Missouri has become an increasingly popular place to invest in real estate. St. Louis is becoming a major business hub. Others are flocking to Kansas City for its affordable properties and attractive profits. On your hunt for great property deals in the Show Me State it’s quite possible you’ll encounter properties with foundation problems. Could they be the golden opportunity you’re looking for?
What Causes Foundation Problems in Missouri
You might expect to find foundation problems in other states. California and Tennessee are notorious for earthquakes. The northeast is home to some seriously old properties. Texas is built on sand. So, why are foundation repairs in MO so common?
Our most valuable resource also happens to be our Achilles heel. According to the USDA the land is one of the most precious things we have. It’s rich for agriculture. Missouri is one of the top states for growing crops and livestock. We have over 100,000 farms, making us only second to Texas, according to Wikipedia. These industries support almost 400,000 jobs, and bring in $88B per year for the economy. Mining is also big business. Our lime is used to create cement that is used to build homes everywhere.
However, our limestone rich areas also make for sinkholes, which can be a nightmare for homeowners and real estate investors. Our soil is also rich in clay. This is the most notorious problem for building owners. Clay swells with water and then dries and cracks in hot summer months.
When builders haven’t invested in digging deep enough and replacing the soil to provide a sound foundation that won’t shift or sink, the problems show up in the basement, crawl spaces and house.
Faulty Foundations & The Disclosures
Some foundation issues are very obvious. The floors have sunken away from the baseboards. There are cracks more than a quarter inch wide. There are gaps around the windows. The air is humid. Walls may be bowing in the basement. Or there could be standing water and a straining sump pump.
Foundation flaws can take a long time to show up. Or they can literally pop overnight with a loud bang.
If a property seller or their real estate agent are aware of any possible foundation problems they have a legal and ethical obligation to disclose that. Of course, some will try to cover it up. Others like banks selling REOs and foreclosure properties or auctioneers will deny any responsibility.
Unfortunately, as a buyer this mean it is up to you to complete your own due diligence and inspections. It’s your job to get inspections and quotes.
Just don’t try to DIY patch these things and flip the house or put in a renter. There can be serious legal and financial consequences of hiding these defects. Have a professional remedy the situation and add value to the property.
Real Estate Investing Strategies
There are several real estate strategies that work with Missouri homes that have foundation problems.
Wholesaling is the most basic. Buy the property, and resell it as-is to another investor who will rehab it. Just make sure you have all your repair quotes together and accurately portray the condition and value to the next buyer.
Or you can add value to the property by having it professionally fixed. There are a variety of solutions depending on whether this is a fresh problem that needs urgent attention, the house has been left abandoned and sinking for years, or there are simply cosmetic improvements to make that were left by an already cured foundation flaw. The best experts will give you a free inspection and estimate, so you can plan your investment well.
Once fixed and finished you can flip the house for a profit to someone who wants to live in it. Or rent it out for ongoing passive income and wealth protection.
How to Finance Houses with Foundation Problems
Experienced real estate investors already know that foundation issues are considered structural defects. This means most conventional banks and mortgage lenders won’t loan on them.
If you can’t pay cash, then look for hard money lenders, private money partners, specialist rehab lenders or business lines of credit.
If you are going to be reselling the property, you need to make sure your end buyers can finance it as well. They may be able to take out a second mortgage or equity line on a current home and pay cash for this one. They can use programs like the FHA 203k loan which includes cash for repairs. Or you can hold the mortgage and offer seller financing.
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