How to PHYSICALLY Analyze Rental Property Before You Buy it
Hi, this is Eddie with Access Property Management. In the post we will discuss how to analyze rental property by taking a physical assessment. This is different than analyzing rental property by the numbers. This is actually looking at the home from what it’s physically worth. What are my costs going to be down the road? How does the home look right now? What am I going to need to do to it to bring it up to par?
A lot of these big ticket items are sometimes overlooked when analyzing rental property. Often, people tend to look just at the numbers and not really walk through the home. By looking at an investment physically, an investor can get a good idea of what it’s going to take to bring that home up to a level where it will not cost you in the long run.
The HVAC and Plumbing Systems
That’s great that the furnace is new, but was a permit pulled on it? Was it inspected? Was a chimney liner added? A lot of these issues come up with city inspections. When the vendors have to go out and service that furnace or the hot water heater and that’s when you find out that while that “NEW” furnace was done by a do-it-yourselfer and they didn’t do it correctly. Now you have to pay to have it done correctly. I’ve seen it cost $1,000-$2,000 to correct mistakes. And that is just adding a chimney liner.
To sum it up, you need to double check the HVAC and double check the plumbing to see if the plumbing lines are flex pipe or are they copper, or are they these old pipes that clog up.
Onto the electrical service. Is it a minimum 100-amp service? Do you have GFIs throughout the home? Is the wiring old knob and tube or is it Romex? So you may have to fix some of these things right away and some may not be a big deal, but just double check those.
Investors overlook a lot of exterior items that are expensive to replace or repair.
Is the siding vinyl, aluminum or old wood? If it’s wood are you going to have to paint it every couple of years? If it’s aluminum siding, sometimes the paint rubs off and you do have to paint that again also.
If you have an inspection done, somebody should obviously look at that roof. But you need to ask yourself, what’s its age and how far can you go with that roof? How many years of useful life does it have left? Also ask what type of material it is made out of and what kind of maintenance that may require.
We really want homes with the vinyl windows. The newer, updated vinyl windows. They are great to have because they cut down on the heating bill, tenants love them and they are a lot less work than the old wooden windows. With wooden windows, you (and the tenants) have to deal with the screens and storm windows that you screw on to the side of the house.
Landscape expenses can be another big surprise for investors. I have seen investors buy homes before and not realize that there are huge trees that were dead on the property. They then end up paying thousands of dollars just to have them cut down and removed. They were focused solely on the home. But if they went out and walked around, they would see there was thousands of dollars in costs there.
Whether it’s the fence line, old trees, even driveways, make sure you are looking at the entire property. Is the driveway paved and does it have tons of potholes? Is that something that you going to have to get fixed, can you fill those in and make it last? Do you need to re-asphalt the driveway? Again, thousands of dollars.
When you physically analyze rental property make sure you are looking at systems,
- Exterior (siding, roof and windows, and the landscape)
This is different than the numbers approach. You want to do them both but its just as important to get hands on the property. We are not talking about paint. It’s easy and expected to have to paint and put down some new carpet. But high price items that you are not seeing or that an inspector wouldn’t necessarily check are what can surprise you.