How to Systemize Your Initial Property Inspection to Avoid Surprises

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You just know it’s the one. The color scheme is right; the floor plan is open. You touch the granite countertop and see the kids practicing their multiplication while salmon broils in the stainless steel stove. If you are searching for the home of your dreams, focus on countertops and paint color. If, however, you are seeking buy and hold rentals, refocus. Remember: You are NOT going to be living there. So instead of thinking like an end user, focus on finding all the problems that need repairing.

Below are a few hints for systemizing your initial inspection.

Walk This Way

Homebuyers love to walk into a house and get a feel for the ambience of a place. Investors look at what the costs will be to get this baby rented or flipped. Over the years, I have systemized how I inspect a property:

Perimeter → basement → top floor → main level

Outer Limits

Start out by looking around the outside of a property. For more tips on how to do this, check out this article.

The Good, the Bad, the Basement

Avoid the temptation to enter a house and start looking through the rooms willy nilly. I’ve been thrilled with a house, spent time looking in every room, only to find the basement flooded. You can tell a lot about a house by its basement. “Don’t buy me” issues can be found by checking the corners, the floor and the ceiling. Pull out your flashlight and look for water marks or signs of mold. Basements can be gems too because you might be able to add some drywall and voila you have another bedroom.

The Top Floor: It’s All about the Up and Down

Go from the basement straight to the top floor. Many problems on the top floor can affect the main level. Your head should always be looking up and down as you go through a house. Look up at ceilings and down at flooring. Are there water stains from roof leaks? If you see a stain, note the location so you can later double check the roof. Check windows and walls for cracks, leaks and mold. Is the flooring salvageable? Do you see hardwoods under carpet?

The Main Event

If you like the looks of the perimeter, basement and top floor, spend some time on the main level. Again, look up and down. Crouch down and look under the sinks. If you see a lot of water stains or warped wood, you know you might have to do some plumbing repairs. Note any discoloration from water around tubs and toilets. Check out whether the house has 3-prongs. Open the electrical panel to see how new the breakers are. The lewd graffiti on the walls might horrify an end user, but you might be psyched. “Yes, it’ll only take a few coats of paint!”

Six Senses

Use all your senses when canvassing a house. You are compiling an initial punch list to ballpark costs. Does the house smell exceptionally damp and moldy? Do you see ill-fitting doors and cracks in walls? Do you hear Rottweilers barking next door? Does the floor feel wobbly? Taste the… wait! Don’t use that sense here. Also, don’t discount your intuition when looking at a house. Sometimes something just doesn’t feel right.

Don’t Come Out of the Closet

Normally, you look in a closet to note how big it is. But with income properties, you want to look at closets with an eye for finding problems. Look at all the corners around the ceiling. Tucked away in hard to see crevices, you can find holes, insect damage, mold and water stains.

Once you have completed your initial walk through, you will have a rough idea of your rehab list and budget. By systemizing the inspection process, you are less likely to miss costly problems. Now you can make an informed decision on how much to bid for the property.

Question for Readers:

What hints do you have for physically inspecting a house?

Photo: ken_mayer

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About Author

McKellar Newsom invests in single family properties in seven different markets. McKellar partners with investors who don't have time to devote to real estate investing.

15 Comments

  1. A recent escrow cancellation in California illustrates a common problem. California law requires extensive disclosures and there are several CAR forms (TDS, BIA-A, SBSA, AVID, etc.), that might give the Buyer a false sense of security that everything has been covered. In fact, these forms expressly exclude critical problem areas from disclosure. The Agent Visual Inspection Disclosure states that the Agent will not inspect the roof, attic, or areas underneath the house, or other structures on the property (sheds, detached garages), permit records, easements or boundary lines, etc. These forms expressly relieve the Broker or Agent for responsibility to check inaccessible areas. In this case, the Buyer retained services of a professional inspector who discovered that the detached shed contained several electrical outlets and plumbing hookups, indicating possibility that previous tenants had operated a grow house. No record of permits for the electrical work could be found. None of this was required to be disclosed in any of the CAR forms. Lesson here is clear: do not rely on disclosure forms! And hire a professional inspector.

    • McKellar Newsom on

      Thanks for your comment, Jeffrey! I agree. Hire a professional inspector. I like to do the initial inspections without having to pay for an inspector. I always (well, almost always) hire a professional before I close.

  2. Hello McKellar,
    Some additional tips physically inspecting a home are to have some system to track all these rehab and fix items. The mind can’t remember them all, so having some electronic system helps. I have learned from some of our customers that if they don’t document them somehow, they can quickly lose track of them, especially if they have mutltiple homes in their portfolio. In the long run, this helps plan out the overall budget for the rehab and reduces those mental mistakes of forgetting about some important fix it.

    • McKellar Newsom on

      Great idea, John! I like to use the back of the listing sheet but I know tech savvy types use I-pads. Thanks. mck

  3. Love you admonition to “refocus”, you will not be living there. Right!

    And know that, after your thorough inspection, you have just begun! Before signing the paperwork, you may still want a professional to walk through. Missing a big problem one or two times can really hurt an investor’s bottom line!

    • McKellar Newsom on

      Thanks for the comments, Karen. I agree about getting a professional before closing. I like to pre-qualify a house then hire an inspector before the due diligence period ends. Thanks. mck

  4. Great post, must read for would-be “hands-on” investors.
    From another angle, that’s why I like being able to trust a professional to do these things- nothing gets missed AND I don’t get emotionally attached.

    • McKellar Newsom on

      Good point, Ziv. I like using a professional after I go through the property at least once first. Also, I agree it’s good not to get emotionally attached to a property. Thanks. mck

  5. Hi McKellar, good points!

    Besides corners and ceilings, I look at windows, doors and vents. Invariably there’s “opportunity” to discover issues in these areas.

    • McKellar Newsom on

      Good thoughts, Tod. I can tell whether a window is plexiglass or not but I’m not sure exactly how to explain it. Do you have any advice on explaining how to tell plexiglass from real glass? I sometimes use a key to knock on the window. Thanks. mck

  6. Great post. I trust my nose for bad smells, but also look for open windows and air purifiers or other giveaways that someone’s trying to hide something. Fresh paint can also be used to hide issues. Any obvious additions or alterations need to looked at to check for shortcuts. Finally, when looking around the perimeter, check for gutters and drainage issues that could cause basement water intrusion.

    • McKellar Newsom on

      Thanks Alan! Great points. I sometimes also see dehumidifiers too.

      In the mid to higher end foreclosures, you often see some “covering up” by the banks or listing realtors. By the way, just today, I saw another small plant growing out of a gutter. mck

  7. McKellar I agree with all the points above. Very good stuff. I remember when I first got into the business a investor telling me that when he looked at a house he estimated repairs in $5k-$10k increments. He would always estimate small jobs at $5k and depending on the extra’s go up in 5k to 10k increments. This method has proven to work out well for me over the years. Also when doing a rehab flip always count on 10% to sell it and have at least a $30k spread for profit. This protects you in case the unknowns come up. Rental are a little different but as long as you are picking the property up for 50 cents on the dollar minus your repair estimate you can do well.

  8. How did I miss this mck? Good ideas and perspective on your inspections. I have thought about building a checklist of these things so something doesn’t get by me during any busy moments. I have also taken my flip video cam and made a slow sweep of each room so I could review it later. Sometimes I can’t figure out a potential problem I am looking at, another set of eyes looking at the video helps decipher the problem.

    Thanks for posting mck. I look forward to more.

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