A home inspection is a critical step in the purchasing process of an investment property. It provides you with a detailed assessment of certain central factors related to a home’s value. As an investor, you want to do your due diligence, but you may not know what is and what isn’t relevant in a home inspection.
By focusing on the high-level issues that really impact the value of your home, a home inspection should give you insights into a rental property and its long-term potential. It can also provide you with necessary data you need to continue your negotiations on a property. By focusing on what matters in a home inspection, you can get what you need to make an informed decision and potentially add a valuable asset to your portfolio.
Selecting a Trusted Home Inspector
The most important step that you can take in assessing your investment property is to hire a trusted home inspector. Your advisor at your investment group may have recommendations. Looking at inspectors associated with a vetted professional organization can be a good idea, as well. The American Society of Home Inspectors (ASHI) and the International Association of Certified Home Inspectors (InterNACHI) are two options to consider, as is the National Academy of Building Inspector Engineers, an organization that certifies professional engineers and architects who perform inspections.
Plumbing & Electric
The two main requirements for any sound, modern home are viable plumbing and electric systems. No home inspection would or should ever avoid these two areas. Electrical issues that can come up include but are not limited to:
- Exposed wiring
- Reversed Polarity
- Electrical panels that have been modified incorrectly
- Multiple neutral wires in a slot
- Wiring flush against sharp corners
Unaddressed electrical issues can also pose serious fire risks. If a home inspection reveals electrical issues, consider having the investment property inspected by a licensed electrician.
When it comes to plumbing, keep an eye out for:
- Rust
- Galvanized pipes
- Broken Pipes
- Clogged Sewer Lines
Plumbing problems can lead to water damage, which we will discuss shortly. Additionally, systemic issues with a home’s plumbing can result in tens of thousands of dollars in repairs, so pay special mind to this during your inspection and don’t hesitate to ask questions.
Structural Integrity & Roof
The home inspector will also look closely at the structural integrity of a home, as well as the integrity and soundness of its roof. Anything from termites to the elements can damage the structural integrity of a building. The foundation of a home often has the most issues, thanks to water in the surrounding soil.
Repairing or replacing a foundation can cost as much as $10,000, so make sure you’ve done your due diligence on this point.
HVAC
Your inspector should conduct a thorough vetting of the home’s heating, ventilation, and air conditioning systems, watching for dirty filters, broken or cracked components, and even asbestos. You also want to get an idea of the age and overall condition of all HVAC components. Repairs on a property’s HVAC can cost in the thousands, making this a definite must on your checklist.
Pests
In an ideal world, you would never see a pest in a home. The unfortunate truth is that they exist, and you may well find them as a result of an inspection. Best case scenario, these frustrating creatures have caused no damage to the property. Worst case, these organisms have damaged structural components or electrical wiring, in which case the intrinsic value of a home may need to be redetermined.
What do you not need to focus on during a home inspection?
Small factors that don’t have a true impact on the property’s value:
The cosmetics. Peeling wallpaper is not going to have any influence on a home inspection. These small cosmetic “dings” in a house’s armor do not factor into the inspector’s assessment. Unless that crack in the wall stems from an overall flaw in the home’s structural integrity, don’t concern yourself with it.
The quick fixes. This is along the same lines with the above. Do not spend any time during the inspection concerned over issues that are quick fixes— translation: affordable. If damage you see during an inspection is something that could be fixed after the fact with a quick run to Home Depot, choose your battles and let this one go.
The areas that are not readily accessible. Or rather, do care about them— just not during the home inspection. Items such as a septic system that are not readily accessible will not be addressed during a home inspection. Instead, you may need to turn to separate, specialized inspections and evaluations.
Your takeaway? Don’t let these small things deter you from investing in an otherwise good investment property. Keep your focus on the high-end items that will keep your home protected financially for years to come.
From one perspective, it’s important to take some indicators with a grain of salt when it comes to real estate. Unemployment rates, for example, are significant but can lag, rather than serve as a future indicator. In the context of real estate, looking to regional or metropolitan growth in job numbers is a far better future indicator, demonstrating a new influx of qualified purchasers into your market area.
Even before COVID-19, too, it’s important to consider that the US housing market was already on track to slow down. As for the overall US economy, it was expected to slow, as well— according to the Fed, projected GDP rates for 2020 were just 2 percent and 1.8 percent for 2021.
Any investment for a portfolio, when made with the right advice, would have been made with this in mind and retrofitted to sustain slowdowns and downturns.
Preparing for the Long Haul
As a property owner, you are able to recession-proof your investment with the right forethought and planning. When prepared, you are able to face the things that might come up in property management and maintenance.
For one, it’s important to understand that, if you have not considered renting, you should consider renting in the future, as a way to sustain the viability of your investment in the long term.
Choosing the right property manager in such cases, too, is critical. Do you communicate well? Is your property manager, if not entirely privy to, at least aware of your overall goals for your investment property?
Getting trigger happy in the face of a downturn puts your investments at risk. It is only over a longer period of time that you can see the full effect of a healthy portfolio. If you jump in and expect things to happen right away or go smoothly all the time, you might not be facing reality.
