Archive for the ‘inspecting investment properties’ Category

When to Hire a House Inspector – Radio Interview with Rich Peterson

Wednesday, July 31st, 2013

 

This morning I was interviewed by the masterful interviewer, Rich Peterson (KROC Radio 1340 AM, Rochester, Minnesota), about my book “Turn Your Home Into a Rental House Instead of Selling It!”

I was also on Rich’s show a couple of years ago to promote my earlier magnum opus “Fix em Up Rent em Out.”

Today, Rich asked the question,

“Does the city have to  inspect a house before you can rent it out?”

My answer was,

“No the city doesn’t do inspections unless you have constructed a guest house, or added or room, or make some major modification to the property. You must comply with building codes, but if you don’t make any changes, the city is not involved.”

When to Hire an Inspector

While there is not need for the city to do an inspection, prior to purchasing a new home, it’s critically important to hire your own inspector to make sure that everything is “operational” in the house that you want to purchase.

Usually, the owner has to fill out a “disclosure” form that informs you of any existing problems that the house has, that he or she is aware of . Sometimes, owners will have a report available by an inspector that they hired to inspect the property.

Even in that case, you still need to hire your own inspector. It may sound like a case of “dueling inspectors,” but I like to have a report written by the guy that is representing me, not the guy who is representing the seller.

Hiring a good inspector is especially important when you are purchasing a foreclosed property, where there is usually no owner present. Then, the only thing you have to make your decision about the condition of the house is the inspector’s report.

Tid Bits: NBA Trivia and Unwise Career Moves

1st NBA Basket

Prior to my interview with Rich, I was listening to his radio show and I learned that the first basket scored in the NBA was by Oscar “Ossie” Schectkman, who recently passed away at age 94.

I also learned:

4 Things that People do to Help their Career that Actually Hurts Their Career.

1. Staying too long with the same company. Employers wonder why you haven’t changed.

2. Being too good at something you don’t like doing, because you’ll be hired to do it more and more.

3. Keeping your mouth shut. You should tell supervisors before they make mistakes. You may get fired, but improves your status under point #1.

4. Putting in a recommendation for a friend. If the friend is a failure, it reflects badly on you.

As Rich Peterson says, “We’ll’ see you down by the riverside.”

 

Upcoming “Turn Your Home Into a Rental House ” Radio Interviews (most shows can be heard  on the internet)

Tuesday, August 6th, at 8:10 am (central time), I’ll be on Bob Schmidt’s show, WLFN 1490 AM, Onalaska, WI.

Tuesday, August 6th, at 9:40 am (eastern), Greg O’Conner will interview me, WKHM 970 AM, Jackson, MI.

Wednesday, August 14th, at 9:15 am (eastern), I’ll be on Dave Kelber’s show, WRNJ Radio, Hackettstown, NJ.

Watch this space for information on additional interviews.

Related Articles

Remove that Garbarge Disposal Now!

6 Steps to Roof Maintenance (for the Home that will Turn Into a Rental House)

How I Evicted A Problem Tenant in 4 Steps

When to Hire a House Inspector – Radio Interview with Rich Peterson

Getting Rid of Bad Tenants

“Turn your home into a rental” on Mark Wayne Show

7 Reasons to Live in a Fixer-Upper House While You Repair It

6 Steps to Roof Maintenance (for the Home that will Turn Into a Rental House)

Our First Rental House Plunge

10 Most Frequent Problems Found by House Inspectors

5 Steps to Get Your House Ready to Rent by Terry Sprouse

5 Steps to take if your house is flooded

Some perfectly legal ways to maximize your rental profits

Add “Start a Rental House Business” to Your Bucket List

The 5 Rules on How to Lose Money and Get Your Rental Property Trashed by Tenants

Window Repair with #2 Son

Required Roof Maintenance for Fixer Upper Houses

Learn to Repair Your Fixer Upper Houses

How I Got Started In Fixer-Upper Houses

How to learn to operate a fixer upper house business

The Peaceful Warrior and Fixer-Upper Houses

Avoiding Pitfalls When Buying Fixer-Upper Houses

Wednesday, May 25th, 2011

Pitfalls to buying fixer-upper houses, such as broken plumbing systems, worn out electrical wiring, and cracked foundations can be avoided with the help of a professional inspector prior to purchasing a house. Once identified, these conditions can be laid before the seller, who must either fix the problems to the satisfaction of the buyer, or the buyer can pull out of the deal.

Of course, it takes hard work to find a house, make all of the repairs, and learn how to deal with tenants. If it were easy, everyone would be doing it. You’ll learn not to take life, or tenant problems, too seriously. Shakespeare said, “A light heart lives long.”

The good news is that you learn valuable technical and people management skills that are useful in many other aspects of your life. You are also rewarded with a feeling of satisfaction in your accomplishments, a stronger sense of financial security, and the peace of mind that accompanies it.

How to Get Money to Buy Rental Houses (Video)

Thursday, September 16th, 2010

During my interview with the inimitable Dan Ramey, at WBEX 1490 1490 AM in Chillicothe, Ohio, he asked whether or not people should be concerned about refinacing their house to make a downpayment on a rental house.

Naturally, people are nervous about making financial changes during a recession. But, refinancing your existing house to take down payment money out of your equity and buy a rental house is one of the safest ways to start investing in real estate. It’s the most common way that real estate investors use to purchase investment properties.

If you have a steady job and a good credit rating, now is a rare opportunity to get a loan in the 4% interest range. And, houses are selling at fire sale prices!

It’s a good idea to refinance a house that you have owned for a few years before reinancing to take some equity out of it.

Refinancing an existing property for downpayment money is a lot better than waiting until you have enough cash to purchase a rental house withouta loan. Having a loan gives you leverage, because you don’t have to use all of your own money, which could take 20 years or more, to save.

The great benefit is, after you have purchased your rental house, is that you have a stream of income that is in addition to your regular 8:00 to 5:00 job.

You can be laid off, or fired from your regular job, but you can never lose your rental property job!

Here is my new video that shows the process of putting your lazy home equity to work for you:

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Getting Started with Fixer Upper & Rental Houses (Video)

Friday, September 10th, 2010

I think that buying fixer upper houses and turning them into rental properties is the easiest way to make money in real estate. You can do it in your spare time and still work your 8:00 to 5:00 job. And, rental houses can create a steady new income stream, that could even allow you to retire from your regular job, as I did.

This video which provides a general overview of the process for starting up a fixer upper and rental house business.

Should I refinance my house to buy a rental house?

Tuesday, June 22nd, 2010

I recently received the following email from a student who is taking my free 7-week course.

It addresses the very topical issue of refinancing your existing  home, and taking out equity to purchase a rental property. Below is the question and my response.

From: Janet
Sent: Friday, June 18, 2010 12:12 PM
To: ‘Terry Sprouse
Subject: Re:7-Week Fixer-Upper/Rental House Course: Lesson 7

How does the refinancing work in this underwater market? i just bought a house in Jan, do i have to wait 10 years to do this? i am 50 now, should i wait till i am 60 to start doing this? sincerely, Janet

Hi Janet,

That’s a good question.

Everything depends on how long it takes to generate some equity in your house. And, of course, that depends on the situation that the market is in. Right now, as I’m sure you know, housing values are not going up very quickly. In fact, in many areas of the country, housing prices are going down.

So, in your case, all you can do is wait and see what happens. If the housing market improves again, you may be able to refinance sooner rather than later. But, until the equity in your house increases, you would not be able to refinance and buy an investment house.

Best regards,

Terry

———

Usually you need to live in a house several years before you have enough equity to refinance and purchase another house. I lived in my house ten years before I took out the equity to buy my first fixer-upper rental house.

Another possibility it to find a partner with more equity in their house, or who has some cash, and to jointly buy an investment property.

***Warning! Shameless Book Promo Coming Up***

If you are new to investing, make sure you have a good inspection done of your investment property, and follow the safe steps for investing, as I discuss in my new, easy-to-follow guide for beginning investors, “Never Sell Your Home! How to Turn Your Home into a Rental House.”

Buying an investment rental house with the equity from your home is one of the safest and easiest ways to start a reliable new income stream.  But, timing and planning are everything.

I wish I had remembered that before I spilled spot remover on my dog, and he disappeared.

But in real estate investing, one of the most basic principals, like the law of gravity,  is that you must  have some equity in your house before you can take it out and use it.

You can’t rush things, or you’ll wind up with your dreams broken faster than a movie star wannabe, just off the bus from Kansas.

Do This Before You Sign the Closing Documents!

Friday, August 29th, 2008

In the fixer upper house business sometimes we need to anticipate the unanticipatable!

What’s the most important thing that you should do before signing the closing documents to buy a house?

Check out my ezinearticles.com piece entitled Don’t Go to Closing Before Doing This, Or You May Really Regret It!.

The article recounts my ill-fated effort to purchase a house last month, and the valuable lesson that I learned.

Info on Terry’s Book

Press and Media

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Time is a great teacher, but unfortunately it kills all of it’s pupils

Monday, July 21st, 2008

There are always great lessons to be learned in the fixer upper house business.

In this case I learned another lesson when the recent townhouse purchase fell through.

Everything started off pretty well. The closing for the townhouse purchase was Friday afternoon. I signed for both my wife and I since she was out of town. It was the fastest closing I had ever done. We were finished in 20 minutes.

The real estate agent gave me the keys and my boys and I went over to see the townhouse and plan out exactly we would start fixing it up the next day. This is when things took a turn for the worse.

When I opened the door I was hit in the face with a suffocating musty smell. As we walked in we heard a splashing sound and could feel our feet getting wet. We looked down to see that there was a lake inside the townhouse and the air was as humid as a greenhouse. I looked in the washroom and saw that the flood was caused by water spraying out of the hot water heater. I tried to turn off the valve but it was broken, so I went outside and turned off the water at the main valve.

After opening all doors and windows, we walked through both rooms and both bathrooms. They were all flooded, and, they all had mold on the walls and ceilings.

My first reaction was “we can still make this work!”. I thought we could mop up the water and wipe the mold off the walls without too much trouble. So we drove over to ACE Hardware and bought a wet shop vacuum, buckets, mops and paper towels.

When we got back to the townhouse and started cleaning up it soon dawned on us that we were not making a dent in the standing water and the mold wouldn’t come off as easily as we thought.

So, I called the realtor and told her the situation. She immediately came over to see the house and and agreed with me that we should cancel the contract. She contacted the title company and the loan company. Today, Monday, I got my money back from the title company, all but $350 that went towards the appraisal.

It was a good thing I checked the place out right after the signing, and that it was late in the afternoon. If they had recorded the title before I saw the flooded property, it would have been a different story.

I could have waited for the owner to remedy the problem, but with that much flooding there might be hidden damage that isn’t easily detected, and I didn’t want to wind up waiting and re-negotiating the terms.

What lesson did I learn? In the future, I will always walk through the property one last time before signing the closing papers.

It was a good lesson to learn, and I was reminded of Hector Berlioz’s humorous quote that I put in the title to this article.

It would have been a nice rental property, but my philosophy is that rental properties are like taxi cabs. If you miss one, there’s another one coming right behind it.

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Due Diligence and Property Inspection, Part 9: Qualifying the Inspectors

Friday, May 16th, 2008

,
Buying fixer-upper houses, repairing them, and renting them out is a safe way to generate short-term income and long-term wealth. But, how can you be sure that a house is worth what you are offering to pay for it? Based on experience, we can eyeball the property and probably be able to make a pretty accurate estimate of its worth 90% of the time.

However, that’s not good enough. We need more information than our educated eyeball can provide. In order to:
1.) avoid any surprise defects after its too late, and
2.) negotiate a lower selling price for the house,
we hire a professional inspector to do a physical and structural inspection.

For the last post related to due diligence see Due Diligence Property Inspection, Part 8 – pest control and property damage.

Most purchase agreements require the seller to deliver the property in good physical condition with all basic systems in good shape, unless the seller discloses otherwise. Generally, the inspection process reveals deficiencies that need to be corrected, whether they were disclosed or not.

So with inspection reports in hand, you are armed to arrange for the seller to correct the noted items at his/her expense. The seller is trapped in a corner. He reads the report and sees the photos showing the inescapable evidence that repairs are needed. He either makes the repairs or you walk.

Inspect the inspectors before you hire one.

Most investors hire a property inspector based on the advice of a real estate agent, which is not necessarily a bad way to go. But, you will be spending a tidy sum to hire an inspector, so its best to interview a few before deciding. You may see a big differences in experience, qualifications, and ethical standards. I would never hire an inspector who would not allow me to accompany him during the inspection.

Tagging along with the inspector presents a great opportunity to learn about your property, and will arm you with knowledge that will be invaluable throughout your entire ownership of the house. You’re the one paying for the inspection. How can the inspector say no?

If you want a true professional, hire a full-time inspector who perform 100 inspections a year and who carries “errors and omissions” insurance. This coverage tells you that the person is working full time in the field and is participating in ongoing continuing education.

To locate certified inspectors and find out more about the inspection process see the American Society of Home Inspectors web page.

Ask for a sample of one of the inspector’s recent inspection reports prepared for a comparable property. And, require your finalists to provide you contact information for 3 people who have used their service in the last 6 months.

Price should be a secondary concern because like other professional services, they often pay for themselves. An internet estimate of inspection costs indicates that prices range from $215 to $750, with an average price of $260 (in the southwest where I live).

Earlier articles in this series:

Due Diligence Part 7, Physical and Structural Inspection

Due Diligence Part 6, Tricks Sellers Use to Avoid Inspections

Due Diligence and Fixer Upper Properties Part 5 – the “as-is” sale

Due Diligence, Part 4 — Disclosure Requirements

Due Diligence, Part 3 — Inspecting the Property

Conducting Due Diligence, Part 2 — Reviewing books and records

Conducting Formal Due Diligence

Info on Terry’s Book

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Due Diligence Part 7, Physical and Structural Inspection

Monday, February 25th, 2008


The due diligence period is the time period between the acceptance of the offer and the close of escrow. This is particularly relevant to those of us investing in fixer upper houses. It is the time to find out if you really want the property. If you find something wrong with the house and don’t wish continue with the purchase, you can ask the seller for adjustments, or get out of the contract. Following the outline in “Investing in Real Estate for Dummies,” we now look the first component of actual inspection: the physical and structural inspection.

Areas that you may want to hire experts to help you inspect:

-overall condition of property
-structural integrity
-foundation, crawl space, basements, sub flooring and decks
-roof and attic
-plumbing system
-electrical system
-heating & A/C
-landscaping, irrigation & drainage
-doorways, walls & windows
-moisture intrusion
-seismic, land movement, or subsidence and flood risk
-illegal construction or additions and zoning violations

Be careful to check for water intrusion and signs of toxins and mold. These can result in property damage and negative health effects.

Tell-tale signs to watch for that might indicate serious structural issues:

Cracks: Some hairline cracks may be naturally occurring settlement of the structure over time, but if you can stick a screwdriver into the crack, something else may be going on.

Unleveled or squishy floors: Walk through the property and look for floors that slant or slope. And watch for soft spots in raised floors.

Misaligned structure: You can use a handy laser level (that seem omnipresent in the hardware stores) and see if floors, walls and ceilings are uneven or out of plumb. Watch for doors or windows that don’t open or close easily.

Grounds: Be sure the property drains properly. Excess groundwater, poor drainage, or cracked/bulging retaining wall are signs of soil issues.

Moisture intrusion: Look for ceiling/wall discoloration and stains. Living in an area where flat roofs are common, my wife and I automatically check the ceilings of all potential investment properties. Musty odors could indicate moisture issues. Sump pumps anywhere on the property are a red flag.

Plumbing leaks: Check under sinks, supply lines for faucets, toilets, dishwashers, and washing machines.

NEXT UP: PEST CONTROL AND PROPERTY DAMAGE

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Due Diligence Part 6, Tricks Sellers Use to Avoid Inspections

Tuesday, February 19th, 2008


Continuing the Due Diligence series for those who buy fixer-upper properties. The due diligence period is the time period between the acceptance of the offer and the close of escrow. It is the time to find out if you really want the property. If its not as good as you thought, you can ask the seller for adjustments, or get out of the contract. Following the outline in “Investing in Real Estate for Dummies,” here are

Two tactics that sellers use to avoid a thorough and detailed property inspection

1. The buyer offers the buyer a warrenty or property protection plan that covers repair costs for major systems and appliances of the property. Although they may sound good on the surface, in my opinion these plans don’t usually live up to expectations because:

a. they can have an up front cost of several hundred dollars;
b. there is a deductible of $25 to $100 each time you file a claim; and,
c. when you file a claim, you may find that what you thought was covered may not
actually be covered due to exemptions in the policy.

About four years ago, I bought a house with a pool and the seller included a property protection plan that purported to cover the pool too. When I called the company to get the pool repaired, I was informed that the contract included an exeption that excluded any work on underground pipes. This must save the plan’s company a lot of money, as I imagine that most pools have underground pipes. Granted, I never read the fine print in the contract. I just believed the splashy promises on the cover of the information brochures that said the pool was covered. My bad, but the brochures are misleading at best.

2. Sellers have a house inspection done ahead of time, so they save you the time and the money by providing you with a copy of an inspection report. If the seller was trying to put something over on you, they may contract with an inspector that has a reputation of not being diligent when examining the house. I think this can also be a good thing, as you can review the seller’s inspection report and pass it along to yourinspection team. It may give you a good general idea of the condition of the house to start with.

When to make use of inspections

Looking at it another way, when you are selling a house, I think it is a useful step to have an inspection done by a reputable inspector. This way you show you have nothing to hide, and it serves as a good starting point for negociations. The buyer may have another inspection done, and if it turns up the same things that your inspection did, it may serve to build trust with the buyer.

In his book “How to Sell Your House in 5 Days,” Bill Effros advocates having the house inspected by a professional home inspector, and if you have a well or septic system, have them inspected as well. He suggests using a company with reports that looks professional, and not a hand-written report with fill-in-the-blanks and check boxes. You want a report you will be proud to show to potential buyers. Effros says, by conducting these tests in advance, you answer buyers’ questions and reduce the time it takes to close on the sale. Since you’ve paid for tests often not performed by sellers, your home is even more desirable to buyers, who will save money and will know what they’re getting before they start bidding.

An earlier post with My Observations of a 5-Day Sale.

NEXT: NEGOTIATING CREDITS IN ESCROW

ABC of Wealth Building at moolanomy.com

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