Do the Due Diligence
do your due diligence, darling!
How to Inspect a Property Before You Buy It
So now that you got an offer accepted on a property and have it under contract – What do you do? Do your homework on it, baby! Check out the neighborhood, the comps, get a home inspection, title report.
This is your time to shine. Would you buy a new product on Amazon without reading the reviews and comparing the price on other websites? Of course not! So why would you do that for a huge investment that you are about to make?
Here are some useful tips on how to check out the deets of a property:
1. Know that some properties make better flips, while others make better rentals
Check out the neighborhood. Are most of the other properties in the neighborhood selling quickly? Then it might be a better option to flip the house. Are most of the properties rented out? Then it might make a better rental property.
What are the prices of similar properties selling for? If you can make a profit by fixing it and flipping it quickly, then it might make a better flip property.
What are the going rents for similar properties in the neighborhood? Go to Rentometer.com and find out what similar properties are renting for in the area. If it’s profitable to rent it, then that might be a win-win.
2. Learn the neighborhood
Not just on a map. Get in your car (or take an Uber, bike, whatever) and drive past the property. I like to drive past in the morning and evening or weekends. This way you can see the parking situation.
Take a look at the neighbor’s house. If it’s an eye sore, then you might have a hard time renting your property or selling it. No one is going to want to live next to a junk house.
Look up the school ratings. Even if you are not going to live there or do not have kids. It is good to know the school rating. A house located in a desirable school district will rent or sell more quickly.
Is there an HOA? This is common for condos and townhouses. Find out the rules. Do they allow rentals? Pets? Do they have FHA eligibility? (This will make an impact when you go to sell).
3. Get a Property Inspection
You guys! This is so important. I can’t tell you how important it is to get a home inspection done by a qualified home inspector. This can save you a huge headache further down the line and will help you to know what you are getting into.
So since you put your offer in contingent upon a home inspection – this is the time to find out all of the repairs that the property needs. Then you can go back to the seller and ask for either a credit on the price or for them to fix the problem.
Most banks aren’t willing to do the repairs on foreclosures, but I have seen them give credits to the buyer or reduce the sales price in response to the home inspection request.
A lot of people don’t want to pay the $500 (or whatever price) that the home inspector charges and they skip the home inspection. BIG MISTAKE! That $500 investment could save you thousands of dollars in costly repairs that could’ve been avoided.
The home inspector can check for major repair items, such as: the roof, HVAC system, hot water tank, plumbing, etc.
Normally you have to get this done within a certain timeframe (as specified in the contract). Then, you can go back to the seller with your list of items that need to be repaired/replaced and ask them to either fix it or give a credit.
What happens if they don’t fix it? Since you had the property contingent upon the home inspection and made the repair request on time, then you can back out of the deal and get your deposit back. Worst case, you are out the $500 for the home inspection. But, it’s better than a $25,000 roof repair or something.
4. Do a Title Search
Use a title company to check to make sure that there are no liens or encumbrances on the property. This ensures that you are getting the property free and clear and that you will not be responsible for any back payments that were owed due to the previous owners.
Also, the title company can check the usability of a property. Is it zoned commercial or residential? Is there are a variance on the property? These are all things that you will need to know ahead of buying the property.
The title company can also order a land survey. Keep in mind, that you can get this yourself at any time. But, if you plan to put a fence up in the yard or build on the property, then it might be in your best interest to have this done.
5. Run the Comps
What are similar properties in the area going for? A good real estate agent can get comps on the property for you. Remember, that you are using an agent that has investment experience themselves (DUH!) so they should have no problem getting you comps on the current value and after repair value (if you plan to fix it up).
Look for at least 3 similar properties in the neighborhood that have recently sold. Or if you plan to rent the place, then look for the prices and condition of 3 properties that were recently rented. Check out websites like Zillow for comps.
Keep in mind the condition of the properties. Is your property in the same current condition? Or will it be once it has been rehabbed?
You will have an appraisal done too (if using a lender), but the comps are for your information during the due diligence period (before you put out the money for an appraisal).
Stay on top of your game, Go-Getter!
Look, real estate investing can be risky. That’s why not everyone does it. But, if you go into this armed with the knowledge to foresee the problems before they exist, then you can greatly minimize your financial risk.
One last note to leave you with. Remember, this is a numbers game. DO NOT get too emotionally attached to a property ever. If the numbers don’t work and it’s not profitable, then walk away. If the seller won’t budge on the home inspection and the repairs are just too costly, then walk away.
In the end, this will make you stronger. If you have to walk away from the property, then it was just not meant to be. Remember that everything happens for a reason and a better deal will come along soon.
Welcome to Hey Rich Girl!
Hey girl! I'm Cynthia Cuccuini, a self taught real estate entrepreneur. I've been flipping houses, landlording (Is that even a word)? and designing homes for over 10 years. Come along the journey as I educate entrepreneurs how to invest in real estate.