Just as you can’t judge a book by its cover, you also would be wise to avoid judging a property by its paint job. Below the surface of your property lies incredible amounts of risk that if not discovered in advance could cause immense financial loss later on.
Therefore, the physical inspection of the rental property you are about to purchase is one of the most important steps in the entire due diligence process.
Should You Do Your Own Inspection?
The first thing I have to point out about inspections is that unless you are a licensed and experienced contractor, do not do your own inspection.
Yes, you should walk through the property and make sure there are no major red flags before spending the money on an inspector, but your official inspection should be done by a real, licensed property inspector.
How to Find an Inspector
The easiest way to find a home inspector is by asking your real estate agent who they like to work with. They’ll likely have the name of someone that they’ve worked with in the past. If you are not working with an agent, or if your agent doesn’t have any recommendations, ask other local real estate investors, real estate agents, mortgage professionals, and/or property owners.
Speed is critical at this point, because you’ll likely only have a week or so (depending on the details both parties signed in the P&S agreement). After the inspection, the inspector may take a couple of days to get their final report back into your hands, and you may need a day or two to think about what to do, so the moment you get the property under contract, the clock is ticking! I would try to get the inspector onto the property within four days of mutual acceptance.
The Day of the Inspection
If possible, make sure the power, water, and all other utilities for the property are turned on before the inspection. If there is no water, how can the inspector check for leaks? If there is no electricity, how can he or she tell which lights work and which don’t?
After hiring the inspector, you or your agent will schedule a time for the inspector to look at the prospective property. Although you do not need to be present for the inspection, I highly recommend that you are. You are paying for the inspection anyway, so get your money’s worth! Walk, crawl, climb, and touch every inch of the property as the inspector does, asking questions along the way. By doing this, you will be able to get a better idea of exactly what is wrong with the property so you can make the best decision on what you want to do with the problems you find.
You may get a 30-page (or longer!) report from the inspector, but it can be hard to tell from a written description how bad something really is. The report may say something scary like “illegal and dangerous wiring in bedroom two,” but without being there to ask more questions, you might not realize the issue is simply two wires being mixed up in the light fixture—a 30-second repair!
What Does the Inspector Look For?
Everything! The inspector will look at the property from the foundation to the roof and try to determine what they can about the condition of the property. If there is a crawlspace, they’ll get down on their hands and knees and crawl through the entire thing, looking at the foundation posts, beams, and joists. They’ll investigate for rot, incorrect past repairs, and evidence of rodents. Inside the house, they’ll look at the condition of the doors, windows, walls, and flooring. They’ll check the cabinets, the drawers, the plumbing, the electrical outlets. They’ll look at the heat source and make sure it’s working correctly. They’ll crawl into the attic and look for issues there, and they’ll hopefully walk up on the roof to check out the shingles and the chimney, if there is one. They’ll also look at gutters, downspouts, and any landscaping issues that could affect the condition of the property.
After the Inspection
The report that the inspector provides you several days after the inspection will likely be scary! This is especially true with older homes. After all, the inspector’s job is to discover every single possible problem they can about the property, and let’s be honest, no property is perfect! In fact, I’d be nervous if the report didn’t contain a laundry list of problems, because I’d assume the inspector had been sleeping during the inspection! Your job, after the report comes in, is to decide which issues are important and which aren’t.
Again, being present for the inspection makes this process much easier.
Should You Use Your Contractor as Your Inspector?
Although there is nothing wrong with bringing your contractor through the property to take a look, I recommend hiring a third-party professional inspector to officially check out the property. Unlike the contractor, the inspector won’t have any conflict of interest with the property, since they won’t be doing the work. Moreover, contractors may be great at fixing things, but they are not generally trained to spot problems. A contractor might see a crack in the wall and begin talking about how to patch it, whereas an inspector will dive in to find out why it cracked. This distinction is very important.
How Much Does an Inspection Cost?
First, think of an inspection as an investment rather than an expense.
The inspector will find things out about the property that you didn’t know, and learning these things up front can either help you negotiate a better deal on the house or save you from problems later on. An inspection can also help you plan the entire rehab process on a property and allow you to create a checklist for addressing all the issues to make the property right.
The cost of an inspection depends largely on the size of the property, but for easy reference, a typical single-family home will cost between $350 and $500 for an inspection. A small multifamily property might cost up to $1,000. Larger multifamily properties (five or more units) get more expensive the larger they are. But again, don’t think about the cost, think about the value and peace of mind you’ll get.