Is Termite Really A Huge Problem for A Investment Property?

General Real Estate Investing
1

I am working on a property in Dallas, Texas. Since some repair work need to be done, I am able to purchase the property at 70 percent of market value. However, there might be termite problem on this property, and I will find out for sure and how serious it is tomorrow.

I had someone estimate the repair cost today, counting the repair cost, my purchase price is still about 80 percent of market value. I will rent this property out, and I thought it is good deal. What do you guys think? Is termite really a hugh problem? Will it matter if I rent it out?

Thanks so much for any advice!
JW

2

<<Is Termite Really A Huge Problem for A Investment Property?>>

YES! – it can be huge! A bad infestation can destroy thousands of dollars of property and ruin the structural integrity of the building.

We have them bad here and I understand that areas of Texas can be just as bad!

Keith

3

Thanks Keith.

The property I am working on right now shows some sign of termites, and I will have inspector come to check and make sure. My question are:
1). If the currenct termites problem is treated, and all damaged is fixed. Should I still concern about it in term of renting out or future sales?
2). Repair cost + purchase price is about 80 percent of the market value on this property. Based on the report I have and by talking to people in that area, this property should be able to rent out at 1 percent of the (purchase price + repair cost). Do you think it is a deal I should continue?

Thank you so much!
JW

4

I buy and hold. If I had an infestation, I would treat and repair and then put in place a long-term termite program (talk with the exterminator)…

If I can buy at 80% value and turn a monthly profit of AT LEAST $125 a month ($1500 a year) positive cashflow, I will do the deal. Normally, at 1% this will happen - at least it will here. But, watch the mortgage interest reates (climbing), the tax rates (climbing faster), and the insurance rates (climbing a lot faster – especially here after the hurricanes last year!).

Keith

5

Thank you so much, Keith. I really appreciate your advice and help in the past.

JW

6

I would reduce your offer to include the cost of termite repair. Why pay 80% of value just because there are termites when normally you wouldn’t offer that much? Hell I might even go a tad lower just to cover your bases should the termite problem be more costly then you anticipate. Worst they can do is reject the offer. Be sure to tell them exactly why you are making a lower offer (termites, other general repairs that need to be done, etc) so they can understand why they aren’t getting what they might think is FMV.

7

Thanks, Rich.
I have been looking for the property in this area for a while, and it is a little bit tough to find properties at huge discount. This is the property I felt that make sense when I put numbers in the equation, and obviously it requires repair works, and I think that is why I got the price I pay now.
This is a bank forclosure property. I tried to go as far as I can go, and my offer was rejected. A week later, I came back and accpt their counter offer which is about $700 above my rejected offer. I will have inspector check the house today and will find out if it really works for me.

JW

8

You may also consider getting a second inspection. This saved me from a costly mistake!

I ran into this problem in the past. The inspection came back with termite damage on the north wall of a home I was about to wholesale. It didn’t sit well with me so I called an inspector for a second opinion.

The 2nd inspector revealed the property having 12 floor joists eaten by powder post beetles!

Just a tip!

Jeff Knize,CRA, ICAP member
Knize Appraisal