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The Real Estate Investor’s Guide to Understanding Property Inspection Reports

Jeff Brown
3 min read

Everyone has an opinion on pre-purchase property inspections. There is my personal favorite, the Do-It-Yourselfers, who make for comedic fodder on various TV shows. The predictable script finds them full blown into a rehab ‘goldmine’ only to learn their so-called stem to stern inspection missed five figures worth of problems. The Three Stooges act continues to the equally predictable last scene where they’ve miraculously avoided huge losses. My experience has logged precious few of those happy endings. What I’ve seen when the DIY approach goes awry is more akin to tragedy than a comically heroic comeback. This is equally true when buying to hold.

There are excellent property inspectors in your area. The thing is, for the most part they’re classic generalists. When buyin’ a property old enough to have voted for Kennedy, getting something almost right won’t cut it. I’ve been a student in that particular class at the School of Hard Knocks, and it was pass/fail. The only reason I didn’t fail miserably was cuz my partner at the time had already failed that class. 🙂

What He Taught Me about Property Inspections

•  Once you’ve found a reliable inspector, separate the major/minor findings. A leaky bathroom faucet is one thing, while mold in the shower is a potentially expensive problem. A roof gutter either missing or fouled in some way is easily dealt with, while unexplained roof leaks could include even more than a simple re-roof. And the beat goes on. Treat all drainage problems as catastrophic till proven otherwise. Foundations? See drainage.

•  Treat the initial report as no more than a guideline. If serious problems are suggested, any red flag at all — bring in specialists. At first glance this seems a bit Captain Obvious. I agree. However, we bring them in primarily to inspect — assuming the original report was partially or completely in error one way or the other. An example is a ‘huge engineering problem’ our inspector uncovered once. Upon speaking with him he strongly urged us to walk away. His heart was in the right place. We agreed, but wanted our own local engineering firm to take a look. The problem was solved for under $1,000. Had we chosen to hew to the inspector’s take, we’d of lost out on doubling our capital in 23 months.

•  We typically have the minor work done by the seller and documented — in person — by our inspector. This does wonders for the quality of work — who knew? If possible, we have all remaining work done by our own guys, sometimes, though rarely, during escrow. That last bit isn’t always possible, but we give it the old college try if we deem it to our benefit.

•  I’ve attended one full inspection in over four decades, as my presence adds nothing whatsoever. Unless you’re an expert yourself, why would you? I hire pros and allow them to do what they do best. If you’re tryin’ to get on a learning curve, ensure the inspector is OK with your constant questions.

•  Contractors should be selected based on what they do over and over. A plumber not used to teardown as part of the process, is a giant pain. I love finding guys who’ve worked for years on major rehab projects. Their experience is literally golden. The axiom saying all contractors aren’t equal doesn’t begin to cover it. When I was active in my own local market, a simple call to one of my contractors was all I needed to get things rolling. If my description of the potential problem was lacking, I’d send them a copy of that section of the report. I’ll admit, over time I was spoiled by their collective excellence.

Always beware of sellers wanting to have their own guys do the work. Require licenses and guarantees equal to what your own contractors provide. Have the finished repairs inspected by your contractors even if it costs a little. Also, insist on permits when required — without exception. This last one often dissuades the seller’s guys for some reason. 🙂

Real estate investors relying on property inspection reports exclusively, is one of the main factors in real life failing to match projections. My experience shows clearly, in my opinion, that employing experts is the cheapest way to go in the long run.

Of course, The School of Hard Knocks never closes, welcoming new students all the time.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.