Posts Tagged ‘property inspection’

Property Inspection and Due Diligence

Saturday, January 28th, 2012

Although I used my handyman friend to inspect the first fixer upper house that I bought, in later houses I hired a professional property inspector to go through the house and to provide me with a complete inspection report.

The Value of the Inspector’s Report

The inspector’s report can be used to help you negotiate a lower price on the house if they uncover anything in the house that is in need of repair. Hiring a qualified property inspector is a good way to make sure that you are really getting what you pay for in a house.

Due Diligence Allows You to Correct Deficiencies

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 deficiencies, or give you money to complete the necessary work yourself.

Two Key Components of Due Diligence

There are two key components of due diligence process:

1. Review of books and records
In my case, there are usually no records to review. Most of the houses that I buy have been fixer-uppers repossessed by a bank, the Veterans Administration or HUD, and the owner is long gone.

2. The physical inspection
When there is no owner present this makes the physical inspection all the more important.

The due diligence period is your last opportunity to either:

1.) complete the transaction, or

2.) cancel the escrow, have your money returned, and look for another property.

“Carve Out Your Niche” TV Interview Monday

Due Diligence Property Inspection, Part 8 – pest control and property damage

Monday, March 3rd, 2008

Following the due diligence theme, for those of us investing in fixer upper houses,  we follow the outline from “Real Estate Investing for Dummies.” As a reminder, 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.

Pest Control

For a good pest control inspection, it’s a good idea to contract with a pest control firm and not try to do it yourself. A thorough inspection by an expert will cover much more than just infestations by wood-destroying insects. It will also document property damage by organisms that destroy wood and other building materials. This type of damage is referred to as dry rot, and they are caused by a fungus that needs moisture to multiply.

What you want, and what a good pest inspector will provide, is a diagram of the property showing the locations of damage from insects and dry rot. Sometimes these conditions require immediate attention, while others are areas to keep an eye in the future.

Serious Problems

Serious problems are those which affect the structure of house. Responses to this type or problem are:

-repair or replace the wood that has been damaged. The seller is almost always responsible to make the repairs on this type of damage. Lenders will generally not provide funds for a property until the work is completed by a licensed contractor.

Less Serious Problems

These problems do not present an immediate threat to occupants or the property, and can be dealt with at some future time. They don’t affect the structural security, but that doesn’t mean that they can be ignored indefinitely. If not addressed soon after closing, they can easily develop into serious problems that require you to address when you sell the property down the line.

Termites, a relentless foe describes an encounter that I had in a fixer-upper house with the wiley termite.


Moolanomy has an excellent post entitled Dave Ramsey’s Baby Step 6: Pay Off Home Early

Another insightful article at ezinearticles is Investment Property – Ways to Earn

Info on Terry’s Book

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Due Diligence, Part 3 — Inspecting the Property

Wednesday, February 6th, 2008

Following the outline from “Real Estate Investing for Dummies,” aimed at investors in fixer upper houses, we now move to the property inpection part of due diligence.

You have made an offer on a house, it has been accepted by the seller, and you are now in a period where you must determine whether or not the house is really worth puchasing. If you inspect the property and the physical condition is not satisfactory, almost all purchase contracts allow you to gracefully back out of the deal with no loss of earnest money.

Even if the investment property looks good on paper, and your pre-offer inspection didn’t unearth any skeletons, a wise investor will always do a thorough physical inspection before purchasing.

Although we investors tend to be frugal (see, skinflints), this is not the time to cut corners. You need an extensive inspection by qualified experts. I mentioned in an earlier post that I have a handyman/friend who has extensive experience in the construction & building trades, who inspects my investment properties. Unless you know someone that has that kind of background, you ought to hire someone who does.

Almost always, the inspection pays for itself. You will find problems in need of repair that are of far greater value than what you will pay the inspector. And the good part is, the seller will have to pay for the repairs if he wants to sell the house.

Many investors use a two-track approach to property inspection. You are looking for two types of problems:

1. Patent defects — those which are more superficial and can be spotted by merely looking at the property. These include broken doors, cracks in walls & ceilings, and spots in ceilings indicating a leaky roof.

2. Latent defects — those which are not visible to the naked eye, and are only identified through delving deep into the bowels of the house where few have treaded. In fact some potential problems, such a water pipes inbeded in the slab would be nearly impossible to evaluate. In fact, you couldn’t evaluate it at all unless you had a disclosure from the seller.

Next Time: Disclosure Requirements

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