Are you at the point in your real estate wholesaling business where you need to know how to do a property inspection? Are you wondering what that even means? Well this post should clarify things and get you on your way to doing an awesome property inspection.
What is a Property Inspection?
A Property inspection can mean different things to different people. If we were Realturds, then we would refer to this as a 4 hour drill down on the property, searching every nook and cranny for ANYTHING that could possible be wrong with the house. I like to think of that type of inspection a deal killer. That’s not what OUR property inspections are.
In the eyes of a real estate wholesaler, a property inspection is an in person meeting where you do a walk through of the property, checking out some important facts and taking LOT of photos (even a video if you’re on top of it).
Your property inspection should last about 15-30 minutes. If the seller is there with you, then asking questions about updates/repairs to the house will be helpful. They can offer a lot of insight bout the age of roof, air conditioning, plumbing, additions that were done without permits, foundation issues, driveway cracks and more!
When is a Property Inspection Needed?
This is where alot of people fail miserably. Some real estate investors never do a property inspection! HOW CAN YOU MAKE AN INTELLIGENT OFFER WITHOUT SEEING THE HOUSE? The answer is:
As a wholesaler, your job is to provide deals with enough equity that your cash buyer will be able to make a profit on the deal. PROFIT will come to your cash buyer once he has purchased the house, made the repairs, and then sold the house to a retail buyer. Important factor : MADE REPAIRS!
When you’re talking to sellers, they’ll tell you that the house needs some paint and carpet. You can’t believe that for a second. They have no idea what repairs might be needed to put the house in retail condition. That’s for YOU (the professional) to decide.
And that’s why you need to do a property inspection.
How To Do A Property Inspection
You’re going to look at everything! Start with curb appeal and work your way around the entire outside and inside of the house. Keep your eyes out for any obvious repairs that are needed. Check the 4 major components of every house:
Roof : [Interior] Are there water stains on the ceiling?
Are there any existing leaks? Is there any drywall or insulation that has fallen onto the floor?
[Exterior] Are the shingles curling up on the edges? Is there a tarp on the roof?] When was the roof replaced?
NOTE: It’s common for sellers to sell the house when the roof needs replacing, because they can’t afford to replace it. (Roofs aren’t cheap and once they need replacing, it goes downhill fast).
Plumbing: What type of plumbing does the house have? Galvanized (silver pipes) is the oldest type of plumbing and needs to be replaced. Copper (gold pipes) is better than galvanized but still has issues. Could possibly need replacing depending on the age. CPVC is the best type of plumbing.
Does the seller have buckets under the sink? Be sure to check! This will indicate a plumbing leak that needs to be repaired/replaced.
What is Customary in your Area?
Heat/Air: What is customary in your area for heat / AC? Check the system out to see if it works. In Florida, we MUST have central heating and air – and a lot of times the outside unit has been stolen. The outside unit is expensive, so you want to factor that in when calculating rehab costs.
Electrical: Check the electrical panel and see if its a 200 amp panel. If so, that’s the best choice and you wouldn’t need an electrical upgrade. Make notes on your inspection report about what you find here, and if you’re unsure if it needs replacing then consider that it DOES!
Take a ton of photos: There’s no such thing as too many photos. The photos of a property can ALMOST tell the story. So the more you take, the better your odds are of generating interest to your cash buyers.
What do you need photos of? Here’s a checklist for you:
How am I Supposed to Estimate Repair Costs from a Property Inspection?
This is where you can either make the deal amazing for your buyers, or really mess it up good. It’s hard to get this perfect, because everyone does rehabs differently, and their costs to make a house beautiful will vary. Some rehabbers do “band aid” rehabs, where they just add paint and carpet to make the house presentable enough to sell to a first time homeowner. Others will replace EVERYTHING and make it a brand new home. It’s not your job to determine what your buyer will do.
I have a rule of thumb when estimating repairs and filling out my inspection sheet. If the house is in a neighborhood that has retail sales, and the comps are solid, then I’ll assume that everything will be replaced. This will bring top dollar in the back end sale for your rehab buyer.
Determining how much that will cost is a challenge for some people, especially if you’re new to the business. If you get it wrong, it could destroy your deal. Believe me, I see A LOT of people get it wrong.
More Than 90% of Wholesale Deals Have Estimated Repairs Cost Greater than $20,000
TIP: If you see an email or ad about a rehab deal, and the wholesaler says that it needs $5,000 in rehab, then they don’t know what they’re doing. LOL I just laugh at those emails and hope that no one actually believes that.
I just put new floors in my house, and they were $6,000 alone. So I highly doubt that a house that is being sold at a wholesale price needs $5,000.00 . but ok…
I took a survey from rehabbers all over the country, asking them about prices to get repairs and replacements done on their rehab jobs. I threw out all of the stupid answers (like replacing a window for $100) and created a National AVERAGE of expenses.
Then, I designed a property inspection form that anyone can use. Just by answering some “Yes” or “No” questions, the tool will calculate rehab costs in the background!
The Mobsters (Members of the MOB) have been using this tool for a couple of years, and they LOVE IT! It’s a fool proof way to estimate what it will cost to rehab a property, and lock down a solid number to use in your MAO formula.
The rehab estimator tool is just one of the many tools that are in the Investor Toolbox! Become a member of the MOB today, and get instant access to the Rehab Estimator Tool. You can access it from your laptop, desktop, iPad, or mobile phone and get accurate estimates of repairs.
Property Inspection Etiquette
When you arrive at the property, ask permission from the seller (or whoever meets you there) to take photos of the house. Some people get weirded out about someone taking photos.
When you’ve done your walk through and you’ve taken all of the photos that you need, thank the seller for their time and allowing you to take a look around the house!
There you have it. Now you have some general knowledge on how to do a property inspection, and why it’s important to every property that you deal with.
Look, this market is hot right now, and there’s a lot of new people entering the business trying to make a quick dollar. It’s going to be best practice for you to learn how to do things the RIGHT way, so that you have longevity. I am a believer in “fake it until you make it”, but I also know “the more you learn, the more you earn”. So take the time and learn how to be professional, accurate, and offer only the best deals there is. This will guarantee a long career in the real estate business.
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