Nobody wants to get stuck with a problem property. You know what I mean … buying a house that turns out to be uninhabitable or a commercial building that ends up exploding your rehab budget. How do you avoid these kinds of mistakes?

While there is no guarantee to preventing all surprises, when you’re in-the-know about property inspections and do them right, it’s much less likely you’ll have to pay a costly price later.

Get your inspections. Get them done right. We share how, why, and when you need inspections in our latest episode of The Real Estate Guys™ radio show, pulled out from the archives with your hosts:

• Your inspect-it host, Robert Helms
• His no-wreck-it co-host, Russell Gray

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Lead, asbestos, mold. Discover these nightmares in your new property and you’ll wish you’d done your due diligence.

Want to know how to avoid buying a “land mine” property? Due to popular demand, we pulled out a favorite from the archives (and added a new trivia question) about property inspections – when, why, and how to get them.

It’s not the sexy side of the business, but inspections are absolutely critical so you know what you’re buying.

Why bother getting an inspection?

I can’t emphasize this enough: inspections are a critically important step in your due diligence.

If you’re looking to have any people use the property, especially for residential purposes, you’re financially responsible to maintain the property at a certain level of habitability – that’s your responsibility under the law.

Again, if you’re buying to rent out to tenants, you better know what condition it is in.

Robert shares an example of a dilapidated house he bought without a property inspection. Why would he do this?

He was planning to tear it down and build a new development in the area. He didn’t care if the structure wasn’t sound, since he was only looking to secure the land it was on. That’s one scenario that makes sense to skip inspection.

Get a third-party property inspection

Depending on what you’re doing with the property dictates the type of inspection you need. Your first inspection is a personal inspection – you looking around yourself.

Then, your first line of defense is a third-party inspection.

Schedule a time, and show up yourself with the inspector. We recommend this because you can be taking notes and asking questions on the spot, rather than reading a report later that might not make sense.

Being there with the inspector gives you a gut-level understanding, and you can ask things like, “Are you really concerned about this?” or “What’s the age-life of this house?”

Many inspectors will point to other trades. For example, they may recommend you get a roof inspection. (We think of this like going to a general practitioner doctor who sends you to an ear, nose, and throat specialist.)

Keep all of your inspections and records of everything you did to make improvements. Then when you are getting ready to sell, you have validation of all the value you’ve added.

A note about “Subject to Inspection”

Sometimes, especially for larger properties with multiple tenants, you may have a “Subject to Inspection” clause.

This means you get an opportunity to inspect when you’re in contract and you have earnest money.

Why?

If you’re buying multiple units, the owner doesn’t want to disrupt the tenants just because you’re wanting to take a look.

For these kinds of deals, you want to get through the discovery process quickly. Cover the things that do matter. If it’s a competitive market, you don’t want to miss the deal.

If you’re looking at a big-deal property that will need some work, we recommend you bring your own general contractor or project manager. Then they can give you their bid and you’ll be better prepared to understand the numbers – especially if you have a tight rehab budget.

Aim to be more prepared than your competition (other bidders) and you’ll be better off to make smart decisions.

Lesson learned from a real estate broker

We’ve learned over the years that you have to pick your battles. One piece of advice: Don’t ever go back to the seller and attempt to negotiate something if you’re willing to walk away if they say no.

For example, we’ve seen buyers who would say “We’ve got to get the seller to cover that,” for something that cost $100. Sometimes it’s just not worth asking!

We recommend you always have an agent involved. They see a lot of properties and are a huge value add. Great agents will always have the inspections up front.

You want a great agent. You want to pay them a lot of money. Don’t go cheap on this.

Our friend, “Rich Dad Poor Dad” author, Robert Kiyosaki makes sure his agents get paid full commission, and usually more. He knows you get what you pay for.

You want to hire experienced agents in the niche you’re buying. Don’t be penny-wise and pound-foolish for the asset you will be responsible for.

What types of property inspections are there?

There are lots of inspection types, including the five below. Again, this is all dependent on the type of property you’re looking at.

There’s the physical inspection, meaning walking the grounds, with eyes on the property.

Then there’s an outside inspection – research done on the area around the property. For example, is the property in a place where it may flood?

Environmental inspections – involve maps reading the surrounding property. Robert needed this for a Las Vegas property located a quarter mile from an abandoned gas station. The least expensive is a Phase 1, and you may need to do a Phase 2, depending on the feedback.

For a seismic inspection – recommended in places with lots of earthquakes – you want to know if you’re in a seismic zone.

If you’re buying property for agricultural purposes, you can have an agricultural inspection, where third-party inspectors come out to do soil inspection to check on the type of nutrients in the soil.

Proper inspections are a BIG part of proper due diligence…and even more so when you’re making investments with other people’s money.

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