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7 Essential Elements of Your Home Inspection (Beware of #7!)

by Marcus Maloney on March 7, 2014 · 15 comments

  
Home Inspection Elements

A quality home valuation is essential in guaranteeing that your next acquisition is a solid investment. The valuation process begin with the numbers on paper, but in order to justify the numbers, a thorough property inspection (walk through) must be done. If you can correctly evaluate these 7 areas of any structure you will be able to nail your rehab cost, but I know you will miss the final one.

The 7 Elements Essential to Your Inspection

When conducting a walk through, cosmetics should not be the focal point or the deciding factor on how much you will pay for a property. Each house has 7 essential elements that must be meticulously inspected to ensure you minimize overages on the renovation budget. When conducting a walk through these areas should help justify your position:

  1. Foundation
  2. Roof
  3. Plumbing
  4. Heating/Cooling
  5. Electrical
  6. Windows
  7. Infestation

These elements are what keep the house functioning as designed. I normally refer to a home as having 3 levels: Mind (electrical), Body (foundation/roof), Soul (plumbing/heating/windows), by focusing on these areas will normally save you thousands.

Related: The Value of Presale Home Inspections for Real Estate Investors

3 “Levels” of a Home

Mind– prior to entering the property, check the electrical panel box. Look to see if there is a circuit breaker box or a fuse box, this is very important because fuse boxes normally will not pass inspection in most cities, and insurance companies will not insure the property. Also if the exit strategy for the property is to find a retail buyer a fuse box is not acceptable according to FHA standards, thus limiting the buyer pool. Knob-and-tube wiring in houses that pre-date 1950 will be another source of concern. This form of electrical wiring is dangerous and very expensive to replace. If this type of electrical wiring is throughout the property it will need to be replaced. Many insurance companies will not insure a property with this wiring either. Knob-and-tube wiring is hazardous for 2 reasons: the wiring pre-dates 1950, and the wiring becomes brittle and breaks down which can result in electrical currents not being channeled correctly. In traditional electrical wiring the ground wire will channel that energy but because of the absence of the ground wiring in knob-and-tube wiring the current may cause a fire. Check the electrical circuitry thoroughly during the inspection period. If there are any doubts consult a licensed electrician.

Body– Structural issues with a property can result in blown timelines. Many times I have witnessed investors not carefully checking  the roof or the foundation. As you approach the property, the roof line should be what is being evaluated. Look for turned up or missing shingles, if this is evident be aware that there may be rotted wood or mold within the property. Dealing with a roof that is at the end of its life is very noticeable and if it is addressed immediately can save the budget and the timeline on a project. Foundation problems, on the other hand, can quickly scare any buyer; this is the most feared word when dealing with a rehab. If the resources to fix a damaged foundation are available, then getting deeply discounted properties with this issue will not be a problem. Signs to look for in damaged/faulty foundations: stress cracks in the garage slab, cracks in the walls and around doors and windows,. and doors that do not close properly can be found in properties with foundation problems. Often owners will say “the house is 30 years old the house is just settling,” this may be true but deep cracks mean something more major than settling.

Soul– the soul is the heart of the home and this is the HVAC and windows. Windows are easily identifiable if replacing is needed. Windows add value to the property in 2 aspects; windows add to the appeal of the property or the lack there of, and the energy efficiency of the property. There is an ancient proverb that says “eyes are the window of the soul.” I like to say windows are the eyes of the house. If the windows are in good condition you can expect to have an efficient property. This is especially important for landlords, and mid-grade to luxury flips. Windows can save landlords money, and make a flipper lots of money.

The HVAC systems are the lungs of the property, but I encompass this system with the soul. HVAC is important because it coincides with the energy rating and efficiency of the property. Always be aware of the the functionality of the furnace. First, try and find the manufacture date to see how old the unit(s) is. Secondly, see if it was maintained correctly, normally you can find this information by dates of inspection labeled on the units. If this is not visible, pull out the furnace filter, this will give an indication of how the unit were maintained. Following similar steps with the water heater (except checking the filter) is normally a good practice to follow.

Related: 5 Tips for Installing an HVAC System

Infestations– Many investors overlook this step because it is not as easily identifiable as the others. This is an issue with properties that are in wooded areas, but it occurs in many residential neighborhoods as well. Infestations can be dormant at the time of inspection, but once demo is underway it can pose serious problems. Infestations can be: mice, rats, raccoon, squirrels, scorpions, bees, roaches, mites, termites, and many others. These hidden critters can be a pain to get rid of but most of all the damage done by these varmints can affect the other main systems of the property. Things to look for when doing the inspection for infestations are: dirt tubes around the base of the property for termites, shredded pieces of paper or droppings in cabinets for mice and rats. Nut shells or borrows in the attic for squirrels and raccoon. With scorpions a different approach is needed; if you are in areas where scorpions are prevalent you will need to carry a black light with you during the inspection. This light make scorpions more visible in dark areas where scorpions like to hide.

If you are overlooking critters you are making a huge mistake, many critters will chew on wires, beams, and remove insulation. If you are faced with this problem call an exterminator immediately to handle the situation. As innocent as they may seem in the wild, if they get inside a property they can cause thousands of dollars in damage. Are you missing this during your property inspection? If so, beware!

Do you think I hit all the essential elements for a property inspection? Do you have more? Let’s discuss in the comments…

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{ 15 comments… read them below or add one }

Gerald Harris March 7, 2014 at 10:27 am

I remember as a first time investor. I was involved in a friends house in Montclair CA. I didn’t quite understand what I was doing. I wholesaled the house, with a double closing. The reason the house took so long to close (2 months) was during the inspection period the inspector found a significant amount of termite damage in 1 area of the garage. This almost killed the deal. Lucky for us it was around the time right before the bubble burst in the California area so real estate was super hot at the time. There are several things that can kill your deal and that is certainly 1 of them. A damaged foundation was another that scared me. This is also a deal killer. With roof, plumbing, electrical etc… at times i welcomed those types of issues, they serve as a negociating tool when fixing and flipping deals.

Great Article!

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Marcus Maloney March 7, 2014 at 10:40 am

Gerald,

The reason I wrote this article is because I was doing a quick remodel on a acquisition for a rental property, and once we got into the reno it was infested with termites. It killed my budget and it would have been worse if not for the contractor being like a brother to me. He did a lot of the labor at a reduced cost. Now, I look for infestations of any kind. I have dealt with a family of raccoons, rats, possums, squirrels, wasp, you name it I have probably dealt with it in some way.

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Brandon Turner March 7, 2014 at 11:26 am

Great article Marcus! Happy to have you on the blogging team!

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Marcus Maloney March 7, 2014 at 12:06 pm

Thanks Brandon, I have some stories of the animals I ran into. I had to fight a possum in my pantry during a rehab project.

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Frank March 7, 2014 at 1:11 pm

Nice Blog, great info for any type of purchase, flip, investment, or owner occupied.

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Steve March 7, 2014 at 3:31 pm

Hi Gerald,

In my area, and I’m sure most others, electrical considerations focus on FPE Stab-Loc panels. Sure, there is still some knob and tube out there, but Stab-Loc was pretty prevalent through the 70’s, and I understand even the 1980’s (although I seem to see less in 1980’s homes than the earlier ones). Different opinions out there on the urgency to replace so I won’t go into that, but certainly they are a good point to bring up in negotiation.

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Dave Tanner March 7, 2014 at 6:29 pm

Marcus – Great info! I enjoyed looking around your website as well. It looks like you have a great family (although the boy looks like he will keep you runnin!). Ok, back to the topic. I’m wondering if you have bed bug issues in PHX. I’m in Ohio and they continue to be a problem mainly in the big Section 8 complexes. However, these ppl move and with them can come the bed bugs. To properly heat treat an apt. costs around $800-$1,000. If you have a multi you might have to do surrounding units too. One PM company has started doing a pre-move in bed bug test. This will establish that the unit was free of them prior to the new tenant moving in, and will give an early warning if there is an issue. In our area the landlord is on the hook for the cost of fixing the problem. They are trying to change this by going to the “certified bed bug free” prior to move in. I personally have never had them in my units (thank you Lord), but it could happen to me tomorrow. I would love to hear how you or others have addressed this issue. Thanks, Dave

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Marcus Maloney March 7, 2014 at 9:13 pm

Dave,

Thanks for reading, and yes Justin (son) keeps me busy. He loves construction and tools so he often helps with light demo. Thanks for viewing the site its a work in progress, we will be done soon.

To answer your question, I have not encountered bed bugs but I have rentals (SFR) in Illinois and a couple of years ago bed bugs were prevalent. A lot of landlords ran into the problem of exterminating their units because of the infestation. Normally Section 8 will pay for infestations caused by their clients, this may be an approach to take to offset the extermination cost. The pre-inspection is a great idea, being an investor you have think proactively and that is definitely a way to handle it.

“Keep Enjoying The Journey”

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Sharon Tzib March 8, 2014 at 8:05 am

Actually, Dave, bed bugs are showing up everywhere. I just watched an episode of 20/20 last night where they are prevalent in theaters. It looks like from this article, they are in other public places as well, which explains their spread to people’s homes. Great tips on getting rid of them in the article too.

http://www.weather.com/news/science/nature/bedbugs-spreading-beyond-beds-20130304

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Dave Tanner March 8, 2014 at 2:50 am

Thanks for the heads up about sect. 8. I only have 1 renter on that, the rest are not. Like you stated the problem seemed worse a couple yrs ago, but I’m still hearing of issues now and then. The huge cost of fixing it was makes me concerned.
BTW- A couple yrs ago my daughters were 10 and 12. I had them start helping with cleaning after a move out (wiping down, vacuuming, etc). They fill out their own time card (hrs worked, etc) and have to do some math (hourly rate x hrs worked) to see what they get paid. I still have their 1st time cards with their math scribbles on the back (priceless). Can’t wait till one of them can paint well enough for me to cut them loose on that!

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Sharon Tzib March 8, 2014 at 8:06 am

Marcus, love the “mind, body, soul” analogy! Welcome to BP blogging!

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Marcus March 8, 2014 at 3:12 pm

Thank you, I try and keep it easy!

“Enjoying The Journey”

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Dana N. March 9, 2014 at 8:28 pm

Marcus,

Your article came right on time for us. My husband and I are in the due diligence process of our first investment property. Our realtor advised us to get a termite inspection due to the climate in their area. (Side note: This is a long distant investment for us). So we did. We also did a home inspection and just received the report today. My husband and I are going over the report and review the pictures sent to us. I pray its nothing major.

Reading your article is helping me understand the report we received and for future reference on our next investment property.

Thank you.

Dana
NicholandSons Real Estate, LLC

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Marcus Maloney March 10, 2014 at 11:28 am

Dana,

I’m glad the the article was able to make the inspection process a little clearer for you. Many people miss infestations because they are concerned about the mechanical and structural issues.

If you have any questions about the report make sure you ask plenty of questions. You want to know as much as you can about the investment before you are head over heels in it.

“Enjoying The Journey”

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Sara Cunningham March 11, 2014 at 9:53 am

Great article. You are so right about # 7 we have backed out of several contracts in the past due to the termite inspection coming up positive. We have however gone ahead on others as long as it showed past evidence and that it had been treated properly for it. Am currently waiting on inspections on a long distance purchase and will definitely be watching to see what it says on all issues. We also passed on a house a couple of years ago that was infested with squirrels in the attic. Just didn’t want to have to deal with them.

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