Archive for the ‘physical inspection’ Category

Due Diligence Part 7, Physical and Structural Inspection

Monday, February 25th, 2008

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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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Posted in due diligence, house inspection learn a valuable lesson, house negotiating, inspecting investment properties, inspections, invest real estate repai and sell or rent, investing, investing in real estate, investment house, investment property, investments, investmet properties, physical inspection, structual inspection | No Comments »

Conducting Formal Due Diligence

Wednesday, January 30th, 2008

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I am currently reading “Real Estate Investing for Dummies” by Tyson and Griswold, a well-written and thorough book that covers the basics of what real estate investors should know. I’ve long considered “Investing in Real Estate” by McLean and Eldred as one of the best introductory texts for real estate investing. Yet after reading the “Dummies” book, I find it equally as good, and perhaps a little more accessable for the new investor.

Here is my list of Top New Real Estate Books that I posted on Amazon.

To assist those who invest in fixer upper houses, I’m incorporating key parts of the “Due Diligence” chapter from the “Dummies” book with my own real estate observations.

Once you have made an offer on a house and it had been accepted by the seller, the “due diligence” period begins and you have until the close of escrow (or completion of the sale) to check out the physical and financial condition of the property. If you discover that the property has problems, but you think the deal is still worth pursuing, the seller may be willing to correct any deficiences, or give you money to to complete the necessary work yourself.

It’s during this time frame that you must get all of your questions answered and be sure you know what you are getting. If done properly, it will require quite a bit of effort on your part. But it must be done, if you wait until after the property is in your possession, its too late to ask the seller to replace that broken furnace.

You should work closely with the seller but take his word for anything. Only trust what you have in writing.

In my case, most of the house that I buy aren’t bought from the owner. They have been reposessed by a bank, the Veteran Administration or HUD. But I still do due diligence by having my friend/handyman go through house with a fine tooth comb. He knows more about the house repair than anyone I know.

There are two key components of due diligence process:

1. review of books and records
2. the physical inspection

A thorough look at these two components should allow you to determine if the property is worthwhile, priced right, and your goals. The due diligence is your last opportunity to either complete the transaction, or cancel the escrow, have your money returned, and look for another property.

Next post: Reviewing Books and Records

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Posted in buying fixing renting rehabs, closing, disclosure requirement, due diligence, fixer upper houses, fixer uppers, fixer-upper business, fixing rental houses, grout, home buying, home foreclosures, house buying, house inspection learn a valuable lesson, house negotiating, house repair, house repairs, inspecting investment properties, inspections, invest real estate repai and sell or rent, investmet properties, learn to invest in real estate, negotiating, overcoming obstacles, physical inspection, property damage, property inspection, purchase offer, rehab, reviewing books and records | No Comments »