expect to replace some of the roof shingles. But if the roof in question has multiple layers of shingles, if it sags, or if you find interior evidence of major leaking, you may be looking at replacing not just shingles, but also the sheathing and some of the roof rafters (none of which come cheap).
Related: 7 Signs You Need a New Roof
Termite damage—or worse, active termites—can incur extremely steep costs. The problem is, structural damage caused by wood-boring insects often lies in the walls and floors, where it’s not visible. Look carefully for other signs of an infestation, such as a cracked foundation; sagging floors, walls, or ceilings; and small pellets throughout the house. Before buying, it’s a good idea to spring for a professional inspection so you're aware of what you're getting into.
Uneven Walls and Floors
Slightly sloping floors don’t necessarily mean a house has structural problems, but they should prompt a call to a reputable contractor, just in case. Signs that a house’s framing may be questionable include gaps between baseboards and flooring, wavy or bowed siding, doors that won’t close, and floors that dip, bounce, or sag.
If the house you’re considering sits lower than its yard and the surrounding properties, and it's in a region that regularly receives rain, it may be subject to drainage problems. If the home is listed with a broker, ask about previous flooding issues. If it’s a for-sale-by-owner listing, visit the local zoning department to find out if the house lies in a floodplain.
They may add character and charm, but old windows with wood sashes and single panes are a major cause of energy loss. This translates into sky-high utility costs, and replacing these money-drainers with energy-efficient models won't be cheap either. To get a clearer picture of what it might cost you to stick with the original windows, inquire with the owner or real estate agent to see if they will provide you with the utility bills for the past 12 months, or at least get you an average, so you can be prepared for the expense. You could also splurge for an energy audit to help plan for the cost of this and other updates you might have to make.
Outdated Major Systems
The older the house, the more likely it will be that you’ll have to update some of the mechanical systems that the previous owners neglected. Check faucets for adequate water pressure, and examine HVAC units for installation dates. If the house isn’t fully ducted and vented, bringing it up to date will be an expensive task that you should account for in your renovations budget.
Houses built in the 1970s or before are red flags in themselves, because they can contain asbestos and lead-based paint. Removing these substances, especially if your community requires the use of a licensed remediation expert, can come with stiff costs. Be sure to have a pre-1970s house inspected by a hazardous substance professional before you make an offer, so you don't get stuck having to pay for remediation.
Your home is most likely your largest investment. Home insurance is a valuable way to protect the investment, but could you save money on your home insurance policy? Read our top tips for how to safeguard your property while saving money.