"The Rental Property Inspection is a Buyer’s Best Friend"
Buying a rental property requires due diligence, and that's where the property inspection, or property assessment, comes into play. In fact, the key contingency in any purchase agreement may very well be the inspection provision. This gives you the opportunity to hire a certified home inspector to identify physical problem areas, thereby ensuring that you get what you pay for.
Your rental property agent
may be able to refer you to a good home inspector. If not, then you'll be able to find one via the Yellow Pages. Just keep in mind that some inspectors are better than others (sometimes by a wide margin), so ask for references if going the phonebook route.
WHY A BUILDING INSPECTION IS CRITICAL
A rental property inspection serves 2 important functions.
First, it will help identify any "lemons" that are structurally questionable. If the inspection uncovers many expensive and/or structural problems, then you can use this information to either force the seller to make the repairs, or simply walk away from the deal (note that the latter usually requires a simple voidance letter from a rental
I realize that paying $500 or so for an inspection on
multi family homes
that you may ultimately walk away from seems like wasted money, but I believe it is actually the opposite.
You do not want to get stuck with a crumbling structure, because this could literally cost you tens of thousands of dollars – or more – to correct. If the inspection uncovers massive problems like this before you make the purchase, then I contend that it will be the best $500 you ever spend.
The second function of the home inspection is to essentially maximize the value of your purchase dollar. In other words, the problems pointed out within the inspection report can be used as leverage to get the seller to reduce the price, or make the repairs.
Either way, you win.
TYPICAL INSPECTION CONTRACT CONTINGENCY
Contractually, you will have a certain number of days to coordinate the inspection. The typical timeline to get this done and share the results with the seller, along with your related list of demands, is 10 business days.
Once the seller receives the inspection report and your list of demands, he/she will then have a certain number of days to respond. The specific seller response will vary based on the contractual language, and may include an offer to correct the deficiencies, reduce the purchase price, or void the deal. Often, dollar thresholds are written into the contract that frame the seller's options.
GETTING THE MOST OUT OF THE PROPERTY ASSESSMENT
I would highly recommend having a property inspection done on at least your first couple of acquisitions. I would also recommend that you shadow the inspector as he does his walk-through, because this will:
- Provide extra clarity around the written inspection document
- Provide you with the opportunity to ask questions
- Increase the odds that the maximum number of defects are uncovered (the "2 heads are better than one" theory)
- Help you learn what to look for on your next purchase
Remember that the goal of your property inspection is to identify as many defects as possible so you fully understand what you're getting into. This also helps improve your
real estate negotiating
position. You can help the inspector by pointing things out that he may miss (hey, he's human too!). The inspector will appreciate this, and you will get a more accurate / thorough property inspection report.
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