How to Spot a Money Pit

How to Spot a Money Pit

One way to save money on your first home is to buy a fixer upper. In most cases, you can buy and fix up an old house for much less than you’d spend on one in move-in condition. This can be a great way to afford a home in a neighborhood that would normally be way outside of your price range.

However, a fixer-upper isn’t always a good deal. Some houses are in such bad shape that just making them fit to live in would cost far more than their actual purchase price. These so-called “money pits” can swallow up all your spare cash and never be satisfied.

To avoid falling into a money pit when you buy a fixer upper, read the warning signs experts say to watch out for below.


It's Sold "As Is"

These words in a house listing are a giant red flag. They mean you’re looking at a house that has major problems, and the seller has no intention of fixing any of them. That doesn’t mean you should never buy a house that’s sold as is; just make sure you hire a good home inspector who can find all the problems, and get estimates on how much they’d cost to repair. Subtract those costs from your budget, and you’ll know how much you can afford to offer.


It's in the Wrong Neighborhood

There’s a saying in real estate: The three most important facts about any house are location, location, and location. That’s the one thing about a house you can’t fix, no matter how much money you spend. If the house is in a less-than-stellar school district or a high-crime area, it’s never going to be attractive to most buyers – which means you’ll probably never make back the money you put into it.


Nothing Quite Lines Up

A house that looks a little bit crooked, outside or inside, could be suffering from dangerous structural problems. For instance, when viewed from a distance, the house may appear to lean to one side or bulge in spots. You may also notice that walls aren’t quite vertical and that doors that don’t swing right or fit securely in their frames. Floors may slant, sag, bulge, or feel a bit bouncy underfoot, and there may be gaps between the floor and the baseboard.


The Walls are Damaged

Big cracks in any wall can also be a sign of structural problems – especially in a foundation wall. Small, vertical cracks aren’t necessarily a big deal, but large, vertical ones should send you running to call a contractor and have the damage checked out. Also, watch out for soft, crumbling wood, warped floorboards, and stained, uneven, peeling, or crumbling drywall. These can all be signs of rot or mold, two expensive problems to fix.


It Smells Bad

When you’re touring a house, follow your nose. Bad smells can signal a variety of different problems, including:

  • A dangerous gas leak
  • Backup from the sewer or septic system
  • Mold or mildew hidden inside the walls

All these problems require expensive repairs – and you don’t even get to admire the improvement when they’re done.


There are Visible Leaks

Water getting into a house is always bad news. It can cause mold and mildew, warp or rot wood, damage drywall, and even weaken the foundation. Here are some areas where water can intrude:

  • Around the Foundation. If you can, inspect the house during or after a rainstorm. Look for pooling water both inside the basement or crawlspace and around the outside walls. If you can’t do this, check interior and exterior walls for water marks.
  • Through the Roof. Examine the roof through binoculars and look for cracked, curled, or missing shingles.
  • Around Windows. If seals around windows are cracked or mildewed, that’s a sign the windows are letting in water.
  • Plumbing Fixtures. Check the caulk around kitchen and bath fixtures for cracks and mildew as well.

Major Systems are Outdated

Out-of-date plumbing, wiring, and HVAC systems all cost a bundle to update. Red flags to watch out for include:

  • Galvanized Steel Pipes. These older pipes often become clogged with sediment. If you can’t see the pipes under the floors or in the attic, test them by turning on a tap full force and then flushing the toilet. If the water flow slows quite a bit, the house could need new plumbing.
  • Substandard Wiring. Signs that the electrical system is out of date include: an old fuse box instead of a modern breaker panel; an undersized panel with only a few circuit breakers; or only two wires, instead of three, going from the utility pole to the electrical mast on the house. Also, beware of old aluminum wiring, which is a fire hazard.
  • Old HVAC Systems. Check the installation dates on heating and cooling systems. The older they are, the likelier they are to need a pricey replacement.


It Has Pest Problems

Pests such as termites, carpenter ants, and rodents can all cause major damage to a home. Only an expert can spot these pests for sure, but you can sometimes see signs of their presence. These include insect wings on sills, small pellets throughout the house, urine stains, scrabbling noises in the walls, or small piles of sawdust along baseboards.

Even if you can’t spot any of the red flags on this list, that doesn’t prove a house is problem-free. Before buying any house, you need to bring in a qualified home inspector who can find big problems that aren’t visible at a glance. Once you know what the problems are and how much they’ll cost to fix, you can make an informed decision about whether the house is really a bargain.


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