We do a lot of walk-throughs in our investment sales brokerage with our clients—eyeballing a property and evaluating it for its investment potential is a regular part of our week.
What should a new investor eyeball for on a walk-through? Here’s our best advice:
Focus on Major Areas: On the inside, assess the overall interior condition by looking for water stains on ceilings, plumbing leaks, working smoke detectors, condition of the foundation and walls, age of HVAC tank and furnace and appliances. On the outside, look at the condition and age of the roof, windows and doors, assess brick facades for tuck-pointing gaps, determine whether it looks like maintenance has been neglected, and—very importantly—look at the condition of neighboring buildings. Only after you’ve determined what needs work will you be able to understand whether the asking price is a fair starting point.
Do an Inspection: If you’ve reviewed the property well, reviewed the MLS notes (if it’s MLS listed) and driven through the neighborhood, you shouldn’t be surprised with what comes up in your standard inspection. Of course, inspections can always turn up something you didn’t anticipate, especially because with off-market properties the defects or problem areas aren’t as prominent—like when an inspector finds evidence of drainage issues that might’ve killed cash flow after the purchase from backups and resultant water damage.
Negotiate Repairs Off the Sale Price: If you’ve been thorough, you shouldn’t get an inspection surprise that’s a deal breaker. Simply do an estimate of the total repairs and negotiate the repair money off of your offer, or agree to get money back at closing. We recently negotiated a deal for an investor on a 22-unit building where two of the units need to be completely redone. We did an estimate and agreed to receive money back at closing because the seller was motivated and didn’t want to lose the deal. We’re doing the repairs ourselves so we know they’re done right, and done right the first time.
Ask for Help from an Investment Realtor: Yes, you read that right. There are realtors who specialize in investment property sales and we know what to look for in evaluating a deal. If you’re just not sure, find such a person in your area and ask for help. They know the local areas, property types, market rents, neighborhood demographics, and they can help you crunch cash flow numbers. They can probably even give you advice on lending or referrals to lender contacts they’ve worked with in the past, which they’ll do because they’d like you to become a client at some point in the future.