One of the biggest mistakes I’ve made in the past was buying properties without setting eyes on them. I think it’s very important that you do a pre-purchase walkthrough. If you have a trusted contractor or even a project manager and you’re doing multiple deals, you should also bring them along to view the property with you.
Before scouting it out, you should have a scope of work checklist so you know what you’re getting yourself into before you buy the property.
I get it—there are some auction sites that don’t necessarily allow you to enter the property before you buy it—and that’s a big gamble, in my opinion. I’ve bought those properties, and those are the ones that cost me a lot of money because I wasn’t able to see what was going on in the basement.
The basement is going to lead me to my first point, and that’s the foundation…
3 Pre-Inspection Red Flags That Make Me Run From a Deal
Before you purchase, you need to make sure that the foundation is stable and that there aren’t any cracks. Look, I’m not a full-blown construction expert, but I’m smart enough to keep smarter people around me to do the things that I can’t do or don’t want to do.
Once again, a trusted contractor can go with you to that property walkthrough before you buy to make sure the foundation is good. Foundations are very expensive, and I’m not sure that once a foundation is repaired it will ever be the same.
A damaged foundation also likely indicates that something is going on with the ground surrounding the house. So, who knows the full scope of the issues.
The only way I think you could purchase a property with foundation issues is if you completely redo the entire foundation. This is something that I would leave to more experienced investors and investors who have no other choice but to buy properties with foundation issues.
A lot of you who are investors on the East and West coasts can’t really pick your deals anymore. But we in the Midwest still feel like kids in a candy store. If a property has foundation issues, we don’t even take another look at it. It’s a risky business.
Major Plumbing and Electrical Issues
The next thing that’s a red flag are major plumbing and electrical issues. I say that because these items tend to be expensive, and it’s not easy finding good plumbers and electricians. They all kind of live in a world of wizardry, where everyone perceives a certain job or issue the way they want to perceive it. So it’s tough to find good folks who are going to do the right thing.
On top of that, you’re going to have to go through the ringer with the city. You’re going to have to pull various permits, and you’ll have to get licensed electricians and plumbers. Once the work is done, you’ll have to get the city to inspect and approve it. Thousands of dollars later, hopefully the property will be certified by the city and you can move on.
Look, if I’m buying a property, I prefer it not to have major electric or plumbing issues. I don’t remember buying a property ever that didn’t have some plumbing and electrical work. But a full-blown re-plumb and rewiring of an entire house along with installing a new panel and external power is not something I want to get myself into.
Once again, I’m not the most sophisticated construction guy out there. I did work as a laborer for four years, but it’s not my bread and butter. Long story short, if it has major electrical or plumbing issues, forget about it. I don’t even want to touch it.
Roof That Requires Complete Teardown
Last but not least is the roof. Roofs are pretty straightforward and simple, but they tend to cost quite a bit of money. Personally, I like to buy a property that will have at least a 10-year life left on it. I just don’t want to touch properties where I need to completely tear off and re-shingle the roof.
Now, there is nothing wrong with any piece of real estate as long as the price is right. So if the property does need a new roof but the foundation is great, the electrical and plumbing are good, and the interior is not too bad, then you have to get a discount on that price based on what the roof will cost.
Ultimately, you’re buying a problem and you’re selling a solution. That is the name of the game. However, you don’t want to buy too big of a problem.
The Bottom Line
To recap, make sure you check out the foundation, plumbing and electrical, and the roof. I strongly encourage beginning investors to not buy a property that has any of these three repair items as larger issues. I prefer for you do a cosmetic rehab and make money when you buy, not when you sell. So make sure that you negotiate hard and you buy cheap.
I’d love to hear from you. What do you look for in your pre-purchase inspection?
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.