We talked about analyzing a property from the numbers side for investment potential last week. Let’s say you’ve found a property (or two) that look like they could be a decent investment, now what?
Once you find a property that makes sense on paper, it’s time to go and see it in person. Today we’re going to talk about what you should look for/lookout for on your walk-through. Now remember, this is just a quick checklist of what to look for so you can make an offer appropriate to the condition of the property. You can bring your home inspector or General Contractor with you, but many investors choose to have a first look themselves to see if they are even interested in moving forward with this property. If that is the case, we always advise to have your home inspector/GC come out for a thorough inspection of the property once you have it under contract.
So without further ado, here is the list of things we look at when inspecting a property:
Neighbourhood & Lot
What type of neighbourhood is it? Is it in a good school district? Are there playgrounds, shopping, and bus stops nearby? Do you see any crime indicators (bars on windows, graffiti, etc.) Are there a lot of homes for sale? Too many homes for sale could indicate a transition to a mostly-rental neighbourhood. While this is not bad, in itself, not all landlords care about their properties/tenants in the same way you would.
Do they take care of their property or are their properties unkempt? Any signs that they could be a problem for your future tenants (e.g. rowdy/loud neighbours, dogs that bark nonstop, houses with frequent visitors/lots of cars on the street nearby).
Think about whether the surroundings provide a nice place to live. If the area is noisy (trains, air traffic or the ceaseless noise of a nearby highway), it may turn good potential tenants away. Smell could also be a factor, especially on hot/windy days (something to consider if the property is near to a landfill, sewage plant, and industrial areas).
Are there any grading issues, do you see any standing water? Does the drainage slope away from the house? Are there any soggy areas? Are there any large trees that need trimming (hanging over roof, sidewalks, etc) or have root growth that will cause problems in the future (sidewalks & foundation).
Exterior of Property
What is the condition of the roof? Is it damaged or in good condition. Is it missing shingles, flashing or trim? Are there any signs of potential leaks? When will the roof need to be replaced?
Are there any visible cracks?
Are there any cracked or missing pieces? Dents, damaged, bowed, sagging or loose siding? Is exterior paint in good condition? Is there any cracking or peeling?
Are they in good condition? That means no decay or rust, joints sealed, attached securely to structure, no bending or sagging, no sections of gutter or downspout missing, and gutters are clean (no debris buildup or mud deposits).
Windows and Doors
Do the window and door frames appear straight (not bowed or sagging)? Are there any broken or missing panes?
Railings, Decks, Porch
Are there railings and stair handrails where needed and are they in good condition? How about the decking? Are there any missing or rotting boards? Does it feel sturdy and safe?
Driveway, Walkways, and/or Parking Lot
Are they in good condition? Are they free of holes, cracks and tripping hazards?
Additional Structures (Garage/Shed)
Again, you should check the same things as the primary building on the property (e.g. concrete slab, walls, ceiling, vents, lights, windows, roof, etc). Also, be sure to check that the automatic garage door opener works properly and stops safely for obstacles.
Interior of Building
Walk Through Every Unit
First and foremost, make sure you are able to look at every unit (if you are unable to on your first walk-through and decide to go ahead with an offer, talk to your agent about making your offer conditional on inspecting all units). This is important for a couple of reasons. Doing so will protect you from many major surprises like mold, major damage to a unit, tenants living in squalor, or a fraudulent rent roll (I.e. claiming all units are rented when some are actually vacant).
Major Damage to the Units
Does the house have an odd smell? Can you identify it as pet odours, mold or mildew?
Are there any visible signs of leaks from the roof or skylights?
Are there any major cracks in walls and/or ceilings (you will want more information from an inspector to see if it is just normal settling or a structural issue)
Do the floors, walls and ceilings appear straight and plumb and level?
Are there stains on floors, walls or ceilings that need to be repaired (and possibly indicate other repairs needed)?
Are flooring materials in good condition?
Do doors and windows operate easily and latch properly?
If included, are there any missing or broken window coverings?
Are there any telltale signs of pest damage?
What is included in the sale (fridge, stove, dishwasher, microwave, washer and dryer?) Do the appliances appear to be well maintained? Confirm all are accounted for and make note of age/repairs needed.
Does the heating system appear to be working? Does the property have a cooling system?
Is there a heating/cooling source in each habitable room?
Is there a working exhaust fan in the kitchen and bathroom(s)?
Do all the switches work? Try spot testing electrical outlets. Check for GFCI outlets in wet areas (kitchen & bathrooms)
Do the faucets and other fixtures have enough pressure? Do you notice any plumbing repairs needed? (e.g. leaky faucets, toilets, tubs)
Make sure to make notes on the condition of units – whether they are in need of repairs or move-in ready. You will also want to check out the layout, storage space, natural light, etc. (these are all important in attracting the right tenants)
Finally, you’ll want to look to make sure the building meets legal requirements: e.g. there are working smoke alarms and carbon monoxide detectors as required by law throughout the property. As well as proper access to escape routes from upper level and/or basement units.
While this may seem like a lot for your walk-through, it gets easier to go through every time. As you train your eye on what to look for in investment properties, it will become second nature to you to sniff out any potential issues very quickly. Many experienced investors complete this type of investigative property inspection in 15-20 mins.
As we mentioned, this quick property inspection should never replace a more thorough property inspection by your home inspector or GC. It is to be used as an aid to help you decide whether you want to put an offer in on a property, and at what price point.