House inspections is unfortunately a super boring topic that is the opposite of the oh-so-glamorous real estate investor life, but it does deserve some discussion so here we go!
Inspections are done on the property after your offer is accepted and must be done within a certain time period prescribed by your offer, normally 10 days or so. You could be an idiot and decide to not inspect but that only hurts you. Don’t be an idiot! Have your property inspected!
For my last property, I did a put in an as-is clause meaning that the seller does not have to repair anything that the inspector finds is wrong with the property. As discussed in a prior post, I did this to make my offer more attractive. But just because I’m not asking the seller to make repairs, doesn’t mean that I don’t want to know what’s wrong with the property before I buy it.
If there was something terribly wrong with the property, like all the plumbing was not up to code, I would’ve backed out of the property or asked the seller to fix it since he or she would’ve had to have done it anyway for any other buyer down the road. That’s kind of a safeguard with submitting an as-is offer. Submitting this type of offer does NOT mean you have to buy the property if the inspection comes back saying that house is a dump!
But I digress… let’s get back to the basics. An inspector does what his or her name implies- inspects the property. I found my inspector through word of mouth from another investor. The inspector that I use has 20 or so of his own rentals so while he’s inspecting, he tells me what cosmetic things he would fix to get maximum rent. I really appreciate that he does this and wouldn’t want to use someone who doesn’t know the rental business. Because of his expertise, he is part of my real estate “team;” he doesn’t just do his job, he exceeds it by giving me helpful advice that I might not have known otherwise. Find someone like this! Talk to other investors and get a referral.
As my inspector is going through my property, I normally trail behind him and take notes. Although he provides me a detailed report of his inspection afterward, I like to make notes that make sense to me as to what should be done in and around the property. I note the ages of all appliances, when certain things should be replaced, and the type of A/C filter I need to buy for my tenants to name a few.
After I get back the inspection report, if this is NOT an as-is contract, my realtor will go to the seller’s realtor with a list of all the items that I would like repaired before moving forward with the contract. The list is for items that affect the livability of the house, not nit picky items. An example would be asking for non-working outlets to be repaired, not replacing ugly switch plates. You also can’t ask for big items, like a roof to be replaced, if the price already reflects that it needs to replaced. However, if the roof affects the integrity of the house and the cost of replacement was not built into the price, ask for the seller to be responsible for this repair. They might turn you down, and if so, you could walk away from the property if the numbers no longer make sense.
After presenting the list, the seller will go through the list and will have a few options. He or she could choose to be responsible for all, some, or none of the items that you want repaired. If the list of items to be repaired is more than none, then the seller could:
- choose to have those items repaired by his or her contractor;
- tell you to get it fixed by your contractor and the price for the repairs gets knocked off the purchase price; or
- after getting an estimate for the repairs, the entire estimate price could be knocked off the purchase price and the buyer would be responsible for making those repairs.
Personally I favor the last option because after getting the price decreased by the amount that the repairs would’ve cost, you could do the work yourself and pocket the difference between your cost of doing the work and what a contractor would’ve charged. If you’re handy and have the time, this saves you the cost of labor.
After negotiating the repairs, closing is the next step to obtaining your new rental property. As this step is guided by not only your realtor but also by the title company, it’s a pretty easy last step of the home buying process. So, the next blog post will be about the new house that I recently bought and renovated. Stay tuned!