Property Inspections as part of due diligence and ownership of your real estate investment
As an Investor
I won’t buy property without driving out to look at it before I buy it. I want to put my eyes on it. This personal inspection pays off. The last two properties I looked at had challenges that even the listing brokers did not see.
In one case a dentist was trying to sell his 3000 square foot building. The location was very good. Close to downtown in a very upscale village environment. I drove up and parked and walked around the building. The front looked O.K., but as I got to the sides and in particular the back of the building that were not very visible from the street it was clear that the siding was failing. This building had been sided with an older version of LP siding and it was literally falling apart. The photo below is representative of the condition of the siding I found. Sample photo courtesy of : https://www.wrightwaybuilt.com/abc-seamless-siding/siding-problem-composite-siding-evolution/
To reside the building was going to cost in excess of $100,000…
a proverbial deal killer for a building worth less than $700,000.
In another case a 23,910 sq foot Industrial building was for sale in rural New Jersey. Also, a growing area with excellent demographics. I drove out with a friendly broker friend, and we discovered that this significant sized industrial property looked like it was not hooked up to county sewer services. Rather there were septic tank/s. This was unexpected because it had a significantly sized manufacturing operation, with all that goes with it, including hazardous chemicals used in the manufacturing process.
This made us plan for a larger due diligence process due to the potential for hazardous materials in the septic. This was a red flag for future due diligence, but we did not more forward when they told us they had a full price offer, we chose not to compete.
You have to do more than just look at a property using Google Earth.
With the advent of Google Earth, Google Maps and other online mapping software many investors fail to physically inspect a property before they make an offer, assuming that the aerial pictures will tell you the story.
I believe that they do not, and candidly trust my own eyes first. It helps that I have over 40 years of real estate investing and operating experience to use, and have seen some disasters, and missed some major property problems.
As a property owner
As a property owner in addition to your annual walk around inspections, you may want to consider hiring a property inspector every five years, that will dig into the details you cannot see when you walk a property. For properties that have crawl spaces and attics you should have them inspected every five years. Roofs and gutters need to be inspected every summer, since that is the time when you can find and patch the leaks. For all properties weather tends to beat on buildings, creating opportunities for siding, gutters and roof failure.
Vendors tend to make property repairs and leave debris that attract pests. They leave stuff behind in attics, on rooftops ( like abandoned HVAC equipment) and in crawl spaces. I was in a basement crawl space last week and found an abandoned water pump and paint cans, all stuff that should be removed.
In the attics the laundry vent pipes, and flex hoses tend to fall off of their external connections and create condensation which results in the potential for mold and dry rot, a major challenge for tenants and when you get ready to sell your property. Photo courtesy above from: https://www.comfenergy.com/attic-insulation/attic-mold.html
Here is a handy Due Diligence checklist you can use as you buy a property:
Paint – condition of – Lead based inspection
Siding
Electrical age of wiring, plugs and circuit Breaker box
Plumbing
Water lines leaking
Roofing
Gutters and downspouts
Sewer lines
Asphalt
Landscaping
Environmental Level 1 and Level 2
Property survey
Pest and Dry rot
Fire alarm and sprinkler systems
Landscape sprinkler systems
Water lines leaking
Incomplete construction
Doublecheck certificate of occupancy and completion
Zoning – is tenant use located in correct zoning
Financial review
Insurance review
Property Inspections take a lot of time and can be costly but will protect you from expensive mistakes. As you inspect properties you want to buy, and reinspect properties you own, take photographs so you can compare the past to the future. Putting your eyes and the eyes of inspectors on a property helps you make better decisions regarding budgeting, repairs and tenant leases.
This preparation also allows you to identify problems early and extend a building’s lifespan. Finally, you can see damage that others may overlook and include that information in your purchase negotiations and your decision whether to buy a property.
Clifford A. Hockley, CPM, CCIM, MBA
Cliff is a Certified Property Manager® (CPM) and a Certified Commercial Investment Member (CCIM). Cliff joined Bluestone and Hockley Real Estate Services 1986 and successfully merged that company with Criteria Properties in 2021 to establish Bluestone Real Estate Services.
He has extensive experience representing property owners in the sale and purchase of warehouse, office, and retail properties, as well as mobile home parks and residential properties. Cliff’s clients include financial institutions, government agencies, private investors and nonprofit organizations. He is a Senior Advisor for SVN| Bluestone.
Cliff holds an MBA from Willamette University and a BS in Political Science from Claremont McKenna College. He is a frequent contributor to industry newsletters and served as adjunct professor at Portland State University, where he taught real estate related topics.
Cliff is the author of two books 21 Fables and Successful Real Estate Investing; Invest Wisely Avoid Costly Mistakes and Make Money, books that helps investors navigate the rough shoals of real estate ownership. He is the managing member of a real estate consulting practice, Cliff Hockley Consulting, LLC. designed to help investors and commercial brokerage owners successfully navigate their business. He can be reached at 503-267-1909, Cliffhockley@outlook.com or Cliff.Hockley@SVN.com.
