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How to Handle a Home Inspection
For many people, a home inspection is a hurdle that every homeowner must overcome during the process of selling a home, but it’s a useful tool for sellers looking to get the greatest possible value from their home.
Finding Issues
When you’re selling a house, a pre-sale inspection can be particularly useful. By uncovering any potential problems your house may have, an inspection can give you an opportunity to address them before your first prospective buyer arrives.
In any market, a pre-sale inspection can give your home a competitive edge. Potential buyers are likely to find the kind of detailed information an inspection provides reassuring—and are encouraged to give your home a closer look.
When does a home inspection make sense?
In addition to routine maintenance and pre-sale inspections, there are a number of circumstances in which a home inspection could greatly benefit a homeowner. If you are not sure, here are a few simple questions to ask yourself:
- Was your home inspected when you bought it? If not, an inspection would be beneficial even if your home was a new construction at sale.
- If you are an older homeowner who intends to make upgrades in order to stay in the home, it makes sense to hire a professional who can inspect difficult-to-reach areas and point out maintenance of safety issues.
- An inspection can alert you to any potential safety issues that could possibly affect a growing family, such as mold, lead, or structural problems. If mold or lead is present, be sure to rely on technicians or labs with specialized training in dealing with these conditions.
- Are you buying a home that’s under construction? You may want to hire an inspector early on and schedule phased inspections to protect your interest and ensure that the quality of construction meets your expectations.
What doesn’t your home inspection cover?
For a variety of reasons, some homes will require special inspections that are not covered by a typical home inspection. A specialty inspection might include a sewer scope, septic system, geotechnical conditions (for homes perched on steep slopes or where there are concerns regarding soil stability) or underground oil storage tank. If you have any questions about whether your home needs a specialty inspection, talk to your real estate agent.
Hire a professional
If you decide to hire a home inspector, be sure they’re licensed in your state. They should be able to provide you with their license number, which you can use to verify their status with the appropriate government agency. It’s also helpful to ask for recommendations from friends and family members. Even among licensed and qualified home inspectors, there can be a difference in knowledge, performance and communication skills, so learn what you can before you hire a home inspector to ensure that you get the detailed inspection that you want.
What to ask your home inspector
Ask the right questions to make sure you are hiring the right professional for the job.
What does your inspection cover?
Insist that you get this information in writing. Then make sure that it’s in compliance with state requirements and includes the items you want to be inspected.
How long have you been in the business?
Ask for referrals, especially with newer inspectors.
Are you experienced in residential inspections?
Residential inspection in a unique discipline with specific challenges, so it’s important to make sure the inspector is experienced in this area.
Do you make repairs or make improvements based on inspection?
Some states and/or professional associations allow the inspector to perform repair work on problems uncovered in an inspection. If you’re considering engaging your inspector to do repairs, be sure to get referrals.
How long will the inspection take?
A typical single-family dwelling takes two to three hours.
How much will it cost?
Costs can vary depending upon a variety of things, such as the square footage, age, and foundation of the house.
Can I be there for the inspection? Will you go over the inspection report with me?
This could be a valuable learning opportunity. If your inspector refuses, this should raise a red flag.
Are you a member of a professional home inspector association? What other credentials do you hold?
Ask to see their membership ID; it provides some assurance.
Do you keep your skills up to date through continuing education?
An inspector’s interest in continuing education shows a genuine commitment to performing at the highest level. It’s especially important in older homes or homes with unique elements.
Vacation Home or Income-Producing Investment
Whether you’re a skier who loves the mountain slopes of Colorado, a lover of the beaches of Southern California, or a potential retiree seeking to escape the snow-laden Northeast for the wide-open, sunny lands of Arizona, there are homes available to meet a wide range of budgets. The biggest decision a potential second homeowner must make is whether they are going to solely own their vacation home or turn it into a vacation rental. Here are the advantages and disadvantages to both options:
Investing in vacation rentals
- Pros:
- A good vacation rental property generally provides a healthy rental revenue which could potentially cover mortgage payments while also generating healthy additional profit.
- Using an online short-term rental service like Airbnb makes it convenient to manage your rental property. Their website interface makes pricing, marketing, and communication with potential guests quite straightforward and easy. Airbnb will also oversee the billing process for you.
- You may qualify for federal tax breaks and deductions related to your investment property. Everything from professional fees or commissions – including property management services- to cleaning and maintenance are potential tax write-offs.
- Cons:
- Vacation rentals can be costly to manage, both in terms of time and money. These properties may require seasonal upkeep and special maintenance considerations. You may even incur costs to maintain or monitor the property even when it’s not actively being utilized.
- Vacation rental properties are particularly sensitive to seasonal fluctuations and economic downturns, which could leave you financially exposed if you suffer a lack of booking revenue.
- Many states and cities are cracking down on short-term rental services. In California, for example, the fight has been primarily local, reaching a fever pitch in the San Francisco Bay Area. Increasingly state and local municipalities are seeking to reign in short-term vacation rentals, which could put a damper on potential revenue from these properties.
- You may experience higher renovation and repair costs on a short-term rental. Most travelers expect the latest appliances and furnishings, so you will have to update every few years. Unfortunately, short-term renters are less likely to report any necessary repairs and guests are far less likely to treat the property with respect since there’s no sense of ownership or obligation.
Owning a vacation home
- Pros:
- Long-term profits: While assets fluctuate in value in the short term, vacation properties are more likely to retain their value and appreciate because they are located in popular areas with a geographically limited supply.
- Familiarity: Returning to the same place time and after time can be comforting as you become familiar and comfortable with the location. It allows you the freedom to be yourself and the opportunity to expand long-term friendships with residents.
- Convenience: The ability to conveniently store items that are used exclusively at the second home simplifies travel and packing.
- Retirement head starts: Though we may love where we work and live, every place has its drawbacks. A common goal of retirement is to have a place to retreat for the times of the year we dislike the most at our main residence. Locating and buying a second home prior to retirement enables you to experience the benefits of a refuge before actual retirement, a time to correct and amend your plans if the reality is different than the dream.
- Cons:
- Initial purchase costs: Most people have higher expectations for a property that they intend to own, rather than to rent. These expectations can translate into high prices.
- Home maintenance: As the homeowner, you are responsible for all home maintenance work.
- Travel time: A second home will be located hours from your primary residence, requiring either long auto trips or airline flights.
- Inflexibility: If you are paying a significant amount of money each month for a second home, you may feel that you need to constantly visit the property to justify your investment.
To Sell or to Rent? The Perks & Pitfalls of being a Landlord
Electing a full sale or a property management situation is a life-changing decision that shouldn’t be taken lightly. In choosing whether or not becoming a landlord is right for you, there are a number of factors to consider, but primarily they fall into the following three categories: financial analysis, risk, and goals.
The financial analysis is probably the easiest of the three to perform. You will need to assess if you can afford to rent your house. If you consider the likely rental rate, vacancy rate, maintenance, advertising, and management costs, you can arrive at a budget. It is important to both be detailed in your projections and to have enough reserves to cover cash-flow needs if you’re wrong. The vacancy rate will be determined by the price at which you market the property. Price too high and you’re liable to be left vacant. Should you have applicants, they’ll often be a group that for some reason couldn’t compete for more competitively priced homes. Price too low and you don’t achieve the revenue you should. If you want to try for the higher end of an expected range, understand that the cost may be a vacant month. Any way you slice it, it’s difficult to make up for a vacant month.
Consider the other costs renting out your property could accrue. If you have a landscaped or large yard, you will likely need to hire a yard crew to manage the grounds. Other costs could increase when you rent your home, such as homeowner’s insurance and taxes on your property. Depending on tenant turn-over, you may need to paint and deal with maintenance issues more regularly. Renting your home is a decision you need to make with all the financial information in front of you.
If your analysis points to some negative cash-flow, that doesn’t necessarily mean renting is the wrong option. That answer needs to be weighed against the pros and cons of alternatives. For instance, how does that compare to marketing the property at the price that would actually sell? Moreover, you’ll need to perform additional economic guesswork about what the future holds in terms of appreciation, inflation, etc. to arrive at an expectation of how long the cash drain would exist.
Risk is a bit harder to assess. It’s crucial to understand that if you decide to lease out a home, you are going into business, and every business venture has risks. One of the most obvious ways of mitigating the risk is to hire a management company. By hiring professionals, you decrease your risk and time spent managing the property (and tenants) yourself. However, this increases the cost. As you reduce your risk of litigation, you increase your risk of negative cash-flow, and vice versa… it’s a balancing act, and the risk cannot be eliminated; just managed and minimized.
In considering goals, what do you hope to achieve by renting your property? Are you planning on moving back to your home after a period of time? Will your property investment be a part of your long-term financial planning? Are you relocating or just hoping to wait to sell? These are all great reasons to consider renting your home.
Keep in mind that renting your family home can be emotional. Many homeowners love the unique feel of their homes. It is where their children were raised, and they care more about preserving that feel than maximizing revenue. That’s ok, but it needs to be acknowledged and considered when establishing a correct price and preparing a cash flow analysis. Some owners are so attached to their homes that it may be better for them to “tear off the band-aid quickly” and sell. The alternative of slowly watching over the years as the property becomes an investment instead of a home to them may prove to be more painful than any financial benefit can offset.
Before reaching a conclusion, it’s a good idea to familiarize yourself with the landlord-tenant-law specific to your state (and in some cases, separate relevant ordinances in the city and/or county that your property lies within) and to do some market research (i.e. tour other available similar rentals to see if your financial assumptions are in line with the reality of the competition across the street). If you are overwhelmed by this process, or will be living out of the region, seek counsel with a property management professional. Gaining experience the hard way can be costly. With proper preparation, however, the rewards will be worth it.
If you have questions please feel free to reach out, I’m always happy to share what I know and I have some great investment analysis and other resources for home owners.
So you bought an Investment Property, now what?
Investing in a home is a great way to build passive income but earning from your investment will take a little groundwork to become a well-oiled machine. This is your beginner’s guide to owning an investment property so you can set up that foundation properly to avoid future headaches.
Make sure it’s livable
It’s important to start with your home inspection before you start making plans. Use the inspection report to prioritize the maintenance issues.
Before a tenant moves in, make sure the home is livable. Handle the important items that affect the livability of the property, either now or in the near future. If the inspector noticed a leak in the roof or holes that could lead to infestation, take care of those first. Other maintenance issues to prioritize are the fuel and the hot water source.
If your city has inspection and registration requirements, be sure to cross check those inspection checklists with your current property. If the property wouldn’t pass now, make sure it will pass by the time the city sees it.
Upgrade the space
Once your property is in livable condition, it’s time to upgrade. If you have any left-over budget after the necessities are handled, consider adding a bedroom or a bathroom where you can find the space. These rooms heavily impact the rental price, and the more you have the higher the price. If there’s no space for another bed or bath, think about finishing the basement or upgrading some of the appliances to make the property more attractive to potential tenants.
Use similar properties in your neighborhood as your inspiration. These units are your competition, think about what you can add, or even take away, that would help you compete. Ask yourself what about your home is unique and in what ways does that affect your rentability? If every unit in your area has hardwoods, how can you make your carpeted home appealing? Maybe new carpet? Or is switching to hardwoods, or vinyl laminate that looks like wood, worth it?
Market it to future tenants
You need two things in your listing: 1) Great Photos 2) An Amazing Description
After you’ve perfected the property, it’s time to tell potential tenants that it’s available. Creating the listing is essential in drawing eyes on the unit so you can show it to as many people as possible.
Renters looking to move are quick to make their first impression of a property with thumbnail photos on a map. So, take lots of great, bright, photos of the entire place to showcase the amenities and show potential tenants what it looks like, then choose the best photo to be the first in the lineup. Remember to get the lighting is just right to show every corner of the listing. Dark photos scare tenants away, making them think the unit is dingy and dirty. Light and bright photos show a clean home that’s move-in ready. They can imagine themselves living there a lot easier than in dark and cramped looking units.
Next, they’ll read the description. This is again where other listings in your area can help you.
Read other listings to structure your description and to draw inspiration on what tenants might think is important. Find the selling points and emphasize those above the unique features, especially if those unique features are obvious in the photos.
Assess your investment on an annual basis.
It’s a great idea to take a look at how your investment is working for you on a regular basis. Obviously market rents and cash flow are at the top of the list. Annual appreciation and tax benefits are something to keep an eye on as well. I have some great tools if you need help analyzing your income properties or if you are just thinking about getting started with your first investment property. Just let me know how I can be of assistance and I’ll look forward to hearing from you!
