home inspector | InvestingInProperties.com

Illustrating the power of the home inspection…

As a real estate agent, I am required to accompany all house inspections for my clients. I like to prepare my buyers for the worst before any inspection. Part of this process is educating them that in hiring a home inspector, he will be going through every problem, big and small, that is wrong with their potential acquisition. As such, the buyer should be ready to hear mostly bad news. However, I tell them that it is normal to feel a bit depressed right after a home inspection. However, I also inform them that there will be loads of small problems, each easily fixed. Most issues tend to be under a hundred dollars in cost. It is the major problems that the home inspector susses out where he really earns his fee. Among these types of issues would be structural problems, leaks, and dangerous aspects to the property – be they environmental or otherwise (for example, faulty electrical wiring, or wiring not up to code).

Creating solutions to found problems

If a major problem comes out in the home inspection, the buyer can then ask the seller to remediate the issue, or, lessen their sales price accordingly. Home inspections should not be used as a device to renegotiate the sale price of an already-agreed to contractual price. Rather, they are done simply for the protection of the buyer. You would never ask the seller to fix minor items…that would simply be tacky. It is only a major problem that should be addressed as a form of renegotiation on any given property.

An integral process…

I have written here before about the inspection process. It tends to be pretty uniform from one home inspection company to another. I have noted in one prior article how “most house inspectors like to start on the outside around the foundation, and then explore a building’s exterior walls up to the roof, on to the walkways, steps and any surrounding retaining walls. They will review with the investor what is or is not catastrophic in nature., in regards to defects with the house. And then they will offer advice on what can be done to repair them, along with cost estimates to correct these potential problems. If, for example, a gutter is found leaking, they will note the cause and effect of the leak: that water can get into the side wall of the house and rot the trim, or actually get into the structure internally. Inside the house, a home inspector will explain to buyers about the heating and electrical systems of the particular property, and how they operate. They will look for obvious problems in all the systems, and will give a generic overview of the entire system.”

A pertinent home inspection example

I recently had a buyer perform their house inspection using an inspector I knew was quite thorough in his work. His forte was finding trouble in locations one wouldn’t expect to look at – or gain access to for that matter. On this particular house, this inspector went through his normal home inspection checklist, then found the tiny opening to the attic space. It was a raised ranch house, and the attic opening was about two feet square, located in a bedroom closet. In this instance, there was a dresser loaded with clothes on top blocking access to the attic opening. Neither I nor my buyers even knew it existed.

Finding the hidden defects

This home inspector not only found it, he neatly moved all the clothes on top of the dresser (had they been placed there on purpose?), moved the dresser out of the way, and managed to open the attic hatch, get his ladder, and somehow squeeze himself in through the opening. Once inside the attic, he ascertained that the bathroom exhaust, next to the bedroom, was not vented to the outside at some point in time (though it was now). He found a large amount of mold in the area right above the bathroom, on the attic’s unfinished wood ceiling. He also took photos and wrote up the major problem in his written report. Naturally, we sent the report to the sellers, who claimed they never knew of the problem. We then asked for the sellers to remediate the mold using a licensed environmental company. And they did so, providing us with proof of the work being completed before the closing.

Part of your crew

This is just one simple example of the myriad issues that can come up in a house engineering inspection. For this reason, and because most buyers are not experts at house construction, it is an imperative that you hire a home inspector to perform a house inspection immediately after agreeing to terms on a new acquisition, and signing contracts on it. It is the singular best way to protect yourself from purchasing a “lemon” of a house. One that could suck you dry financially over time. You’ll find that the home inspection cost of a few hundred dollars acts as a great insurance policy when buying any investment property. The home inspector is yet another one of the invaluable members of your crew you need to add when assembling your team of real estate professionals for your investment property purchases.

Choosing your home inspector

I have also written here about the home inspector selection process. It’s not something to be taken lightly. I have noted that it is best to check that your choice of home inspector be licensed by your state…don’t simply assume they are. In addition, I recommended that “you may also want to check with the local Better Business Bureau to see if there are any complaints that have been lodged against the inspector you’re considering hiring. It’s also good to get several referrals from your real estate agent for local home inspectors they work with a lot. Realtors tend to create an approved list for different craftspeople as well as real estate related fields, including home inspection. Anyone on their approved list will have already been vetted many times over.”

Building rapport

I feel it very important to reiterate previous advice I’ve given on the selection process. In one prior article here I’ve recommended that, “as you build your crew, you’ll want to use your trusted home inspector over and over…Besides possibly obtaining volume discounts from him, you’ll also find another major benefit. You’ll develop something called rapport, and you’ll learn what to ask a home inspector. You’ll be able to trust his insights implicitly. And you’ll also be able to develop a “shorthand” way of communicating with him. The home inspector I stuck with for many years eventually did not need to send me those “boilerplate” inspection reports. He’d send me a shorter version – not the one used for standard home buyers. Communication flowed easily – and he kept me out of danger innumerable times in the process.” I would hope that any property investor, over time, will attempt to create this kind of rapport with their newly-found home inspector. Creating a steady relationship with your home inspector will greatly benefit you in the long run.

Photos courtesy of insurancequotes.com, propertymanagementinsider.com, ajvcgc.com, bestlongislandhomeinspectors.com, aceenvironmentalstl.com, sanjeeda-sheikh.com, beaconlighthomeinspections.com

Tips For Safer Investing

To augment my first list of top ten property investing mistakes, here are another ten traps to always be on the lookout to avoid:

1) Choosing a loan based on the interest rate only.

Interest is one of the least important criteria because it could vary over the life of the loan. Learn to select a loan with terms that are immediately crucial for you, and which give you the best cash flow from your property.

2) Not figuring in hidden costs.

Hidden costs are mostly related to closing costs on acquisition of investment property, such as mortgage tax, mortgage insurance and additional escrow for taxes a lender may require. In addition, if you’re purchasing an investment condominium or cooperative unit, be sure to calculate in hidden costs such as association or board dues, as well as any new association tax levies.

3) Purchasinging an investment property to obtain a tax loss.

The use of tax losses through negative gearing can help high income individuals offset the tax burden from other income. However, the ultimate aim should be to gain capital growth. Let a CPA or other tax professional guide you before you begin your search for a negative cash flow investment property.

4) Not claiming depreciation.

As mentioned above, consult your tax advisor regarding how best to depreciate your investment property. Different types of properties can call for different depreciation schedules that will benefit you most.

5) Inadequate property insurance.

Insurance premiums on investment property are tax deductible. Policies should be reviewed yearly to make sure you don’t underinsure your investment (especially if you’ve made significant repairs or renovatiuons to the building since you bought it).

6) Paying too much for the property.

Many times an investor may get too emotionally attached to a property, develop a “gotta have it” fixation, and then overpay for it. In addition, sometimes purchasers will act too quickly, feeling they need to “nail down” the deal in order to secure the property for themselves – especially if there’s a hint of competition for the building. When this happens, investors tend to waive house inspections, or not seek other opinions as to valuation prior to bidding on the property. Big mistake. Stay unemotional! Always do your homework, get to know the area you’re buying in, as well as what comparable sales of like properties have been going for in recent sales data.

7) Not researching the local rental market properly.

If you set your rents too high, you can lose out on potential tenants, and create a higher vacancy rate for yourself. On the other side of the equation, if you set your rents too low, you’ll be artificially limiting your overall cash flow and net income.

8) Being your own property manager.

Unless you’ve had some really good experience doing property management, consider utilizing the services of a pro, at least inmitially. Then, if you feel up to easing yourself into the role once you get to see how they do it, go ahead and try. Property managers earn every penny they cost, and the benefits will truly be seen in your increased cash flow.

9) Allowing bad tenants to become deadbeats.

If you allow a bad tenant to get behind in their rent, the whole stack of cards can cave in. It’s amazing how quickly one tenant in arrears can quickly become two or more who owe you. And it can be a very long and costly process to collect back rent. Especially if you have to end up hiring an attorney to start an eviction proceeding. Very long. Very, very costly. ‘Nuff said.

10) Skimping on simple property maintenance.

Never count on your tenants to bring up any problems the building is showing. And the reason is simple: they don’t want you around. So don’t count on them to call you when there’s a mnor, constant drip from a water pipe. Or when cracks develop on the walkway leading to their unit. Or when their light starts to flicker, indicating a potential for a fire. Tenants call in emergencies – burst pipes, no heat, or an actual fire that just started. It’s up to you (or your property manager) to make regular, routine inspections of all units as well as the grounds. If not, you’re asking for all sorts of trouble – especially since you have legal liability to properly maintain the property. So don’t skimp on doing regular preventative maintenance. It will halp your cash flow in the long run.

photos courtesy of kristinandcory.com, davidcares.com, reliancecpa.com. karlymoore.wordpress.com, wilmothpropertyservices.com, propertymanagementinsider.com

The Necessity Of The Home Inspector