A home inspection is a process where the condition of your property is assessed by a qualified home inspector.

Your offer has been accepted and the property you wanted is now under contract. This is the moment you’ve been waiting for! What happens next? Or the better question is, what should happen next?

A home inspection.

I must admit that when I bought my first property, I did not do a proper home inspection. I was mainly focused on the cosmetic aspects of the property.

I was thrilled about how outdated it was.

It had green tile on the bathroom walls, old light fixtures in every room, old vinyl flooring in the bathroom and kitchen area, the wall color was like a light brown color, the wooden floors needed to be redone.

You get the idea.

Like any newbie, I spent money on these cosmetic things and did not realize until later that I should have been focusing on more critical items.

Over the years as a real estate investor, I have developed a checklist of critical items I focus on when doing a walk-through and conducting any home inspection of a potential property.

The results of the inspection allow me to properly calculate replacement and or repair costs to avoid surprises in the future.

Home Inspection: 5 Areas To Look Out For

When making an offer on any property, it is important to include certain stipulations that specify if you would like to have a due diligence period or not.

What is a due diligence period?

The due diligence period is the period of time a buyer has after a binding contract to assure themselves they are getting the asset they are paying for. A home inspection is part of your due diligence as the buyer.

According to research by Porch, 86% of buyers who performed a home inspection said that their inspector identified at least one problem that should be addressed.

The shorter the due diligence period, the more appealing an offer is to the seller, and this is because they do not need to worry about the deal ‘falling through’ if the buyer finds issues that need to be repaired.

However, as the buyer, you want to allocate some time to do home inspections and to obtain estimates from contractors for potential repairs or replacements.

When doing a walk-through or inspections of a property, I use the acronym P.E.A.R.S.

Plumbing:

One of the first things I look for when conducting a home inspection is the plumbing. Some questions to consider:

• Are the drainage lines galvanized iron or polyvinyl chloride (PVC?
• Are the water lines copper polyvinyl chloride (“PVC”) or cross-linked polyethylene (“PEX”)?
• How old is the water heater? Is it Gas or Electric?

Older houses have copper water lines and iron drainage lines, and over the years these start to corrode on the inside.

Soon enough, you’ll end up with a drain blockage, and a maintenance request from your tenant.

This issue can be avoided when polyvinyl chloride (“PVC”) or cross-linked polyethylene (“PEX”) is used.

As a result, if a potential property has older water or drainage lines, I include the cost of re-plumbing the house in the budget, and depending on the labor costs around your area, you can expect to pay around $500-600 per fixture.

What about water heaters? Yep, I also recommend you look at these. The average life span of a water heater is approximately 15 years and the average cost to replace one including labor and materials is around $,1250.

Electrical:

As you walk through the property, pay attention to the electrical outlets and the electrical panels. Some questions to consider are:

• Do you see burn marks by the light switches or power outlets?
• Do the power outlets have two or three openings?
• The electrical panel, does it have breakers or fuses?

Burn marks around the light switches or power outlets can mean there has been a short circuit, which I highly recommend to further investigate.

The two openings on the power outlets mean that the electrical wiring is not grounded.

Why is this important?

Ungrounded outlets increase the chances of an electrical fire. Without the ground present, errors that occur with your outlet may cause arcing, sparks, and electrical charge that can spawn fire along walls, or on nearby furniture and fixtures.

Re-wiring a whole property in order to add ground can be expensive, but you also want to protect your investment, and ensure all the wiring is done properly and there are no exposed wires.

If you see any potential electrical issues, make sure to consult a licensed electrician.

Air Conditioning (HVAC):

One of the first things I check on during a home inspection is the air conditioning unit which is part of the heating, ventilation, and air conditioning (HVAC).

Why?

Well, I am interested in what type of refrigerant it uses. Does it use R-22 or R-410? Why does it matter?

In my area, the average cost to add 1 lb of refrigerant to an AC unit is:

R-22 (aka Freon): ~$175/ lb

R-410 (aka Puron): ~$35/lb

That’s right, we are talking about a potential cost difference of 400%!

Why such a significant cost difference?

One reason is that starting January 1, 2020, per the US EPA it is illegal to import or produce R-22 in the US. It remains legal to sell/use it, however, the goal is to phaseout this refrigerant since it is classified as an ozone-depleting substance.

And you know what that means?

A decrease in supply equals an increase in prices.

Therefore, if a potential property has an air conditioning unit that uses R-22, I include the cost of replacing it when I run my numbers.

On average, you can pay anywhere from $2,500-$3,000 to replace the air conditioning unit and even more if you also need to replace the furnace as well.

Roof: 

When you are checking out the interior of the property, do not forget to look up.

What do I mean by that?

Well, if you see stains on the ceiling then you may have a potential leak on the roof, and trust me, if you do not take care of it early, it can become a headache.

If you feel comfortable going to the attic, you can attempt to find out if you see any issues or wet spots.

If you need to replace the whole roof (i.e. the shingles), you may end up paying a pretty penny: $5,000-$7,000 for a 1,400 sq ft house.

On the bright side, once you have a new roof, you won’t have to worry about it for the next 25-30 years!

Structure:

What do I mean by ‘Structure’? I am talking about the foundation and exterior walls of the property.

• Do you see any major cracks along the exterior walls, the ceiling, the corners of doors or windows, or along the foundation?
• Does the floor feel ‘uneven’ when you walk in the interior of the property?

Cracks along the exterior walls can be due to normal settlement (not so bad) or it could be due to a re-load distribution with the structure (bad).

If the floors feel uneven, this could be due to weak plywood (not so bad and not so much work) or the beam floors are damaged (bad and more work).

Most people run away from the words “foundation issues”, but not all foundation issues are created equally.

It is true, some can be very expensive, but others are as bad as some people think and you know what that means? You have room for negotiation and a potentially significant price reduction on the property sales price.

If you notice any of the issues listed above, I recommend you consult a licensed structural engineer.

Your home inspection is an important part of the real estate process

Buying real estate is indeed an exciting time, but it can easily turn into a nightmare of repairs and costs if a proper walk-through/inspection is not performed.

Make sure you are looking at the P.E.A.R.S and accounting for any major expenses when calculating your numbers and you’ll avoid unforeseen future costs.

Happy investing!