Deal breakers on a home inspection report

28 Replies

Hello! I am from Hawaii (Oahu) and brand new to real estate investing. I’m tracking to close on my first out of state turn-key rental property in June (single family home). I just received the home inspection report for this property and there are some concerning things identified by the inspector. I don’t actually have a good feel for what is considered minor, major, bad, or very bad. Can anyone offer some advice about what types of things on a home inspection report I should watch for that may be considered “deal breakers” or cause to change my mind about purchasing a property? 

What a great question.  Wish I had a comprehensive answer.  Inspectors will write a 75 page report at the drop of a hat.  As a seller, it is terrifying.  But no house is perfect, even after a full renovation.

I would say the inspection is more about revealing defects that are EXPENSIVE to rectify.  Just about everything can be fixed, but it is a matter of cost.  But turnkey sounds like the serious stuff should have already been done.

Are you seeing evidence of major problems, like foundation issues, leaks, or mold?  Anything that would suggest electrical and plumbing are not up to code (old)?  Any potential safety concerns that could get you sued by a tenant?

Other more experience folks can offer a better response.  

What is major or minor on a inspection report is relative to the price and location of the property and your risk tolerance 

I recently saw a 113pg inspection report. As the others have stated, it is all about thr property and the location. I may hold off on a roof in a C/D area if it will last me 3-5 more years. Although I am a big fan of replacing mechanicals in my rentals up front. Go through your list and separate the 'Do right now' from the 'Can wait a while'. See what you come up with. Remember, anything can be fixed. But what will it cost? And can you find something comparable for less money and less headache?

This is one of the difficult things to deal with out of state. Sounds like this is not a "turnkey" investment at all. Personally, unless the inspection was sparkling and the deal was amazing, I'd not invest out of state. As mentioned above, there are no deal breakers, it depends on how great the deal is and your risk tolerance. If you have any doubts AND this house is far away AND it's your first out of state deal, I'd think long and hard about going through with it. Good luck!

@Mark Sewell Great questions to get me thinking about what I might consider major problems. Thank you!

@Corby Goade I guess it's difficult for me to determine what kind of deal is amazing just yet as I am new to the REI space. This property fits within my "affordability" comfort zone and the numbers work for me. It's tough to invest and cash flow in Hawaii with such high housing prices. I need to work on determining my risk tolerance. The SFH I'm buying is an old home in Ohio for $73K. I probably need to come to terms with the fact that an old home at this price is bound have problems, determine my risk tolerance, then decide if I'm comfortable moving forward on this home.

A house that costs only 37.5% of the median national home price will likely have significant issues.

@Cassie Chun your inspection report should tell you what is a major problem and what is minor deferred maintenance.  My inspector puts things in separate categories based on how important it is.  If I were you I would contact the inspector and ask him specific questions about the report and how immediate and or severe the issues are. 

I don't think of any one issues as a "Deal breaker." Turn everything into a math problem:  how much will it cost to repair? do my numbers still work after that?  if not, lower your offer price accordingly and if the seller doesn't go for it, find another deal.  sticking to the numbers and the facts removes a lot of the emotion and anxiety.

As long as location and condition are properly factored into the price, there are virtually no deal breakers.

The one exception for me is a private septic system without a leaching field.  In MA it's called a "tight tank".  Every flush, load of laundry, shower, dishwasher run all fill the tank.  When it's full and alarm sounds and you spend hundreds on getting it pumped out.

This is something that occurs in close proximity to lakes, ponds and streams and it dictated by either the Board of Health or the town's conservation department - and it makes the property far more difficult to sell.  I always advise my buyers to walk away as fast as they can.

Investing out of state is difficult , even more difficult for a first timer . My rentals are within a 1/2 drive from me and they can be a pain .  Just because a property is cheap is not a reason to buy it . 

If you ever want to feel really ****** about your house or any house, get a house inspection :) Their job is to find EVERYTHING....if they are doing a good job. It will seem like the place is a POS with all the stuff they find. But in many cases 90% of it is superficial cheap stuff to deal with or often just ignore as "normal"

Its about the numbers......even if it appears "major", if the work/condition fits with what your are paying, then it is what it is and you have to decide if you want to deal with it or decide its not worth the hassle

The time it becomes a "deal breaker" is when the cost to fix those items isn't reflected in the price/value of the home. So if the inspection states it need 10k in foundation work, then your either renegotiate the price to fix that....... say " well that's probably why its so cheap, but its still a good deal"....or say "its not worth the hassle to me" and move on.

with out knowing what was mentioned on the report no one can help you.

but basically all major mechanicals should be in good working order.. 

and if its turnkey new rehab should be new.. water heater HVAC  plumbing and electrical to code.. NO federal box .

roof with at least 10 years i would personally not go for 5 years on a new rehab.

and then of course any structual defects.. if they are showing you a bunch of little stuff that is normal..

and MOLD is totally over rated.. most of it can be cleaned with bleach and water in a matter of minutes..

PS i build new home communities its not uncommon for our buyers inspections to have 5 to 20 items on a home inspection report.. so a older home will always have something no matter if it was just rehabbed or not..

so we do the punch list as long as what the inspector is noted is correct they are not always right.. and when they argue that something is not to code and we know it is.. we push back.

also you being in Hawaii were you have no heating systems this could be new to you but heating systems are major issues with rust belt homes.. you want to make sure they are in good working order.. 

to me Hawaii would be one of the very best places to be a landlord and own property ..  houses are real easy to maintain and you don't have central heat and air to worry about and that is a biggee in many parts of the country.

Agree with most of the responses. As everyone mentioned, inspection reports will cover every possible item in the house. For e.g. my friend recently bought a $1M house in SF Bay Area which is built by Toll Brothers and still the inspector wrote a 35 pg report.

Investors like us living in states like California, Hawaii and many others have to invest out of state. People living in mid-west and some part of East Cost may not realize that there are parts of the country where you have to spend $500K on a condo to barely get rent of $2000/month.

It just depends on what is in the report. When I bought my house, I believe it was over 60 pages and the house is more expensive than most houses in the city/state (and I got a deal). You just want to be concerned with the big stuff (electrical, plumbing, foundation, etc). If it is easy stuff to fix then you can ask the seller to fix some of the stuff, split it, or knock some off the purchase price and fix yourself (or hire someone to fix). Hard to give better advice without seeing it.

Generally anything found in an inspection report can be fixed with a dollar amount you can negotiate with the seller. An exception could be a structural issue like a post and beam foundation in an old building that could present a funding issue. Or, what about that leaning high-rise in San Francisco; the whole building, or just one condo, now that would be a deal breaker for me!

Inspection reports can be absolutely insane. One that we just got back said that there was a plumbing leak in the master bath. Turns out there was a TINY drip coming from the shower head and it just needed to screw on half a centimeter tighter. 

Knowing what to use as leverage or to let go is more of an art than a science and it very much depends on the property strategy. Health, safety, and systems are the most sure-footed areas in my opinion.

Originally posted by @Cassie Chun :

@Victor S. I uploaded to FilePlace. Is that the right place? I can't tell if it's public or private.

 Found it, but not going to post the link due to the report showing address of the property. I'd suggest just uploading screenshots of the 30 items they've identified on it instead. 

What can I say? From the pics, the property looked like it was already "rehabbed", but the laundry list of items the inspection has identified, makes this a shoddy job at best. Your big rocks are: a/c, plumbing, and electrical. Since you're investing from afar, I'm not sure how you can find reliable contractors that will not take you for a ride. Like somebody else had mentioned, you can negotiate a price drop based on these, but, again, you'd have to find a reliable contractor to provide a solid estimate first. I'd think you could get most of this done with $5-10k, imho.

Originally posted by @Victor S. :
Originally posted by @Cassie Chun:

@Victor S. I uploaded to FilePlace. Is that the right place? I can't tell if it's public or private.

 Found it, but not going to post the link due to the report showing address of the property. I'd suggest just uploading screenshots of the 30 items they've identified on it instead. 

What can I say? From the pics, the property looked like it was already "rehabbed", but the laundry list of items the inspection has identified, makes this a shoddy job at best. Your big rocks are: a/c, plumbing, and electrical. Since you're investing from afar, I'm not sure how you can find reliable contractors that will not take you for a ride. Like somebody else had mentioned, you can negotiate a price drop based on these, but, again, you'd have to find a reliable contractor to provide a solid estimate first. I'd think you could get most of this done with $5-10k, imho.

 Newbie mistake...I took the first page off so property address is not showing. Thanks for mentioning that!

The seller has agreed to address/repair most of the items identified. "Shoddy job at best" - I had the exact same thoughts considering the property WAS just rehabbed. I really appreciate your comments!!

Good. Make sure to re-inspect once they do. Everything is about the dollars at the end of the day, so make sure you're not overpaying for this one. Good luck and keep us posted!