Inspecting Investment Properties

A home inspection usually costs less than $1,000, but the return on this small investment can be big.
Seth Kniep
Aug 18, 2021
Real Estate Investing
Doing your inspection is a critical part of any real estate deal. Whether you’re buying a personal residence or an investment property, you need to know what you’re getting into before there’s no turning back. What may seem like a great deal could turn out to be more trouble than it's worth. Thankfully, an inspection contingency will allow you to negotiate or even back out of the deal entirely.

Although your insurance may protect you if problems are found post-closing, you should try to be fully aware of any issues a home has before closing. A licensed home inspector can conduct an in-depth home examination that gives you a heads-up on significant problems the home may have before you finalize your purchase. Home inspections are not required by law, and usually not required by mortgage lenders, either. However, it is almost always in your best interest to pay for a home inspection. Below, we’ll explore five critical aspects of the inspection process to help you avoid expensive hidden problems and make profitable deals.

Inspection Contingencies

A contingency is a condition in a contract that must be satisfied for the contract to become binding. Several types of contingencies might be included in an offer, including a mortgage contingency, an appraisal contingency, or a title contingency. The inspection contingency is one of the most commonly used contingencies.

If an inspection turns up serious problems, a typical inspection contingency will permit the buyer to negotiate with the seller for repairs or a reduced price, or to back out of the deal entirely and have their deposit returned.

An inspection contingency allows buyers to make an offer with added confidence, knowing that they won’t be trapped in a bad deal if the inspection turns up serious problems. If a seller asks you to waive your inspection contingency, you want to be careful, as this is likely not in your best interest. In a seller’s market, some buyers may decide to waive their inspection contingency to make their offer more attractive. This strategy might work, but is best employed by experienced investors with a high level of risk tolerance.

Choosing an Inspector

If your offer is accepted, you will have a limited amount of time to act on the inspection contingency — usually 10–14 days. Therefore, you’ll need to have the inspection done as soon as possible so that you have time left to consider your options, get quotes from contractors, and negotiate with the seller. To ensure that the process goes as smoothly as possible, you should select an inspector before submitting an offer.

Ask your realtor or fellow investors for a home inspector recommendation. You can also check online reviews.

Inspectors are licensed by their respective states, but membership in one of two national organizations, ASHI and NACHI, lends inspectors additional credibility. Do some research on your inspector, and check to make sure that their license is up to date. Though lenders don’t usually require an inspection, there are some cases where a lender may require you to use an inspector that they approve of.

If you are buying in another state and won’t be able to visit the property prior to closing, choosing the right inspector is even more important. You’ll be relying on their findings to make a major decision, so you need someone who is experienced, thorough, and communicative.

The Cost of an Inspection

The cost of an inspection varies depending on location. Inspections are typically about $300–$1000, determined mainly by a property's square footage. Don’t be intimidated by the cost of an inspection — it’s a small price to pay to prevent some major headaches down the line.

Inspection Day

If you live near the property you are purchasing, you might want to attend the inspection. Especially if it’s your first time buying a property, it can be fun to pick the inspector’s brain and gain some hands-on experience with the inspection process. But don’t worry if you are unable to attend the inspection. If you’ve already done your homework and selected a top-notch inspector, you can rely on them to relay their findings. If you live in another state and are not able to attend the inspection, you may want to schedule a post-inspection call with your inspector to get some additional insight into their findings and their overall impression of the property.

A home inspection usually takes a couple of hours. The inspector will check all the rooms of the house for leaks, cracks, and structural alignment. They will visually inspect the electrical, plumbing, and HVAC systems for signs of damage. On the house’s exterior, they’ll look for visible signs of rot and search the ground for any indicators of improper drainage. This is just a sampling —  there are hundreds of different things a licensed home inspector will check.

Keep in mind that a home inspection, though incredibly thorough, is a visual inspection, meaning that the inspector is only going to be looking for things that they can see without unscrewing panels, digging holes, moving heavy objects, etc. If, for example, there was mold growing on the inside of a wall, a home inspector would not be expected to uncover and diagnose that problem. 

If a heavy object is blocking something your inspector needs to look at, your inspector probably won’t move it. If there is anything that would make it difficult for your inspector to access an important area, discuss this with the seller ahead of time so they can move things out of the way for the inspector.

There are several important things that home inspectors typically do not check. Examples include mold, asbestos, and radon — these require specialized inspection companies and tests that can be expensive. If you’re concerned about these things, it’s worth investing in a specialized inspection service before you commit to buying the property. 

Home inspectors may also decline to check your roof if it is unusually high, steep, or otherwise difficult to access. In these cases, you may consider hiring a specialized roof inspector. 

If buying in certain areas, you may have concerns about the integrity of the land on which the home is built. Maybe you’re in a potential landslide area, or in a location known to have abandoned mine shafts. If these are concerns, you’ll need to look at hiring a specialized engineer or geologist.

Get clear with your inspector on what they will check and what they won’t check. Make sure to schedule any specialized additional inspections within the time frame specified in the inspection contingency.

After the Inspection

After the inspection, you'll receive an inspection report. These reports can be lengthy — sometimes 50 pages or more — but don’t let that stress you. 

It is in an inspector's best interest to be as exhaustive as possible, and a good inspector will note nearly every issue they find, including many that are small and easy to fix. A gigantic inspection report doesn’t necessarily mean that the property has tons of serious problems; it just shows that the inspector is doing their job.

As you read the inspection report, you’ll want to focus on problems with big-ticket items, like the foundation, frame, or HVAC system. In the interest of getting the deal done, it’s usually best not to dwell on smaller issues, like dirty window tracks or a ceiling fan that won’t turn on.

If you decide to proceed with the deal after reading the inspection report, your next step is to check with contractors and get estimates for major repairs. Based on these estimates, you can negotiate with the seller for repairs or a reduced purchase price.

In most cases, it makes sense to simply negotiate for a reduced purchase price based on the estimated cost of the necessary repairs, then coordinate the repairs yourself. By organizing the repairs yourself after taking possession of the property, you can oversee your contractors and ensure that you are getting quality work at a fair price. This is especially important for critical repairs like leaky roofs, fireproofing, leaky plumbing, faulty wiring, etc. Whether it’s your personal residence or an investment property, you want this kind of stuff done right.

The Final Word

Embrace the inspection process. If you plan to own multiple properties, you'll go through this with every deal. By getting intimately familiar with how inspections work, you’ll develop a keen eye for properties with fixer-upper potential, and properties that you should avoid. Also, when you sell, you’ll be on the other side of the inspection — the more you know about inspections, the easier it will be to get ahead of any potential problems.

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Seth Kniep

Married a pearl. Fathered 4 miracles. Fired his boss. Turned a single dime into $104,857. Today, a self-made millionaire, Seth and his team of 8 badass coaches teach entrepreneurs how to build passive income on Amazon.

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