Would termite activity stop you buying?

[Whozat]

Pre-purchase inspections on 14 year old IP in otherwise very good condition, show signs of previous termite activity (perhaps three years ago) that has been repaired (satisfactorily); and active termites in retaining walls and tree that are close to IP. Previous point of access to this lowset, brick veneer home on a concrete slab appears to have been via a timber retaining wall that abutted the building and which has been replaced with a brick retaining wall. Inspector suggests replacing the remaining retaining walls as soon as possible and of course treating the little critters to a dose of the appropriate poison, with the full termite treatment on the property if the previous treatment is past its 'use by' date.
Being fairly new to property investing, the thought of problems and costs with the termites is quite daunting. (but also the thought of 'giving up' and pulling the plug is demoralising too!)Given the situation I have outlined above, would anyone care to comment and advise on how they would deal with a similar situation? I view the property as perhaps 5% - 10% below market value, and as an excellent renter (with excellent tenants in place) expecting moderate to perhaps very good capital growth. (Contract date was the 15th June, so does that make the 14 days for inspections expire on the 28th, or does it carry over to the next business day the 30th?)

I have also read a number of posts that suggest that the presence of termites offers a good negotiating tool. If taking that course, any advice on the extent to which one can reasonably push the issue? eg. just try to negotiate for owner to cover costs and treatments, or double the expected costs and ask for that amount in reduced price.

With limited time to decide, any help appreciated.

Whozat

 

[Elizabeth L]

Hi Whozat
We recently purchased a property without a termite inspection. It was a very good buy and we needed to act ASAP. It was only on the market for 1 day and then we signed a contract. On settlement we got someone in to look at the place - he was shocked to say the least. It cost us $3k to fix the problem and we've probably made 30% profit on the IP so far, the purchase price was $370. The $3k was minimal in comparison to 'the bigger picture'.
I'm not saying don't get a termite inspection, I'm sure you can use it very effectively negotiating. It's just that I'm not overly concerned about termites if I know it's managable.
Good luck
Cheers
Elizabeth L

 

[Peter Noake]

Elizabeth,

There really wasn't any need for you to go through with the contract without conducting a pest inspection. Your options could have included:

1. Conduct the building and pest inspections during the 5 day cooling off period, or

2. Make the contract subject to building and pest inspection suitable to you.

Fortunately the damage bill was only minor, but it could have been disasterous! Next time 'round, have a think about your options for conducting your necessary due dilligence within the bounds of your cooling off period or special contract conditions. It may save you a lot of money and heartache in the future.

Pete

 

[TryHard]

Hi Whozat

I agree with Elizabeth - "manageable" is the key.

We recently offered well below market for a property which had been on the market at $315K - probably worth close to that - it had failed the building inspection and they readvertised at $250K due to 'previous' termite problem. We offered the full $250K knowing it should be good value and would rent easily at $320-$340 pw. Spent $500 on the best building inspector and pest guy I know.

The house was pretty much hollowed out by whiteants. They had had a NEST IN THE KITCHEN CEILING in the downstairs of a 2 storey house with pine wall framing. And as far as the research could find (my phone calls to previous inspectors and what the pest guy could find visually) the nest could have been there for months or even a year or two. The owner had spent $7K on treatment but had not followed any recommendations such as getting drainage installed near house boundary, moving garden beds from walls at side of house etc. Nor had they repaired any damage, which appeared to extend up every door frame, pine skirting boards, wall frames and along the top of all wall frames in the upstairs section, in the supporting beam holding the top floor up above the kitchen, into the bathrooms and every available bit of timber in a 5 bedroom 3 bathroom house !

The building inspector's advice was probably similar to what you have heard :
1. Someone (usually a cash buyer) will buy a property with (major)termite problems - the fear associated with termites can be a great bargaining tool
2. For bad infestations (like this one we encountered) you will really not know what you're up for till you remove wall sheeting and examine with the human eye (the little keyhole video cameras are less intrusive but not as likely to reveal the whole drama) (brick veneer houses are apparently something like 60% plus of all termite problems, because of the false sense of security of "brick" leading to less precautions and understanding of the dangers)
3. Minor termite damage that has been isolated and treated, and particularly where the reasons for the original problem have been addressed, and regular inspections maintained, is not that much of a problem.
4. Prevention is way better than cure ... making sure all possible termite paths into the timber bits of the house are visible, moving garden beds away from house walls, treating regularly, yearly inspection in problem areas, keeping moisture right away from the house boundary - drainage is very important - the termites need moisture to survive. As far as I understand it, even a brick retaining wall up against a house, if it retains moisture, is still an invitation for the little devils to get under and find a track inside the brickwork. Once they beat the perimeter barrier they can technically come up a crack under the slab and find a way in, particularly if the underslab treatment wasn't done properly, which apparently many aren't.

An interesting fact I thought - mind you I don't get out much - this species - called Coptotermes, the queen lays 1,000 eggs per day and 80% of those are active eaters ... a nest can go through 10 METRES of timber PER DAY. Which would probably explain how this house was so annihilated. http://www.termite.com has more interesting but useless stats

Having said all that, I've had a couple of properties that had minor termite activity. That's part of living and buying in Queensland. The good thing is I caught them and managed the problem early, plus once you've let one termite problem begin and caught it, it never happens again

The building inspector's advice to anyone fixing major termite problems was :

1. Uncover the suspect area (like remove wall sheeting)
2. Take photos so you have evidence of prior damage.
3. Engage a qualified engineer to make recommendations in writing as to what action should be taken
4. Get the recommended work done - take photos at each stage of the restoration
5. Get the engineer back to inspect at whatever relevant stages and provide written verification from engineer that work is up to standard
6. When work is complete get written engineer clearance all done up to standard
7. Keep it all on file for the day you decide to sell

Even though these are "just IP's", its likely one day you'll want to use the equity or sell for whatever reason. He said if you follow the "engineer certified" plan with visual evidence, the buyers of the property have much less ammunition to bargain the price down. Plus nervous banks will probably be a bit more forthcoming with funds. He reckons $200-$300 per engineer visit is the usual cost.

We didn't buy the house by the way - the thought of removing the first wall sheet and finding the worst, or a tenant stepping out of the upstairs shower and landing in the downstairs kitchen sink, was a bit too much to bear

Cheers
TryHard

 

[TryHard]

Having said I agree with Elizabeth, I agree with Peter more

I would never purchase anything without a Building and Pest Inspection - no matter how good the deal (my $65K discount on the above property a case in point). There are too many things that could happen to tenants because of serious termite damage, let alone the management time involved in convincing a reliable tradesman to do rectification work at a good price.

 

[asy]

Originally posted by Peter Noake
Your options could have included:

1. Conduct the building and pest inspections during the 5 day cooling off period, or

2. Make the contract subject to building and pest inspection suitable to you.

Pete,

whilst I agree with you completely I'd have to say I'd rather go with option 2. The main reason is that 'cooling off' incurs cost, whereas backing out due to unsuitable building or pest inspection doesn't.

asy

 

[Whozat]

Thanks very much for the replies, especially your indepth response Tryhard. Having gone to the 'termite' web page you recommended I am a little more knowledgable about these critters and feel better placed to make a decision about the property. (However 'Fear of the unknown' has now been replaced with 'Terror of the known'....!)

As Elizabeth L writes, if this situation is regarded as 'manageable' then it may still be a good investment. I am endeavouring to get more information about the extent of previous damage and treatments in order to help me make a decision.

Thanks,
Whozat

 

[TryHard]

Good luck Whozat ... I totally agree - possibly $1K-3K worth of termite damage that isn't in urgent need of being fixed, or even if its been fixed with the "sour taste" left by a previous problem and the terror/fear factor, might get $10K of the fair price.

And a tenant probably won't know or care the damage was ever there. A friend of ours also in a lowset brick lost pretty much an entire wall, and decided to live with it after some extensive treatment to ensure no return of the little devils, but no actual repairs. You can't really tell there was ever a problem unless you start tapping walls. His only issue is before going to sell, to remove any trace that they were ever there, which he intends to deal with at the time.

So at least in the case of an IP that work can be done when the funds allow, and a nice tax deduction to boot (preferably a quick job to avoid loss of rent I guess... which is the Catch 22 with the idea of using an Engineer and the "proper" way).

Sorry - I'm rambling - I do that when I'm highly strung ... the other amazing thing about that species of termite BTW (Coptotermes) is the pest inspector said they're actually aggressive - the 'soldiers' will spit white stuff at you if they see you looking at them !

I guess a smart investor would have a little eski packed up with a nest of them, to be planted under the dead of night next to the most wanted IP about one week prior to a Building and Pest Inspection That should give them time to eat something substantial, then truck 'em off to the next one when you have bargained $20K off the price

I should be on The Block ! (or in jail)
Cheers
TryHard

 

[Elizabeth L]

Thanks for the advice Peter
We've always had pest inspections carried out on the IPs we've bought. On this particular occasion though, we had a different set of circumstances to work within.
As with everything in life you take a risk, but ultimately the choice and responsibility is yours when you purchase a property.
Cheers
Elizabeth L

 

[Whozat]

Am preparing eski now......just in case this one doesn't work out!

Thanks
Whozat