If you’ve decided to purchase an established home over a new one for your investment property, you should consider enlisting the property inspection services of an independent property inspector, experts who know what to look for when buying an investment property. The older the home, the more important this is.
An independent property inspector will identify any serious or structural defects within the property such as mould issues, problems with the foundations and water leaks, prior to settlement. This will give you the opportunity to ask the seller for repairs or a reduced price, or you may even wish to walk away from the deal altogether, all of which are important considerations when buying an investment property.
Most lenders also ask for a termite inspection to be done on the property prior to approving finance when buying property as an investment. If there are termites or other insects, the homeowners will have to take care of the problem before they sell the home.
But what about full home inspections – are they worth the additional cost?
The answer is a very simple ‘yes’. For a few hundred dollars, it’s worth finding out up front if there are any major issues with the home rather than handing over a few hundred thousand and discovering a major water leak (post settlement) that could cost many thousands to rectify after buying an investment property.
So what does a building inspector check for during a property inspection? Generally, the following items will be thoroughly inspected when you’re thinking about buying investment property:
- Electrical systems
- Heating and cooling systems
- Structural elements
- Doors and windows
Once the property inspection report comes back, and depending on what the property inspector has identified, you will have the opportunity to ask the homeowners for a price reduction, go ahead and buy the home anyway, or ask the homeowners to make the necessary repairs before buying the investment property. You will receive a varied reaction from homeowners and often, they will agree to lower the price a little.
One of the most important things to remember is when drawing up an initial offer for the purchase of the home, you should include a clause that allows you to withdraw your offer if any repairs are not taken care of or the price is not lowered due to the results of the home inspection.
Once you have received the full report from the building inspector, it’s up to you to decide if it’s worth proceeding with buying property as an investment.
If you do decide on buying investment property, at least you know exactly what you are buying and that you have minimised the chance of major defects costing you thousands to repair after settlement.
Property Inspections: What to look for in an independent inspector
Finding a good independent inspector shouldn’t be too hard simply by questioning a few real estate agents, friends and family, even turning to your local paper or doing an internet search.
They are all generally trained in property inspections and many are retired contractors, builders, electricians and plumbers who know what to look for when buying an investment property.
To decide which one is best for you, you may want to ask them how long they have been carrying out property inspections, what their hourly rate is, what they look for and provide in the final report, if they have any formal building qualifications, and how long the inspection will take.
Once you have asked these questions, find out if your lender has specific property inspections that the home must pass before you will receive a home loan for buying an investment property. If the building inspector can complete these inspections along with the home inspection, then it is worth the time and the money to have the independent inspector complete them all on the same day.
The property inspection may uncover many items you did not notice during your own inspections and the following items are quite typical findings:
- Crumbling foundations
- Structural damage to floors, walls or ceilings
- Termite damage
- Water damage to inside and outside walls
- Posts in poor condition
- Heating and cooling systems not working or requiring a major clean
- Broken or leaking pipes
- Roof needing repair
- Electrical wiring not functioning or needing repair
- Broken water or light fixtures
- Uneven doorways
- Windows that do not open
- Improper insulation
- Septic tank issues
- Hazardous chemicals and asbestos
Most homes will only experience a few minor issues, but some older homes may have more problems than they are worth. While disclosure of some problems is mandatory, many homeowners do not even know that some of these problems exist until they try to sell their homes.
Some lenders will not approve finance until the issues are rectified and another inspection is carried out to verify.
If this is the case, you can try to find another lender, try to get the homeowners to pay for the repairs, pay for them yourself, or walk away from the home.
But what happens when a new home does not pass a property inspection? If this is the case, then it is up to the builder to make the necessary repairs. You should make sure this is included in the contract before signing it and enquire about the builder’s defect policy before buying an investment property.
Even though you will have to spend more money up front for a property inspection, it could save you a lot of money in the short and long term when buying property as an investment, especially if the home is of an older style.
Once the property inspection report comes back, you could ask the homeowners to make the repairs before buying an investment property, which is the best way to save money on the home. While you will not see a reduction in the final price of the home, you will not have to make as many repairs down the road.
If the homeowners do not want to spend money on the repairs, you could ask for a reduced price in the home. When negotiating this lowered price, remember that you will be carrying out the repairs yourself and consider what those repairs might cost you.
Another way to save money without relying on the homeowners to pay for the repairs is if they agree to pay the settlement costs on both sides. This will free up some of your money so that you can make the repairs yourself.
Finally, on the day of settlement, make sure you do a final walk through the property to confirm any relevant repairs were carried out and identify any last minute items you may want to discuss. It’s a good idea to have the homeowner, real estate agents and lawyer (if applicable) present.
If you can get enough financing and you want to pursue the home regardless of the repairs that will have to be made, then go for it. Sometimes buying an older home and fixing it up can be a fun activity for everyone involved. Only you can make these crucial decisions.
A property inspection will help you realise how much work and money may be involved when buying an investment property.
Want to learn more? Contact our team of Perth Property Investment Specialists today or download our FREE 9-Step Guide to Property Investment Success to help get you started. The steps guide you from the initial idea stage, all the way through to securing the right tenant and then ultimately building your portfolio with reduced risk. The Investor Assist team can help provide a sound property investment strategy to help you create your own wealth.
DISCLAIMER: This information is of a general nature only and does not constitute professional advice. We strongly recommend that you seek your own professional advice in relation to your particular circumstances. Investor Assist Pty Ltd Builders Registration No. 13818. Source: RPdata.com.au