Properties are expensive. When you decide to stay put for a while, you might have to pay on your mortgage for the next few decades. But expenses do not stop just at the purchase price and mortgage interest. You’ll practically have to pay a small fortune for insurance, maintenance and repair works over the years.
That’s why it’s vital to understand the complete process of buying an investment property before any purchase, which includes a detailed property inspection. With so many active systems and features in place, lots of things can break down or malfunction in a property. You can take back a faulty appliance to the store for a refund or replacement, but once you sign the contract for a property, not many options are left when something goes wrong.
Inspecting a property provides you all the information about the current state of the property. For example, a roof damage or a foundation crack. The buyer can negotiate with the seller after the inspection and come to an agreement on either repairing the property or lowering the selling price in order to compensate for the repairing costs.
The seller can also decide to sell the property just as it is, without making the repairs or lowering the cost. In that case, it’s up to the buyer to decide whether or not to purchase the property at the selling price.
Even if you think that the property you’re planning to purchase is your dream home, inspecting the property is an extremely important reality check which helps you to mark all the flaws you’re missing out. Purchasing an investment property is a very exciting journey and if you want to make the most out of it, you need to focus on every single detail.
General Checklist to Inspect Residential & Commercial Properties (Outside the Building)
These are some of the basic things outside the building that needs to be checked on for both residential and commercial properties.
1. Location & Neighborhoods
The location and the neighborhood of the property influences what types of tenants you can expect and the chances of facing vacancies. For instance, when you buy a property around a university, your tenants are most likely to be university students and you’ll have to deal with vacancies on a regular basis when the students go for holidays. In case of commercial properties, the business is more strongly influenced by location and neighborhood to provide enough security and convenience to customers, suppliers and employees.
If your property is next to a criminal hot spot, it’s not a very good news. To acquire some accurate crimes statistics for your locality, check with the police or the public library instead of asking the seller who is desperate to sell the house to you. You should also check out the frequency of police presence around the neighborhood.
Tenants will be more attracted and business will flourish with appropriate amenities in the neighborhood. So check out for parks, malls, movie theaters, gyms, school, hospitals, public transports and such other amenities to help you attract tenants or business. Promotional literature like brochures and flyers of different development projects are often available to provide you a basic idea on where the best combination of private property and public amenities exists.
4. Natural Disasters
You’ll have to deduct the insurance from your returns, which makes it essential to have an estimation for how much you need to carry. If the property is located in a landslide or flood prone zone, the additional insurance premium can accumulate and diminish your rental income. However, the worst consequence of buying a property in a disaster prone zone is that, you will find it extremely challenging to attract people to stay in or even come close to the property.
5. Environmental Issues
You would definitely want your property to be located in a healthy and safe environment. City centers with severe air pollutants or heavy industrial zones with high noise pollution levels can be disastrous. Thus it’s important to make sure that you’re purchasing a property in a location with minimum risk of environmental hazards.
Detailed Checklist to Inspect Residential Properties (Inside the Building)
When you purchase a new home, the requirement of cosmetic changes is inevitable. Here are a few things you should check out before signing the papers for your new residential property.
1. Structural Elements
Thoroughly check out the structural elements of the building, including foundation, beams, columns, partition walls, ceilings, fences, roofing, etc. You can do this inspection on your own and also with the assistance of a building professional to ensure the absolute structural integrity of the building.
2. Check The Drains
Although checking the drains might sound a bit silly, but it’s very important. There’s supposed to be a backup between the house and sewer line. One simple way to check if the drains are working perfectly is to fill up all the tubs and sinks and let them all drain out at the same time.
3. Check The Windows
Replacing windows is neither fun nor cheap. Open all the windows and see if they can be opened and closed perfectly.
4. Turn On The Faucets
You won’t enjoy laying under a cabinet and trying to remove things with funny tools. Check and make sure all faucets are working properly in order to cross off a back ache.
5. Taste The Water
Your city might have great quality water, but the pipes might be old enough to get rusted and there is a chance that the water in your glass will not be crystal clear. Be informed if you’ll need to install a filter for the entire house.
6. Flush The Toilets
Check if all the toilets flush properly and can deal with toilet papers. If you’re not satisfied, the seller might be generous enough to issue you money back to make some replacements.
7. Check The Electrical Panel
A neat and labeled panel is a treat for the eyes. If the electrical panel looks like some tangled squirrels, it probably means troubles. If there are loose wires which are not connected to any lines, it might mean that live wires are present inside the walls.
8. Check The Water Heat & Air Conditioner
When you know that water heaters and the air conditioners are in perfect condition, that’s a big bonus because they are the most frequently used appliances. Make sure to inspect how these appliances work at variable temperatures.
9. Pull Back The Carpet
Find out if there are any hardwood floors or molds and mildew below the carpet. Many homeowners will allow you to see the floor conditions by removing a small section of the carpet.
Detailed Checklist to Inspect Commercial Properties (Inside the Building)
Nearly all the items on the checklist for inspecting residential properties are included in the list for inspecting commercial properties with just a few additions.
1. Health Concerns
Usually the properties which are being sold for commercial purposes were used for the same purposes by the previous owner as well. Acquire information on what type of business was carried out previously in the building. Was it used for any industrial productions? Industrial sewage, chemicals and gases can be hazardous to the body.
Besides, many old commercial properties were equipped with outdated HVAC (heating, ventilation, and air conditioning) system. Poorly maintained system may increase the risk for health hazards thus need to be attended seriously.
2. Electrical Issues & Fire Hazards
Commercial buildings are more prone to fire hazards. Faulty electrical wiring can cause short circuits leading to these fire hazards. The lack of adequate fire exits can be disastrous as well. Prior to purchasing your property, ensure safe electrical wiring to prevent any possible accidents.
3. Water System Issues
Many property owners do not pay heed to the water systems for commercial buildings as much they do for residential properties. The faulty water and drainage systems should be watched out as they can cause high repairing and maintenance costs to your business in the future. Faulty water system and poor drainage system might result into flooding your office.
4. AC & Elevators
In case of locations with warm climates, commercial properties should have the provision for air conditioners. Multi-storied buildings must have active elevators. Make sure that these devices are functioning properly before purchasing the property.
Purchasing a residential or commercial property is a very complex process and needs to be dealt with knowledge, intelligence and experience. Inspecting the property before purchasing it, is probably the most essential one. Proper and thorough checkup of your investment property helps to lower risks, avoid unforeseen problems and hidden costs.
No one wants to end up with a big list of expensive problems which were discovered after purchasing property. Only buyers who inspect and analyse all the variables systematically will win the best deal at the best rate.
This article is contributed by me and Dr. Ong Kian Leong, we are both the co-founders of the first ever online property investment course for Malaysians, called Property Method.
Dr. Ong Kian Leong (commonly addressed as Dr. OngKL), is the creator of GoFinanceTM, a tool that allows investors to accurately evaluate if an investment is worth investing as well as worth financing for maximum return. Claimed by himself as a student in the life-long learning journey, he is also the master trainer of Property Method and the blogger behind Real Estate Investment Blog.