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February 3, 2025 | 2.5 Minute Read
Last week, a wholesaler sent me a property to review. The numbers looked good. I could pick it up for $70,000 with an ARV of $140,000. That’s a 50% discount but as any experienced fix and flip investor knows, the final price always depends on the cost of renovations.
We met at the property and like any good wholesaler, there was another investor there to see it as well. This I completely understand. The wholesaler has a short shelf life to move the property so having multiple buyers at the property makes total sense.
I completed my walk around the property and was ready to go inside. But, the wholesaler said we needed to wait for the other investor to wrap up his interior inspection because there is no room to walk. Why is that?
This tenant is a hoarder.
Now, in all my years buying thousands of properties, I am never surprised by what I see when I inspect a house. The horror stories I can tell would turn your stomach, and I imagine many of you have similar stories. But it always surprises me how some live and I was pretty surprise when I finally was able to enter.
There was literally a narrow path to walk and very little room to maneuver. The tenant directed me around and I certainly kept my poker face. Some areas like the hallways were impassible.
Purchasing a property with a tenant in place can be a great opportunity, but when that tenant is a hoarder, there are going to be major concerns. Hoarding can lead to severe property damage, legal issues, and financial burdens.
Let’s review some concerns that was racing through my head while I did my walk through.
Structural & Safety Concerns
Hoarding can cause possible structural issues due to excessive weight and moisture buildup from accumulated items.
– Fire risks from blocked exits and combustible materials.
– Mold and mildew due to poor ventilation and hidden leaks.
– Pest infestations, such as rodents and insects.
– Compromised flooring, walls, and ceilings from excessive weight and neglect.
Health & Sanitation Issues
Hoarder-occupied homes have unsanitary living conditions, posing health risks.
Strong odors from decaying food or trash.
Presence of biohazards like mold.
Poor air quality due to dust, mildew, and allergens.
Tenant Rights & Legal Considerations
Understanding the tenant’s rights is crucial before taking ownership.
Is the tenant is on a fixed-term lease or month-to-month agreement? This is certainly a tenant I want out as soon as possible if I were to buy it.
If eviction is necessary, do local laws protect hoarding under any disability laws? Some jurisdictions consider hoarding a mental health disorder, requiring landlords to work with tenants rather than evict them outright.
Insurance and Liability Concerns
Hoarding conditions can impact insurance policies and liability risks.
Potential denial of coverage due to fire hazards and property damage.
Increased liability if injuries occur on the property due to unsafe conditions.
Higher premiums or requirements for additional coverage due to the property’s condition.
Cleanup and Renovation Costs
If the tenant vacates, substantial cleanup and repairs may be required.
Junk removal and deep cleaning, which can range from thousands to tens of thousands of dollars. From what I saw, it will take at four to five 20 cubic yard dumpsters to clear it out. Don’t expect the tenant to empty out the property. More than likely, they will simply walk away.
Extensive repairs due to damage from pests, moisture, or neglect.
Professional remediation for mold, pests, or biohazards. Repainting and flooring replacement due to staining and odor retention.
Impact on Property Value
If you were to finance this property, a hoarder-occupied home may have a lower appraised value due to its condition.
Inability to conduct a thorough home inspection due to clutter.
Hidden damages that only become apparent after clearing the home.
Difficulty securing financing if the property does not meet lender requirements as a tenant occupied investment property.
If I were going to buy this property, I would need this tenant gone as soon as possible, invest some serious capital to renovate before considering placing another tenant into the property and then refinancing (BRRRR strategy). So, renovation costs are now escalated killing any significant profitability whether I buy and hold or fix and flip. Also, dealing with removing a tenant hoarder from the property has its own set of risks and could take many months. In the end, I realized it was not worth the squeeze and passed on the property. The other investor? He went to contract at the $70,000 asking price.
