Investing in an Investment Property with Mold

[WranglerBowman]

I live about 30 mins outside of Washington D.C. and have been looking for a good investment property not only to provide rental income but also as a property to subdivide.  One came up a couple weeks ago that I'm very interested in but am not sure how to go about financing.  I inspected the property and house myself and the house was built in the 1940's, has some mold issues and likely also has some asbestos (e.g. floor tiles in basement).  The mold seems to be fairly minor, right now, but can be seen on the drywall in the basement, not sure what's behind it though or what caused the mold to begin with.  I intend to rent this house out while I'm going about putting together the Site Plan and all the permits in order to subdivide the property.  Does anyone know how to get financing or structure an offer on the property that would allow for the appropriate financing?  I can't go 203k because it wouldn't be my primary residence and the appraiser would probably kill a Conventional Mortgage...not sure what's the best way to do this, and all cash isn't an option for me since the it's listed for $259k.

[tralfamadorian]

...the appraiser would probably kill a Conventional Mortgage...

Disagree.  Last month I purchased a property within a two hour drive of DC with a wet basement and definite mold smell.  The mold didn't even make the inspection report.

To mediate:
1) Good dehumidifier and wipe down the drywall with hydrogen peroxide.
2) Check the exterior of the building for good drainage and make changes, if necessary.
3) Cover the asbestos with VPL.
4) If the mold comes back on the drywall, replace the drywall, the insulation behind and possibly mold remediation on the wood behind if needed. 

[WranglerBowman]

...the appraiser would probably kill a Conventional Mortgage...

Disagree.  Last month I purchased a property within a two hour drive of DC with a wet basement and definite mold smell.  The mold didn't even make the inspection report.

To mediate:
1) Good dehumidifier and wipe down the drywall with hydrogen peroxide.
2) Check the exterior of the building for good drainage and make changes, if necessary.
3) Cover the asbestos with VPL.
4) If the mold comes back on the drywall, replace the drywall, the insulation behind and possibly mold remediation on the wood behind if needed. 

Thanks for the reply.  Did you include all of this work in your offer so you could complete it all before closing, before you actually had a loan on the property?  That's the only way I can think to do all this type of work prior to actually taking a loan out on the property and getting approved for the loan in the first place.

[tralfamadorian]

Nope, all the work was done after closing.  The inspector/appraiser/lender didn't give a damn.  If they blocked every basement with a moisture problem in the mid-atlantic, no older homes would ever close! 

Everyone's method for making offers is different.  I know a few investors whose strategy is to get the property under contract at a higher price then basically start a second round of negotiations at inspection when the sellers are invested in the closing.  Personally I hate that and am almost the exact opposite; I do a thorough self inspection ahead of time and include with my offer that x, y, z are important deferred maintenance at a cost of a, b, c so I'm offering $.  I also let them know that I'm not going to nickel and dime them at inspection unless something huge and unexpected comes up (foundation, extensive termite damage, etc) and that I have a history of successful closings. 

Not saying that you should do either of these but that there are lots of ways to go about it.

[srad]

I also bought a place recently with a very musty smell and some visible mold in a few rooms.  Due to the smell, I did do a mold test, it came back with higher than average levels but none of the dangerous spores (ie black mold).  So i knew this could be handled...

Prior to appraisal, I just talked with the seller and went in with a bottle of mold killer and sprayed the mold, that got visibly rid of it.  And the appraiser didn't note the smell either (it was strong).  I poked around behind the walls and under the floors, didn't see any other mold,  ended up putting better ventilation in the roof, cadet heaters in the offending rooms (mold doesn't like air movement), replaced the carpets with vinyl plank flooring and all is good. I've checked several times and no new mold.

[WranglerBowman]

Personally I hate that and am almost the exact opposite; I do a thorough self inspection ahead of time and include with my offer that x, y, z are important deferred maintenance at a cost of a, b, c so I'm offering $.  I also let them know that I'm not going to nickel and dime them at inspection unless something huge and unexpected comes up (foundation, extensive termite damage, etc) and that I have a history of successful closings. 

This is what I normally do as well.  Sometimes I'll even include quotes contractors so they don't think I'm BS'ing them.  This house is listed "AS-IS" though some I'm not sure how open the seller is to actually adjusting the price.  Apparently they've got some low ball offers, but what's their definition of low ball offer...  I've got a mold contractor coming to look at it in the next couple days and ballpark I number for me so I know pretty much exactly what I'm getting into...so I think.

[WranglerBowman]

I also bought a place recently with a very musty smell and some visible mold in a few rooms.  Due to the smell, I did do a mold test, it came back with higher than average levels but none of the dangerous spores (ie black mold).  So i knew this could be handled...

The mold on the drywall in the basement is black mold.  The basement is only 25% finished, if that, so I'm not too worried about destroying it and just leaving it 100% unfinished. 

You never know who you're going to get with these appraisers.  It seems you can get real sticklers and then get some real dummies that could care less about anything other than collecting their check.