SS200: Essential Reasons to Always Conduct a Property Inspection

SS200: Essential Reasons to Always Conduct a Property Inspection

Property inspections are a crucial part of due diligence when purchasing a property. In this episode, Charles discusses its importance and how experienced investors handle their property inspections.

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Talking Points:

  • One common mistake of new real estate investors is a lack of due diligence. Investors don’t perform adequate due diligence during the inspection period and discover issues that should have been identified with a property inspection. Check SS161 to learn more about due diligence.
  • There are a few parts to due diligence when purchasing a rental property. You have the paperwork side of it, where you review financials, rent rolls, leases, bank statements, utility bills, etc. Then, you have the physical due diligence portion, which is what we are going to be discussing today.
  • The property inspection is a crucial step in the purchasing process, and it helps buyers understand the property’s actual condition. Hopefully, you or someone you trust inspected the property before submitting an offer, and there should already be some level of knowledge of the property’s condition. Still, the inspection process is more in-depth.
  • Every property buyer should get an inspection before purchasing. The only times I didn’t get an inspection were when I was flipping houses and buying from banks and needed to quickly walk the property, usually with a contractor, come up with a solid estimate of work to be done, and submit an offer that same day. You probably are not buying from banks and will usually have a 15–30-day window to perform inspections.
  • Let’s break down some of the reasons why you should have a property inspection
    • Identify Current and Potential Issues
      • The inspector will most likely find minor problems, like a miswired electrical outlet, but they will also uncover potential structural, electrical, and plumbing system problems. These are the big-dollar items that may dramatically change the property’s value.
      • Finding pest infestation easier than later can dramatically prevent future severe damage.
    • Avoiding Unforeseen Expenses
      • Preventing buyer’s remorse: An inspection will help confirm that the buyer is making a sound investment by knowing there will not be costly surprises after closing.
      • The buyers accurately understand the property’s condition: A buyer aware of the exact condition of the property can confidently move forward with the purchase.
    • Accurately Forecast Future Expenses
      • Maintenance Planning: Property inspection reports will highlight current and potential future issues with a property. This helps buyers know how to budget during the interim.
      • Insurance Requirements: Insurance companies may require certain repairs before providing coverage (especially with older properties). Knowing this during the inspection will help buyers negotiate repairs and credits before closing.
    • Negotiation Leverage
      • After a property inspection, the buyer can typically negotiate with the seller in two ways: price adjustments and repair requests.
        • Price Adjustments: Buyers can negotiate a lower price if they are willing to repair themselves after closing.
        • Repair Requests: Buyers can also submit repair requests to the seller. This saves the buyers time and headaches while not having to fund the repairs post-closing. The buyer’s lender or insurance company might also require these repairs, which stops the closing process until the repairs are made.
      • Safety and Compliance with Local Codes
        • Hazardous Materials: This is more common with older properties, but inspections may uncover the presence of harmful substances like asbestos, radon, mold, etc., which pose health risks.
        • Code Violations: This is also more common with older properties because codes changed, and many properties are now grandfathered in, but they may still need to make some changes and updates for safety. We’ve had to install new doors, fire alarm systems, fire extinguishers, emergency lighting, etc. These repairs can be very expensive, and knowing them before closing is essential.
      • Informed Decision-Making
        • Full Disclosure: Once the buyer has the property inspection report, they have comprehensive information on the property’s condition.
        • Property Comparison: The buyer can now compare the subject property and its condition to similar properties on the market. Helping them make a more informed decision.
      • It is vital to understand that property inspectors are more generalists, and if the inspector locates a potential issue, make sure you bring in a contractor specifically trained to review the problem uncovered by the inspector. To make the inspection process easier and faster, I would have a couple of other contractors at the property on the same day to review the major items and systems simultaneously. This would include an HVAC person, roofer, plumber, pest inspector, etc. It might be overkill and depends on the property’s age, but it beats going back multiple days to complete the inspection.
      • Make sure to check out episodes SS13 and SS161 to learn more about property due diligence.

Transcript:

Charles:
Imagine buying a property and discovering a hidden problem that costs you thousands sounds like a nightmare, right? Well, that’s why today’s episode is a must watch.

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo, and today we’re discussing essential reasons why you should never skip a property inspection. Today we’ll reveal the hidden dangers you could miss. How to avoid unexpected expenses and how a simple inspection can give you the upper handed negotiations. Trust me, you don’t wanna make a decision. You’ll regret. Stick around and discover the secrets to making a smart investment and saving yourself from costly surprises down the road. One, one common mistake of new real estate investors is a lack of due diligence. Investors don’t perform adequate due diligence during the inspection period and discover issues that should have been identified with a property inspection. There are a few parts to due diligence when purchasing a rental property.

Charles:
You have the paperwork side of it, which is where you review financials, rent rolls, leases, bank statements, utility bills, et cetera. And then you have the physical due diligence portion, which is what we’re gonna be discussing today. Now, the even property inspection is a crucial step in purchasing process, and it helps buyers understand the property’s actual condition. Now, hopefully you or someone you trusted, inspected the property before you submitted an offer, and there should already be some level of knowledge of the property’s condition. Still, the inspection process is more in depth. Every property buyer should get an inspection before purchasing. The only times I didn’t get an inspection was when I was flipping houses and buying from banks and need to quickly walk the property. Usually with a contractor, came with a solid estimate of work to be done and submit an offer of that same day.

Charles:
Now, you probably are not buying from banks and you usually have a 15 to 30 day window to perform your inspections. Let’s break down some reasons why you should have a property inspection. Number one is identifying current and potential issues. Now, the inspector will most likely find minor problems like a mis wired electrical outlet or a switch that doesn’t work, but they will also uncover potential structural electrical and plumbing system problems. And these are the big dollar items that may dramatically change the property’s value. Also finding pest infestation sooner than later can dramatically prevent future severe damage that could happen to your property. Number two is avoiding unforeseen expenses. So preventing buyer’s remorse and inspection will help confirm that the buyer is making a sound investment by knowing there will not be costly surprises after closing and the buyers accurately understand the property’s condition, a buyer aware of the exact condition the property can confidently move forward with the purchase.

Charles:
Number three is accurately forecast future expenses. So maintenance planning, property inspection reports will highlight current and potential future issues with a property, and this helps buyers know how to budget during the interim. Insurance requirements. Insurance companies may require certain repairs before providing coverage, especially with older properties. Knowing this during the inspection will help buyers negotiate repairs and credits before closing. Number four is negotiation leverage. So after a property inspection, the buyer can typically negotiate with the seller in two ways. Price adjustments and repair requests. So price adjustments where buyers can negotiate a lower price if they’re willing to repair themselves after closing and repair requests. So buyers can also submit repair requests to the seller, and this saves the buyer’s time and headache because they do not have to handle or fund the repairs. Post-Closing the buyer’s lender or insurance company might also require these loans before closing or before ensuring which stops the closing process until the repairs are made.

Charles:
Number five is safety and compliance with local codes. So first off, it’s hazardous materials, and this is most common with all the properties, but inspections may uncover the presence of harmful substances like asbestos, radon, mold, lead, et cetera, which pose health risks. And number part two of this is the code violations. Now, this is also more common with older properties because codes change. Many properties are now grandfathered in, but they may still need to make some changes in updates. For safety, we’ve had to install new fire doors, fire alarm systems, fire extinguishers, emergency lighting. These repairs can be very expensive and knowing them before closing is essential. Number six is informed decision making. So it gets you full disclosure. Once the buyer has the property inspection report they have comprehensive information on the property’s condition. They can also for property comparison, the buyer can now compare the property, the subject property they’re looking at, and it’s conditioned to similar properties in the market, helping them to make a more informed decision.

Charles:
Maybe the property isn’t as good of a deal as they thought before. Once they see the inspection report, it’s vital to understand that property inspectors are more generalists. And if the inspector locates a potential issue, make sure you bring in a contractor specifically trained to review the problem uncovered by the inspector to make the inspection process easier and faster. I would have a couple of other contractors at the property on the same day to review the major items and systems simultaneously. And this would include an HVAC person, a roofer, a plumber, a pest inspector, et cetera. It might be overkill and depends on the property’s age, but it beats going back multiple days to complete the inspection. And the seller and your agents will also appreciate you doing it all at once. I would also make sure to check out episode SS one, three and SS 1 61 to learn more about property due diligence.

Charles:
So I hope you enjoyed, please remember to rate, review, subscribe submit comments and potential show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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