I am working with a major wholesaler who does not allow inspection contingencies with their contracts. It seems my option is to bring either an inspector or general contractor to verify rehab costs. A couple of questions came to mind:
1) Paying for both a home inspector and general contractor might be too expensive. Which one would be best for this job? Would a general contractor be able to evaluate all things that an inspector can including termite/pest damage etc?
2) How does one approach this situation since it seems I may have to pay them to check out this property before I even have it under contract.. What if someone else locks down on the property while I have it checked out..?
@Ben M. Great question! It's a tough problem.
Home inspectors and contractors take different approaches when looking at a house. The contractor will be looking at the big picture and giving you a rough estimate on your planned scope of work. The contractor will not vouch for the house after spending only 30 minutes inside -- any surprises that pop up during the renovation will cost you extra money. If he sees something gnarly while walking the house with you, he'll tell you. But he's not looking for defects -- he's running numbers.
The home inspector is looking for hidden defects. He or she will get dirty and crawl around in the attic. He'll give you an idea of the condition of the HVAC equipment, the electric panel, and the water heater. He'll spend time in the basement looking for structural defects, etc. The inspector will rarely give you a rehab estimate. He'll help you make a more complete scope of work so that you can make a good buy decision.
How to solve the problem of offering immediately with 50% information vs. waiting several days for 80% information: 2 ways for a new investor to develop speed and shorten their OODA Loop:
- To estimate rehab costs you need either personal experience or the wisdom of others. Find investors in your space and pick their brain on a scope of work for one of their projects. Get a good sense for what things cost in your area. Bottom line: you will never be able to convince a GC to check out all your prospective deals for free. So learn to estimate rehab costs yourself. @J Scott 's book on Estimating Rehab Costs is a good place to start to learn what questions to ask.
- Talk to a few independent home inspectors and see what price they would offer for 60 minutes of their time to evaluate a house with you alongside taking notes. Tell them you don't need a report. You don't care about cosmetic defects -- you want to know about the big ticket budget-killer items. This limited-service option will save the inspector 3-4 hours of work, so the inspection fee will be lower. Bring in that home inspector as one of the final steps in your due diligence process (or the costs will pile up). Your goal is to find a low-cost way of avoiding bad deals.
Thank You Matt. This is great info.