With every real estate purchase you make, you need to spend the time to know exactly what you are buying. Minding due diligence on a property may not be exciting, but it will save you thousands of dollars and may just prevent you from buying a bad property. You could purchase dozens of properties and spend the time looking at every square inch, but it will be the one you mail in that you will have problems with. If you are going to spend time researching your next phone or your next automobile, you need to put the time in on a much bigger expense like the next investment property you are looking to buy.
Your due diligence should start with the first time you enter the property. First impressions are often the most important, and it is in that initial viewing that much information can be derived. It is a good idea to bring a pre-made checklist with you if it is one of your first properties. Jot down every potential issue you see and everything that raises a red flag. You are not looking to attach a repair value at this time, but rather compile a list of issues that could either prevent you from making an offer or something to look back on if your offer is accepted. Instead of racing to get in and out of the property and back to the office to make an offer, you need to spend time in the property so you know exactly what you are offering on.
If you decide to make an offer, you will most likely be on the clock. Depending on whom the seller is and how your contract is written, you most likely have between 10-15 days to have an inspection done and decision made on whether or not you want to move forward. The inspection is the first layer of protection and is done for your benefit alone. Many buyers get bored and frustrated with the length of the inspection but often times an inspector can detect property flaws that you may have never even considered. Items in the attic or in the garage may appear normal to you but an inspector can go behind these structures and uncover potential problems. If you are buying a bank owned property, even if it is as is, you need to make sure you have working heat, water and electricity. A deal can look great but if you have to pay for a new plumbing system that you weren’t aware of a great deal can turn south quickly. Never take the word of a listing agent or even the seller that these items are functional. If they can’t or won’t turn them on this could be a red flag for much bigger problems.
Having an inspection done is great but unless you know how to decipher that information it won’t do you much good. If you are unfamiliar with how to read a report or you are unsure as to what things mean ask your inspector or your contractor to help you. You are paying the inspector a good amount for the report and you have the right to ask as many questions as you like. If you don’t know how to place a dollar to the repair items your contactor should be able to guide you. Make sure they have some roofing experience before they give you a roof quote. The same goes for electric, plumbing and every other area that needs work. Unless your contractor is someone you trust you should consider getting multiple quotes so you have a good idea of all the repair costs. With profit margins slim you need your estimates to be on point to get the highest returns possible.
While an inspection will give you a good idea of the condition, you should also do some legwork of your own. Look for any rotting areas in basement floors or garages. You can also detect mold from smells in dark, musky areas that may be covered over by air fresheners or cleaners. If there are rusted pipes there must be a cause of this that usually means a leak somewhere. Almost anyone can detect the major flaws with a property, but you need to be able to connect the dots and see the issues that can potentially lead to bigger ones. Looking at small cracks or leaks is often a sign of bigger issues that can be very expensive to fix. As a rule of thumb, if there is a doubt as to whether or not something will be a problem, eventually it will. If you are not factoring this into your budget when you buy you are asking for trouble down the road.
The more you know about the property and the area you are buying in, the better decisions you will make. If the repair estimates or the work looks to be more than you initially thought, you can revamp your offer or walk away from the deal. There is nothing wrong with moving on from a property that you think could be a potential headache. This is why you do the due diligence in the first place – to give you a picture of what you are buying. The minute you get lazy with your research or think a property is fine is the minute you find yourself with a lemon.