Are Home Inspections Really Necessary for Real Estate Investors?
Maybe, maybe not. While that may not seem like a good answer, it really depends on a number of factors. Most real estate investors get pretty good at assessing the condition of properties over time. This process is a lot tougher for those folks just starting out. One thing that I have found time and time again is that investors underestimate what it is going to cost to flip a property until they gain experience. Spending a couple hundred dollars on the front end can save you thousands down the road in some instances. Home inspectors cannot give repair estimates, but they can give you a list of the defects in the home. They are trained to find problems that may not be obvious to the untrained eye, and they can also let you know the seriousness of those items found during the inspection.
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What special skills are needed?
Few people have the experience needed to determine the condition of a furnace and whether or not it is safe to use. If you are planning to keep the furnace in the property you are buying, my advice is to have it checked out by a professional, whether or not you have a complete home inspection. The same is true of the electrical system. You need a high level of knowledge to know whether or not the electrical system in a house is safe, and whether or not it meets today’s electrical needs. Failing to notice that the wiring and the panel box will need to be updated is a costly mistake; and it is a mistake most likely to be made by rookie investors.
If you overlook something where the plumbing is concerned. it will probably cost you some of your profit. But more than likely, the worst thing that will happen is someone or something will get wet. That’s not true of the furnace and electrical systems. If those systems are faulty, the house could burn down or someone could even die as a result of those types of problems.
Do you know what is required in your state?
For instance, in my state it is required that a water heater be installed by a professional (unless the owner is installing it in their home) and that it be inspected by the city/county code officials and display the green inspection sticker. The water heater must pass that inspection even if the homeowner installs it.
It’s important that you are knowledgeable about these types of things, because they will ultimately be pointed out when your end buyer has a home inspection. What if you are fixing up the property to rent it out? What do you suppose will happen with something major occurs in one of your houses and a tenant is injured or becomes ill for instance from carbon monoxide? I can tell you with absolute certainty that you will be held to a higher standard in a court of law. This will be a case of “you should have known”.
A home inspector cannot do a code complaint inspection (only a code official can do those), but he or she will certainly know the codes for your area and will be able to advise you on whether or not a particular system meets the code. In most cases, they will also be able to point out safety concerns during the home inspection.
Are there some guidelines I can follow?
Yes there are. Here are 5 tips to help you make your decision on whether to get a home inspection:
1. Save your money on a home inspection if the house is a complete rehab and all of those major systems will be replaced.
2. If the major mechanical systems in the house have all been updated you may be able to skip a home inspection if you are an experienced real estate investor. Ask yourself if you have the skills to identify the other defects in the house. Is it a risk you are comfortable taking? We’re not talking about leaky faucets here, but defects that are more serious.
3. If you are just starting out, are you certain you can catch the signs of serious structural damage? They can be subtle and very hard to spot. Be especially vigilant when you are considering a house built on a hillside or fall away lot.
4. If you find that you are uncertain about the condition of the major systems in the property, it will probably be better and cheaper in the long run to get a complete home inspection. The inspector can tell you then whether or not you are going to need to address those systems with a professional.
5. Last but not least, remember that the purpose of a home inspection is to determine the condition of the major systems, and the safety and habitability of the home. It’s not to tell you things that are obvious like cosmetic concerns.
Having a home inspector on your team is just one more tool to pull out of the toolbox when you need it.
Photo: Justin Baeder