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Originally Posted On: https://www.dohardmoney.com/how-to-spot-if-your-investment-property-was-a-drug-house/

 

Unknowingly purchasing and reselling a drug house can expose real estate investors to serious liability. If you buy one of these homes, you need to take key steps to remediate the property. As a result, new investors must know how to spot if your investment property was a drug house. 

Signs that your investment property was a drug house include: heavily tinted windows, graffiti in the interior, possible fire damage, Coke-looking spray on the ceilings or walls, and general disrepair. When you see these signs, complete a test. If a positive test, you need to pay a professional to decontaminate the home.

I’ll discuss more details about spotting signs of a drug house in investment properties in the below sections. Specifically, I’ll cover: 

• Why Spotting Drug Houses Is Important
• Spotting Signs of a Drug House in Investment Properties
• My Thoughts on Purchasing Drug Houses
• Disclosure Rules for Rental Properties 
• Fix & Flip Planning for Drug Houses

How To Spot If Your Investment Property Was A Drug House

Over my years working in real estate, I’ve seen multiple houses that had been used as meth labs. Coincidentally, I just toured one the other day that an investor wanted to buy. When I walked through the place, it clearly had fire damage inside, and it was just generally a mess. Within a few seconds of being there, I knew it had also been used as a meth lab in the past. When this investor had the property inspected, the test for meth presence came back positive, confirming my initial impression. 

I share this story to show that I’ve had plenty of experience spotting drug manufacturing signs in homes, and it’s an important topic for investors to understand. 

But, why? 

In addition to nasty smells, meth production creates toxic fumes. These fumes often absorb into the walls, carpets, and HVAC systems. If you sell one of these properties and the new owners become sick, you can face significant lawsuits. In a nutshell, if you know a property was a drug house, you must have it professionally decontaminated before selling. If not, you expose yourself to tremendous liability. Rather than face these situations, investors should understand how to spot signs of former drug manufacturing. 

Spotting Signs of a Drug House in Investment Properties

Outside of a formal test—which you can do on your own or hire someone to complete—you can look to certain indicators to spot drug houses. While you may not see all of the below signs, if you spot a few of them, there’s a good chance a prior owner/occupant used the place to make meth. 

• Tinted windows
• Graffiti in the home’s interior 
• House in a general state of disrepair
• Overgrown landscaping
• Clear signs of fire damage inside (occurs during the “cooking” process)
• Any other clear signs of chemical usage 
• Sticky splotches on ceilings and walls that look like someone shook up and sprayed a Coke can all over the place
• Strong odors
• Disconnected smoke/fire detectors

My Thoughts on Purchasing Drug Houses

What should I do if I think a potential investment property was used as a drug house? Should I buy it? 

Frankly, I don’t think it’s a huge problem buying one of these houses, so long as you take the correct measures. If you see the above indicators and suspect past drug activities, follow these steps:

Step 1: Complete a Test

This is now a fairly easy process. You can do the test yourself or hire a professional—either works. If you test on your own, a company sends you a kit, and you need to swab several places throughout the home. Then, you package the swabs and mail them back to the company for testing. Results turn around quickly. 

While this self-test process is fairly straightforward, some people prefer a professional approach. You can hire certified inspectors who will do the drug tests for you. 

Regardless of which approach you take, you’ll receive one of two results: negative or positive for drug presence. If negative, you can continue with the investment like you would with any other property. If positive for meth contamination, you’ll need to move to the following step.

Step 2: Hire a Professional to Decontaminate the Property

The key word above is professional. You can have the most reliable contractor in the world, but if he or she isn’t a trained and certified professional, you need to use someone else. In other words, if general contractors offer to decontaminate homes, make sure they’re professionally certified (most are not). 

Instead, you need to hire a certified decontamination specialist. These professionals receive in-depth training and have specialized equipment and chemicals to rid a home of meth residue and other toxicants. If you try to cut corners and hire an amateur, you can A) potentially lead to people getting very sick, and B) expose yourself to a major lawsuit. 

Bottom line, hire a professional to decontaminate a house that tests positive for meth. This used to be a far more expensive and laborious process, but now you can hire a qualified specialist for several thousand dollars. And, the equipment they now use significantly speeds up the process. 

Disclosure Rules for Rental Properties 

In addition to decontaminated drug houses, investors also need to understand their state disclosure laws. Depending on where you live, you’ll need to follow one of two disclosure laws related to prior drug use in a home:

• Non-Disclosure States: In these states, you are prohibited from telling potential buyers that a home had been used for drug manufacturing. 
• Disclosure States: Conversely, in these states, you must disclose that a home held a drug lab in the past. 

Clearly, these are two different paths. For investors, you need to confirm your state’s disclosure rules to avoid facing potential liability. 

Fix & Flip Planning for Drug Houses

As stated, I see no issues doing a fix & flip deal on a former drug house. Investors should just take certain proactive measures. First, I recommend including meth testing and professional rehabilitation in your initial rehab budget. That way, you assess the deal based on this contingency. If it turns out you don’t need to decontaminate the property, that’s great—you’ve just boosted your profit margin.

But, let’s say that your meth test comes back positive. At that point, you can solicit a bid from a certified decontamination specialist. Whereas you included an estimate of costs in your initial budget, this will provide you a final quote for how much the clean-up will cost. 

If the final bid comes in at or below budget, the deal’s numbers still work and you can continue. If the bid comes in higher than budget, you can use this as leverage to negotiate a lower price. Basically, you approach the seller, present the proof that the house had been used as a meth lab, show your clean-up bid, and say that you need a lower sales price or will walk from the deal. Most sellers, when confronted with proof that they owned a drug house, will be happy to just get the property off their hands—and will lower the price accordingly.

This is why I don’t see past drug use as a reason to bail on a potential deal. As long as you follow the rules regarding testing, decontamination, and disclosure, you can find some good deals.