As a team who has seen many properties, we know that there is more than what the surface shows. We take these steps for every property our clients are considering purchasing to make sure it is the best suited investment for their goals and needs. The photos may showcase a pristine condition or corporately guaranteed tenant, but that does not always mean that no inspection is necessary. We advise all potential owners of real estate to follow this checklist to see the good, the bad, and the ugly before getting married to a property.
The Property Tour
- Any potential acquisition is never exactly what it looks like in the pictures or perfectly described by the broker. In almost every instance the property is either significantly better or worse once you get to understand the area and get your eyes on the property’s condition and amenities. We have a more detailed list by property type available here, in the meantime here is our overview version of what we review each time we inspect a property.
Before You Arrive
- Plan a route that gets you to and from the property in at least two different directions.
- Plan to drive by both rent and sale comps provided in the package and be prepared to call a few “for rent/lease” signs you see.
At the Property
- Inspect or ask for when the major systems were installed, are they original or have they been replaced, and with what? Inexperienced agents and sellers often fail to adequately adjust the price when major systems have been upgraded.
- What additional income streams are not currently being utilized. These vary based on property type and location, but we are seeing sophisticated buyers finding 2-3 additional revenue streams at many inspections.
- Look for the little things as they are usually an indication of bigger things and the quality of the tenant. On recent acquisitions, our clients have specifically pointed out the maintenance quality of eaves and trims, the replacement of fixtures, and quality of light coverings as an indication of overall high care and maintenance for the property.
- Be observant in tenant spaces. Often times the care of the space as well as the number of items and organization of the space is an indicator to the history or future longevity of the tenant. A strategy of “forcing turnover” or “avoiding vacancies” can be enhanced or impacted depending on the tenant make up at acquisition.
- If you are going to rely on someone else’s opinion, bring professional tradespeople. Our clients that bring a plumber, electrician, HVAC, GC, etc leave inspections with a clear understanding of critical issues and costs compared to clients who employ a property inspection service. An added benefit is trades-people typically give free estimates while a report from a general inspector can cost thousands.
After the Tour
- Re-underwrite the property based on what you learned. What is the income potential in the near and far term based on your lease comps? Adjust your expenses based on your findings at the inspection and determine if any additional income streams or property improvements/needs will change the NOI. Use all the above to determine if you have the time and if the effort is worth the return.