An Inspection Can Make or Break Your Return on a Real Estate Investment

(Disclaimer: The content of this article is not intended as financial or investment advice but rather information for educational purposes only.)

This article is based on the episode of the Building Equity podcast “How to INSPECT a PROPERTY BEFORE BUYING + MISTAKES to AVOID for New Real Estate Investors” with guest Josh Jensen, Co-Founder of Inspectify. Click here to watch the episode. Click here to head over to Inspectify, where you can book an inspection anywhere in the country in just a few minutes.

When it comes to buying real estate property, it’s critical for new investors to be informed on the many facets that go into ensuring a viable investment. One of the most crucial tools for assessing a property’s potential return is the home inspection. Recommended for not just investors in real estate but also anyone looking to purchase a home, whether it’s for financial gain or as a residence, the home inspection can provide insight into the possible principal loss or gain on a property, forecasting extra costs for fixes that may be required down the road.

While an inspection should be a major step in the transaction process and play a major factor in determining whether a property is worth purchasing, it’s easy for investors to make mistakes when it comes to the specifics surrounding the inspection.

The 3 Biggest Mistakes Investors Make When It Comes to the Inspection

While inspections can be the single largest source of stress and anxiety when it comes completing a real estate transaction, an inspection report can provide critical information about your real estate investment, becoming one of the most significant aspects of the entire buying process.

Let’s look at the 3 biggest mistakes investors are making with inspections:

1. Not Getting an Inspection– Without completing an inspection on a property, investors are taking an incredibly big risk with their money. Not having any sort of insight into the condition of a roof, foundation, electrical components, major appliances, and so much more could turn an investment into a liability and a potential money pit. Having an inspection completed by a licensed inspector will ensure there’s no conflict of interest and provide all the information investors will need to know when it comes to estimating how much they can stand to make or lose on a property, factoring in the necessary repairs they’ll have to make immediately and in the long term.

2. Underestimating the Costs- After completing an inspection and reviewing the data, it’s imperative for investors to understand the severity of costs for fixes/repairs. Some repairs can be trivial and super easy to complete while others, like replacing old knob and tube wiring to ensure safe electrical outfitting, may require additional spending to remedy. Smart investors should take notes on the recommended repairs and their priorities while also calculating the estimated costs associated with completing them to see if the costs are manageable.

3. Spending Too Much- While having an inspection completed is extremely important prior to purchasing, it’s also smart to ensure investors aren’t spending too much too soon or purchasing extraneous specialty inspections. It’s recommended to delay the inspection until you’re further along into the transaction process, at least until a written contract has been created or a Purchase and Sale Agreement is received because if an investor is converting 50% of the time on deals and they’re spending $400 an inspection, they’ll be spending more money than needed, and possibly wasting cash. It’s also smart to utilize the initial inspection as a filtering process for the specialty inspections. Instead of conducting additional mold, sewer, roof, and, etc. inspections, first see what has been identified as a possible concern in the initial inspection before shelling out more money for inspections that may not be necessary. For example, if you notice a foundation issue during the first inspection, then it would be smart to pay for a specialist to come take a deeper look.

Using Your Inspection as a Guide for Negotiation

Besides using the inspection as a catalog to assess the projected life spans of major appliances, structural elements, and other mechanical systems, it’s also a great report to determine what your concessions will be to finalize your purchase contract. If you’ve discovered major issues, like serious plumbing problems, electrical elements that could lead to a fire, or other legacy mechanical system concerns, you’ll know right away what needs to be addressed and negotiated on if you still want to proceed with the purchase.

While inspections are a valuable tool in calculating imminent costs and negotiating factors, they’re also proving to be an extremely helpful metric on assessing whether an investment will overall be profitable or not, which is why it’s essential all investors conduct an inspection on a property before finalizing any real estate transaction. An inspection is the best option for determining whether your real estate investment will be worthwhile or not.

Protecting Your Rental Property with Move-Out Inspections

Not only are pre-purchase inspections becoming critical, but the industry is also seeing a rise in the number of move-out inspections as well. As a property manager or investor owning a rental property, having an inspection completed before the tenant moves out is extremely helpful in determining accurate damages that may have occurred during occupancy and what other concessions can be made from the deposit. Whether it’s new holes in the drywall or an appliance that’s been destroyed, the quickest way to hold a tenant accountable is during this inspection.

Having a licensed third-party inspector conduct the inspection to ensure there is no conflict of interest makes it much easier for property managers and investors to catch potential issues that could become major concerns down the road. Whether it’s a water heater on the fritz or the early stages of mold development, the best way to stay on top of property maintenance to ensure the longevity of the unit and the reduction of possible long-term costs for bigger repairs is to complete a move-out inspection after your tenant leaves. This will also ensure the property is ready to be rented by new tenants.

Make Inspections a Staple in Your Buying or Owning Real Estate Journey

If you’re in the process of buying real estate or currently own a rental property, it’s more important than ever to use an inspection service you can trust. The cost of not having an accredited inspection could be disastrous, not only resulting in significant loss on your investment but also the overall deterioration of your unit over its life span.

Investors in need of an inspection are encouraged to check out Inspectify. Trusted by leading real estate brokerages and investment institutions, Inspectify is a platform dedicated to helping anyone with their inspection needs. With a click of a button, this ultra-convenient, streamlined service lets users instantly book an inspection with a licensed professional.

If you’re looking to begin your investment journey into real estate using your self-directed IRA, IRA Title Pro is here to make it easier for investors to navigate through the entire closing process, from the property purchase contract to the inspection and closing. Users can expect to close 11 days faster than any other service out there, giving investors an edge on the competition.

Make the smart decision to invest; get started today on your next real estate transaction.