Thinking of Buying an Investment property?
Unless real estate investors know how to physically evaluate properties, they should rely on the expertise of professional property inspectors before buying.
When buying a building, such as an apartment house or an office complex, a real estate investor faces many expenses, some anticipated, others not. It may be tempting to keep a lid on expenses by doing without an inspection by a licensed professional, but investors who are not experienced contractors or property inspectors often find that forgoing a professional inspection is a costly mistake that seriously impairs the return on investment (ROI).
Due Diligence and ROI
Every purchaser of real estate has a duty of due diligence, which is the thorough research, confirmation, and evaluation of the relevant data, projections, and representations about a property. Due diligence also includes the physical inspection of a property. The investor who fails to do due diligence is one who is setting up the conditions for failure.
A property inspector can evaluate the many components of a building, including the roof, the electrical, plumbing, and heating systems, and the structural foundation. The results of the inspection help the investor decide whether a property is in acceptable condition – as defined by the investor and his or her property investment plan– or whether fixing the structural defects and other physical problems would cost more than the investor is willing to spend.
It is advisable that the investor be present when the inspection takes place. While moving through the building, the inspector can point out not only serious defects but also less serious conditions that will need attention in the future. The inspector also can give the investor an idea of the repair cost.
Property Defects
The investor will notice that the inspector’s report includes many items that require repair, replacement, or adjustment. There is no need for alarm; the inspector is merely reporting the results of a thorough observation. Not all of the reported defects will be severe. For example, the inspector may note that there are no handrails on the steps leading to the front door; this would not be a basis for cancelling the contract.
On the other hand, serious structural defects such as a cracked foundation or a roof that must be replaced would be grounds to rescind the contract if the seller refuses to pay for repairs and the investor refuses to buy the property as is.
The inspector may find evidence of an abandoned oil tank that is buried on the property or conditions that suggest environmental contamination from a source outside the property. Either of these situations would necessitate further inspections by the appropriate specialists and additional expense. Correcting the problem could be expensive and time consuming and would be the responsibility of the seller, assuming that the parties want to go through with the contract.
Real Estate Negotiations after Inspection
Investors should give their attorneys a copy of the property inspection report as soon as it is received. Investors also should draw their attorneys’ attention to defects that are of concern. An investor’s attorney will then negotiate with the seller’s attorney over what, if anything, the buyer is will to repair or give a credit on to allow the sale to go forth. In this process of give and take, the investor’s list of defects should include both serious and less serious problems; this gives the investor room to make concessions on items that are not of great concern.
Nonetheless, investors should ask sellers for as many concessions as possible. In a difficult real estate market, a seller may be willing to make many repairs, particularly if the investor demonstrates a readiness to walk away from the deal
John Rossi
Sales Representative
RE/MAX WEST REALTY INC.
http://www.vaughanhomesales.com
grossi@trebnet.com
416-578-7675
John Rossi 