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Inspecting A House: A Valuable Real Estate Education that Costs a Penny

by Clay Huber on September 21, 2012 · 14 comments

  

Want to vastly increase the probabilities of success in the real estate investment business? Want to create a perception about yourself that instills trust and confidence? Well for the first 50 people to sign up, you can accomplish this for the introductory price of $1,495!

But wait! If you sign up within the next two days, you can get this for only… are you ready? $997!

Sound familiar? I have good news and good news (no bad news here, well, maybe). You can vastly improve the odds of success and create a winning perception of yourself, but the extra special good news is, it’ll only cost you a penny. At the time of this article, you can pick up a book that I would highly highly recommend for a penny. You can find the book here. (the potential ‘bad news’ referred to above comes in the form of, depending on the demand, those “penny books” may not last long)

The book:

Inspecting A House by Rex Cauldwell

If you’re like me when I first started out and have very little to no idea about ‘what’ to look for when checking out a property, then this book is, dare I say, a MUST HAVE! In summary, the book breaks down all the aspects of inspecting a property.

It’s not a book designed for someone whose goal is to become a licensed home inspector, so it doesn’t go into all the technical details; however, what it does do is cover the broad topics and overall “things” to keep an eye out for. Call me a little kid, but I love pictures and this book is filled with them along with helpful diagrams.

This brings me to the point of this article if you haven’t already figured it out: learning to inspect a house is an essential tool to have in your real estate tool-belt!

There are a host of ways harnessing this tool can positively affect you as a real estate investor, so I wanted to highlight three that I’ve realized through my experience. The three that I’ve really noticed are the positive affects on are Cost Savings, Time Savings and Professional Perception/Reputation.

Cost Savings

Don’t get me wrong, I’m not saying that hiring a professional inspector is a bad choice (especially when you are first getting started), but if you plan on making a business out of real estate, these things can add up. I realize it would be relatively easy to argue the counter to this point of view, but this is purely my opinion.

By learning ‘what’ to look for, you won’t be caught off guard by anything obvious (the last thing you want is to have to add another $10,000 to your rehab budget… in some cases, that might be what knocks you out of the real estate business, or at a minimum, puts you into a deep deep hole). Sure, an inspector may see something not so obvious, but at the end of the day, those truly nasty “surprises” are things that neither you OR the inspector would catch, so this is the key reason why I can’t really justify hiring an inspector on each and every property.

Think about it, if you spend $300 per inspection and do five homes per year, that’s an additional $1,500 saved. Depending on the amount of driving you do and local gas prices, that could very well be close to a years worth of gas expenses.

Time Savings

By learning ‘what’ to look for, you can keep better control of your schedule. You will need to follow the inspector’s schedule in terms of ‘when’ they can fit you in. This may not seem like that big a deal, but rest assured, if the inspector’s schedule is now causing you to have to reschedule a key meeting with a potential private money lender, it will seem much more like a big deal!

On this same note, you’ll be able to create a scope of work much more efficiently. Your general contractor may need to have you change a few things here and there, but for the most part, you won’t need to have your contractor walk with you through the place while you make out each and every point. Trust me, they’ll appreciate this (more on this later).

Professional Perception/Reputation

It doesn’t matter if you are a flipper, wholesaler, or hard money lender. By knowing ‘what’ to look for while inspecting a house will greatly improve the way people perceive you. The added bonus to this is, they will perceive you in a favorable light which is never bad for the reputation. Let’s take a look all all three examples quickly…

Flipper

I already touched on this, but remember the example in regards to the scope of work and not requiring your contractor to walk through the entire list with you? If you want to earn favor with contractors (‘favor’ earns better pricing and customer service), then make it enjoyable to work with you as an investor. When you know what to look for, you can create that scope of work and SAVE the contractor TIME. Contractors are no different than anyone else in regards to this, they don’t want their time wasted.

On top of this, it lets them know, “Hey, I understand what I’m looking at, so don’t try and pull any quick ones on me.” Of course, the added bonus here is if they ‘do’ try and pull a quick one, they expose themselves as being not someone you want to work with. A nice little “filter” to be able to deploy if need be.

Wholesaler

The fastest way to burn your reputation is to hand out ridiculous “repair cost estimates”.  Learn what to look for. You may not  know the cost to fix it, but if you can at least give the end buyer (most likely a flipper) a list of “things that look like they need repaired”, they should be able to put some costs to things.

Bottom line, by knowing ‘what’ to look for, you don’t have to worry about leaving out a glaring issue when you send the property out to your buyer’s list. Whether it was intentional or an innocent mistake because you weren’t sure what to look for, it doesn’t matter. Perception is reality and leaving out an obvious problem reflects poorly on you.

Hard Money Lender

You don’t want to be lending money to an investor who is severely underestimating the scope of work and/or repair budget. The last thing you want is the phone call, “ummm, Mr. Money, I didn’t see ‘this’ and I need more money”.

It’s straight forward for the private money lenders… knowing what to look for helps you in figuring out if it truly is a good deal or not. The last thing you want to do is have the final loan amount be 90% of the ARV. Eeeeek!

At the end of the day, the benefits of reading a book like this vastly outweigh the time cost of reading it. I’ll be the first to admit, I had zero clue on ‘what’ to look for when entering a ugly old property, but after going through this book, the confidence level has risen and so has many other attributes of the business. Even if you can’t pick up the book for a penny, paying a bit more is well worth the investment!

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{ 14 comments… read them below or add one }

Dale Osborn September 21, 2012 at 1:19 pm

Sounds like something that every real estate investor would want to hang on their tool-belt.
Appreciate the information.

Dale

Reply

Clay Huber September 21, 2012 at 1:24 pm

Sure is Dale.

I honestly can’t think of a single reason why someone wouldn’t want to at least learn the basics of homes and “what makes them up”, I mean that IS the product we are working with as investors!

Reply

Steve Toohey September 21, 2012 at 2:25 pm

Clay, I’ve been doing my own for awhile now, after following a few real inspectors around and taking notes… but figured there is always more to learn so I bought the book. Unfortunately I had to pay up for it… a whole $4.06 on Amazon!

Reply

Clay Huber September 21, 2012 at 3:07 pm

Steve – great thinking in regards to following around a professional and taking notes. A good strategy for sure!

Just checked that link, you’re right! Looks like those “penny books” were bought up already. Regardless though, even paying full price for the book is well worth the long term returns on investment.

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Kyle Hipp September 21, 2012 at 8:47 pm

I have done my own “inspections” after my first purchase. I have found the more and more I do remodels and rehabs I learn incredible amounts. I have always started in the basement because you get to see everything the rawest and most open. With looking in the basement you can see the rest of the house. You can see how the electical and plumbing and what you are in for. Also you get to see the structure which allows you to see how you could reconfigure the layout and also point out any trouble spots. I really love ripping into a project and finding that one little clue that shows you what everything is behind the wall or under the floor or above the ceiling. It is a long learning process in which I never feel will be over. Great article.

Reply

Clay Huber September 22, 2012 at 6:49 am

Excellent suggestion Kyle. In terms of efficiency, I think it’d be hard to argue against starting out in the basement.

I always do this too, however, my main concern is the hot water heater and furnace. If those two things are not working or missing, that can potentially be a deal-breaker right off the bat, which then saves time.

You’re absolutely right though. The basement can reveal lots about plumbing and electrical too.

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Jason H September 22, 2012 at 11:14 am

Do not forget to return to the basment at the end of the ispection. After you have run water you may find leaks that where not visable. This can happen more frequently when the house has sat empty for a time.

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Clay September 24, 2012 at 7:28 am

Good point. Start in the basement, and end in the basement.

Maria September 22, 2012 at 5:58 am

This is really great! Thank you for this article! I was looking into taking Appraisal classes for the basic principles but this book would be invaluable! Great place to start for sure. I was also thinking that maybe some experience Appraising would be beneficial and following a professional Appraiser is a great idea! Thank you for the article Clay and also thank you Steve Toohey for the tip!

Reply

Clay Huber September 22, 2012 at 6:53 am

There is nothing like “on-the-job” observation (classroom work can only take you so far), so I’d encourage you or anyone to take advantage of any offers to ‘shadow’ anyone in the real estate profession.

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Carl September 23, 2012 at 6:14 pm

Hi Clay, Great Article. I read that book a few years ago, and it really made me look at Real Estate in a new way. It was as if my eyes were suddenly drawn to so many things that I ususally just didn’t notice. You are right on the mark!

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Clay September 24, 2012 at 7:28 am

Well Carl. If people buy this book and don’t like what they see, I can use you as a human shield then since you claim to agree with me ;-)

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Matt September 23, 2012 at 8:36 pm

thanks for the info clay, i just purchased the book. definitely a piece of the puzzle i need. thanks again!

Reply

Clay September 24, 2012 at 7:30 am

One of the best investment’s you’ll make Matt. Much better then spending $997 for some guru course that will teach you the same things.

Reply

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