Assessing Property Condition Before Adding a Unit to an Investment Portfolio

Thinking about adding another property to your investment portfolio? Purchasing an investment property without having it inspected can be a costly mistake. That dream property may come with some nightmares you never saw which can cost you thousands of dollars.

The good news? If you have a thorough inspection you can identify these problems before you sign on the dotted line. Literally saving yourself thousands of dollars and headaches.

What you’ll discover:

• Why Property Condition Matters

• Key Areas To Inspect Before Buying

• Common Issues That Can Wreck Your ROI

• How To Build Your Assessment Checklist

Why Property Condition Matters

The condition of a property affects your return. You may be buying a cheap property with major problems.

Here’s why: If you don’t catch a problem before closing, it becomes your problem after closing. Which means it’s dollars deducted from your rental income for repairs, replacements and emergency calls.

Leaks are one of the worst culprits. Data from the industry shows that 8.1% of US homes experience water damage from indoor leaks. That’s 1 in every 12 houses. Having trained plumbing technicians run comprehensive leak detection services prior to purchasing can save you money. Plumbers have the equipment to detect concealed pipe problems your typical home inspector will overlook and their leak detection services can prevent you from buying a money pit.

Buying an inspection costs you a few dollars upfront. It protects you from thousands in repair costs down the road. It also puts you in a position to negotiate the price down. Think about it… Say you discover $10,000 in repairs needed. You can either walk or negotiate price with the seller taking the repairs into account. Win win either way.

Key Areas To Inspect Before Buying

Prior to investing in any unit always ensure these simple boxes are checked. You’ll be letting money slip through your fingers if you don’t.

The Plumbing System

The plumbing system is probably the most neglected aspect of a home inspection. It also has the potential to be the most costly disaster.

Pay attention to water stains on ceilings and walls, rust or corrosion on exposed pipes, slow drains in sinks and bathtubs, or low water pressure. These are all indications of larger problems lurking throughout your system.

Professional leak detection services is one of your best investments you can invest in right now. Small drips can lead to huge water bills over time. Also, leaks behind walls can rot out your home before you even know there is a problem.

The Roof And Structure

A roof replacement can cost anywhere from $8,000 to $25,000. Not exactly pocket change. Look for missing or broken shingles, indications of leaks in the attic, sagging spots and age of roof itself (they generally last 20-25 years). Structural problems cost more to repair. Check for cracks in the foundation, sloped floors and any indications of settlement.

The Electrical System

Ancient or defective wiring is dangerous and costly to repair. If the house has an old fuse box or aluminium wiring budget a complete rewire now. Up to date rental properties need to provide enough electricity for tenant appliances. An overloaded system means disgruntled tenants (and possibly a fire).

HVAC Systems

Heating/Cooling systems are expensive purchases. Replacing an entire system can cost $5,000-$10,000. Ask the age of the current system. If it’s older than 15 years, you can assume it’s shot.

Common Issues That Can Wreck Your ROI

Certain issues arise frequently when dealing with properties. Familiarize yourself with these so you can identify them quicker.

Hidden Water Damage

Water damage is deceptive. It lurks behind walls, beneath floors and above ceilings until it causes major issues. Look for stains on walls or ceilings, stale odours, buckled floors and blistering paint. New paint on ceilings should also set alarm bells ringing – some people paint over water marks so they can’t be seen by buyers during viewings.

Pest Damage

Termites, Rodents and other pests can create thousands of dollars of damage. Part of it can be structural which can cost you even more. Paying for a separate pest inspection is worth every penny.

Non-Compliant Renovations

Some sellers have un-permitted renovations to save costs. You end up with that problem when you take ownership. Work that doesn’t pass code has to be updated or demolished. Both of those options cost you money.

How To Build Your Assessment Checklist

Ok now that you know what to look for, go ahead and create your own assessment process. That’s the difference between intelligent investors and those who burn cash on losers.

Hire A Qualified Home Inspector

A qualified home inspector is priceless. Inspection costs range from $300 to $800 for a typical residential property. Consider it pennies when you think about what you can save.

Get references from other investors, ask for a sample report to see how thorough they are, and ensure they have experience with rental property specifically. Ask them to inspect EVERYTHING. The attic, crawl space, roof etc.

Get Specialist Inspections

For anything the general inspector flags, get a specialist to take a deeper look. It means contacting plumbers for pipe and drainage problems, electricians for electrical issues, roofers for roof problems and structural engineers for foundation problems.

Sure, it’s more expensive. However, it provides you with precise repair estimates you can build into your offer.

Do Your Own Walkthrough

Don’t trust the inspector completely. Walk through the property yourself before you make an offer. Take a notebook. Take pictures. Observe everything. The more you search, the more opportunity you will find. And every opportunity you find creates more negotiating leverage.

Bringing It All Together

One of the best steps you can take when considering adding property to your investment portfolio is to get an understanding of its condition. Neglect this step and you just might be purchasing a money pit.

Truth be told… There is no perfect property. Every property will have problems. As an investor, you just need to know what they are before you sign your name. To quickly recap, you should:

• Get a professional inspection done on every property

• Bring in specialists for problem areas that get flagged

• Do your own walkthrough with a notebook and camera

• Factor repair costs into your offer price

Avoiding inspection to save a few hundred bucks is one of the biggest mistakes you can make. You could be out tens of thousands down the road. Do your work upfront and your portfolio will reap the rewards.