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Buyer Beware: 4 Types of Property Defects to Look for when Buying


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As you probably already know, a property inspection is an important part of the income property buying process, especially for new investors.  Although an inspection typically costs several hundred dollars for a 2-4 unit multifamily property, it is money well spent because it will prevent you from buying a property with major structural or other deal-breaking issues.  Generally speaking, there are 4 types of defects to be on the lookout for: cosmetic defects, structural defects, infrastructure defects, and legal defects. 

Cosmetic defects are issues that do not involve the actual structure of the building.  Some examples include peeling paint, a hole in the drywall, rotting carpet, falling gutters, etc.  These types of defects are nothing to worry about because they are cheap and easy to fix, and could be used as negotiation points to reduce the purchase price.  In fact, the presence of multiple cosmetic defects could actually work out in your favor because they reduce curb appeal and will hence allow you to get a better deal.

Structural defects are more serious.  These are problems that negatively impact the underlying structure of the building and could result in major repair bills.  Signs of structural problems include cracked foundation walls, uneven floors, tilted stairways, a chimney that is pulling away from the house, and similar symptoms.  Generally speaking, unless you get a bargain basement price, major structural issues are too risky to accept.  In this case it is usually best to walk away from the deal.

Infrastructure defects refer to things such as faulty wiring, broken plumbing pipes, HVAC problems, a leaky roof, etc.  Most often these issues are not deal breakers as long as the seller is willing to adjust the purchase price accordingly, or simply repair any infrastructure flaws himself. 

Finally, legal defects refer to things like zoning and city code violations.  For example, you might be looking at a triplex that is legally zoned as only a duplex.  In this case, you could either pay an attorney to fight for a zoning variance, or simply walk away.  City code violations are usually less serious and simply result in an additional cost to bring the violating item up to code.

To sum it up, if your inspector identifies cosmetic defects, infrastructure defects, or city code violations, proceed with the deal but try and get the seller to make a concession on the purchase price.  If on the other hand your inspector identifies structural and zoning defects, walk away from the deal.  There will always be other income properties for sale so do not beat yourself up if you decide to walk away from any one deal.



2 Responses to Buyer Beware: 4 Types of Property Defects to Look for when Buying

  1. Becky says:

    I have a renter that will not allow me to enter the rental property to repair the garbage disposal that I checked last week. I garbage disposal will turn but there is something stick that is not allowing it to work property. There was cooking oil poured do the sink after removing my hand for the sink I had black oil on my fingers. The Tentent called me to day and said I couldn’t enter the house and I need to give her 24 hour notices or she can sue ME!!!Okay what should I do at this point? I can put something in writing. Then she called me and said that I could let her know when I was coming to the house? Very stressful. Also, can I list my house on the market to sell while she is living there? She was going to buy, but her job might be relocated? Thanks in advance for your advise!:) Landlord needs help

    • alank856 says:

      Hi,

      Thanks for your question! Although the law differs from state-to-state, I’m pretty sure that tenants MUST grant access to landlords to make repairs. I would imagine that you’ll have to give written notice at least 24 hours in advance. But, make sure you check your state’s specific requirements. Here is a good resource to find state landlord-tenant laws online: http://www.thelpa.com/lpa/lllaw.html.

      Regarding your second question, yes you can list the property for sale. The tenant’s presence does not matter and in fact most rental properties are sold with tenants already in place.

      Good luck!

      Alan

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