Rental character Inspections You Must Make When You Buy

Once the seller accepts your offer on a rental character, prepare to conduct multiple physical inspections. In fact, if you’re a real estate agent involved in the sale, rearrange your schedule to be present at the inspections perhaps multiple times.

What inspections are required, of course, will vary from offer-to-offer, and your disapproval of some initial inspections may already kill the deal and terminate the need to proceed. But barring unsuspected problems, you better plan on at the minimum five physical inspections of the income character once you open escrow.

The Walk-by Inspection

A “walk-by” inspection is where you get to physically go into and inspect all the units in the rental character.

Bear in mind that no prudent seller is going to allow you into the units until they are satisfied with your offer and your ability to make the buy. Why, because anyone who owns investment real estate understands that tenants do not like disturbance, can tend to be jittery, and may already move out if they speculate that the income character is changing hands.

The purpose for this inspection is straightforward: you are examining the over-all condition and quality of the carpets, appliances, fixtures, and tenants. If there are any unpleasant surprises, you might choose to renegotiate your offer or walk away altogether.

In this case, just be sure that your offer to buy includes a clause something like “unprotected to a walk-by and buyer satisfaction of all interior units.”

The Infrastructure Inspection

This inspection would take place following your acceptance of the walk-by.

This is where you inspect the “bones” of the rental character such as the walls, plumbing, electrical, and roofing-places where only a qualified expert can identify possible problems. clearly, you want to know about all the issues that might cost you money to replace or repair once you become the owner.

In this case, hire separate contractors licensed to make the inspections for termite, plumbing, electrical and roofing, or maybe conduct a “complete house” inspection (i.e., hire one contractor licensed to make all the inspections). Again, be sure that your offer is made unprotected to your written approval of these inspections.

Repairs to the Infrastructure

If the rental character does require repair, the next step is to get the work done.

In some scarce situations, you might be able to renegotiate the price with the seller and defer the repairs until you become the owner. But lenders generally require that repairs be made before making the loan, so it’s more likely than not that repairs required by the income character will be made (and paid for by the seller) during the escrow period.

You may not elect to be present yourself while the repairs are made, though some real estate investors do in fact appear at the character and watch over the shoulder of the contractor. In any case, you will want (and will need for the lender) documentation from the contractor that the repairs were made and corrected the problem(s) satisfactorily.

The Appraisal

The next step, following your approval and satisfaction of the repairs, is for you to order your bank appraisal.

In this case, the appraiser will conduct his own inspection of both the exterior and interior of the character, which, depending on the appraiser, might average that he would want to go into every unit or at the minimum enough to get a good idea of each configuration.

His conclusion about the income character’s fair market price and over-all condition is what the lender will use to make its decision regarding your loan.

Re-inspection of the Units

Once you get your loan commitment and can reasonable settle on a closing date, you might want to conduct another walk-by of the units.

Bear in mind that the escrow period for income character can span 3-6 months–a long time since you personally entered the units. In this case, though not always requested by real estate investors, it might be a good idea for you to make one more trip to the rental character perhaps a week before escrow closes just to be sure that nothing has radically changed behind those closed doors during that period.

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