Inspection Report came back.... worried

8 Replies

Hello everyone. I recently put in an offer for a 4-plex. It's in probably a D class neighborhood, but the returns would be excellent. Property was built 1916 with some recent refurbishment (definitely not comprehensive). The inspection was this morning but I wasn't able to be there for it. Got the report back and it's more worrisome than expected. This is my first real investment property purchase so I'm not sure how serious these things are.

If someone is interested and experienced in the matter, I'd love to send it and get some feedback.

Thanks!

Inspections (in my experience) always seem to come back and scare you.   While some of it may be nit-picky to protect the inspector, some of it could be cause for concern as well.  

Bottom line is if you are going to invest in real estate you need to be able to read an inspection report and know what should be addressed and what is OK.  I would recommend calling the inspector and explain to him what you are doing (flipping?) and he should be able to explain the extent of those issues and if they will be a problem or not for you.

Don't let it scare you, but be sure you understand it fully because if not it can hurt you.  If you understand it and use it appropriately the inspections can help you.

@Steven Kleppin   any vintage home will have an inspection report that will scare you if its your first time buying. 

need to filter through what's important and what is deferred maintenance.

Of greater importance is:

Don't get sucked into D class being great cash flow its only great cash flow on paper generally... the reason its D class is you WILL NOT get consistent cash flow.. that's what makes it D class or one of the attributes to the Classification of these assets from A to F

I call them paper tigers... :)

I am 100% in agreement with @Jay Hinrichs . D class areas offer GREAT returns ..... on paper. even in my limited experience (about a year and half of REI) i have seen examples of this. I have a good friend that currently makes about 1500 a month in cash flow from one property after accounting for expenses. That is quite a lot. However it is in a D class area with a 60K 4 unit (in Chicago that is CHEAP). All it takes is one eviction or nonpayment of rent to kill your cash flow for the year. He had one tenant stop paying and he lost all revenue from that month. He is lucky he was able to pay them to leave or it could be worse.

So be very careful with those and ensure it is a neighborhood you know and can live in.

As for the inspection its hard to know if you should be worried without knowing what the inspector pointed out. When i bought my 4-unit i have a 50+ page inspection report. Half of it were HVAC that were at end of life (they still work though) and two or three things were actually serious. I was able to get credits from the seller and i fixed those up asap once i closed.

The reason you spent the money for the inspection was to obtain peace of mind or to have a legitimate reason to kill the deal.Basic maintenance, repairs, or end of life issues are not grounds to terminate, but anything structural would.Are you using an attorney for your side?If so they will normally write your letter requesting repairs or credits.If not, nothing stops you from writing a request on your own. You never know what the seller is willing to do until you ask.Don’t get sucked into the deal just because you have spent money on the report…but don’t make excuses to get out either.At some point you need to have good handy men or contractors on your team.If you use them enough they will give an honest opinion of what repairs are necessary and if you should go through with the deal.

Always try to go with the inspector to see first hand problem to see if it is a real problem.

It may be a minor problem instead of a huge problem. Go with the inspector again.... I will bet this will give you peace of mind in my opinion..... Just don't miss anymore in the future.

Originally posted by @Steven Kleppin :

Hello everyone. I recently put in an offer for a 4-plex. It's in probably a D class neighborhood, but the returns would be excellent. Property was built 1916 with some recent refurbishment (definitely not comprehensive). The inspection was this morning but I wasn't able to be there for it. Got the report back and it's more worrisome than expected. This is my first real investment property purchase so I'm not sure how serious these things are.

If someone is interested and experienced in the matter, I'd love to send it and get some feedback.

Thanks!

 This doesn't sound like the right "first real" investment for you. If you are not knowledgeable or experienced enough to understand this inspection report, you are probably not ready for this kind of property.  A building this old is going to have lots of expensive issues. 

And, as others have pointed out, the cash flow on such a property is speculative at best.  Please be careful. 

Originally posted by @James Enright :

Always try to go with the inspector to see first hand problem to see if it is a real problem.

It may be a minor problem instead of a huge problem. Go with the inspector again.... I will bet this will give you peace of mind in my opinion..... Just don't miss anymore in the future.

Bingo!  Don't schedule an inspection unless you are definitely going to be present. Two reasons: to learn more about the subject property, AND to learn what sorts of things the inspector looks for so you can "graduate" to one day being able to inspect most things yourself.