By Brad Beckett

My wife and I have been in house-hunting mode lately.  After the results of a recent home inspection, I felt like I got robbed.  How did they not know the place was in that bad of shape?

At National REIA, we’ve published a few articles recently about doing your due diligence.  There was even one in the most recent issue of the RE Journal about doing a “deeper” due diligence.  But, what does all this stuff really mean, you know, in the big picture?  After all, it might be something definable by the person doing the “diligence” and vary significantly with another.

Recently my wife and I have been in house-hunting mode.  The bottom line is that we love our current house & neighborhood, but we simply need more space.  We identified some communities where we wanted to look and then proceeded to start watching the listings – which in our case was a near constant checking of the Realtor.com app (especially my wife).

If you’ve been keeping an eye on the real estate market lately then you know that there is a severe shortage of inventory.  In fact, in our neighborhood, whenever a property goes on the market the yard sign is still warm when the contract is signed.

The same goes for housing hunting.  Whenever something pops up, we, like many others pounce on it for a showing.  In some ways it’s a little comical and in others it can be quite irritating.  It reminds me of “whack a mole.”

Now let’s fast forward; We ended up finding what we thought was a great house to buy and in a community that we absolutely adore.  We have a young son, a dog and our own selfish needs and this house appeared to entirely fit the bill.  It was really cool, too; a late 60’s modern house that looked like Mike Brady from the Brady Bunch had hand in designing it.  The home’s disclosure report only listed a slight water leak when it rained (that’s it).  So, we made an offer and got the house under contract.  Boom!

Well, not so fast.  This is where the due diligence part comes in.  You see, we were buying in a hot neighborhood.  That means corners might get cut because the market is red hot and people won’t bother fixing stuff because top dollar is being paid (and expected).

That is exactly what our inspector discovered.  What appeared to be move-in ready was really a money-pit in the waiting.  He discovered three layers of shingles (yes, it’s illegal where we live), rotting exterior wood siding that had been painted to cover it up (a camouflage job), a cracked and shifting foundation, water leaks in the chimney that eroded mortar, no concrete board under any of the tile (in 4 different rooms), a severely double tapped breaker box, GFI plugs that didn’t work, and an exhaustive list of other code violations that had been hidden away or covered up.

Quite frankly, after I read the report, I felt like I got mugged because I had to pay for the inspection.  However many would argue it was the best insurance policy I ever bought.

Bottom line;  we got out of that contract in a New York minute.  The owners of course feigned innocence and said they didn’t know.  If you believe that I have a pedestrian bridge to sell you, cheap, that crosses the Ohio River.  They also refused to lower the price and immediately relisted it.

But here’s the real issue;  Had we just fallen in love with the house and not gotten a thorough inspection we might have set ourselves up for a major financial hit. We did our due diligence and we’re better off for having it done.

Interestingly, the house had been rental property for several years, too.  I wondered if the owners simply didn’t care, didn’t know, had bad property managers or maybe all of the above.  If you own rental property you either do the work yourself (like I do with the one rental that I own) or you get a good property trustworthy manager.  Both propositions require a lot of work.

Whether you’re flipping a home, doing a buy & hold, or buying it to live in, you have to make sure you know what you’re getting into.  Sure, there were flaws in this particular property – there always are.  But at some point, it crosses the line between acceptable and someone trying to pull the wool over your eyes.  I have to think that the latter was taking place in my situation.  I will never know for sure.

Thankfully we didn’t get burned.  But even the pros get themselves in over their heads from time to time.  Did you read what happened to Tarek and Christina recently?

Anyway, do your all around due diligence (with everything) and you won’t be sorry.  We are so glad we did.
Read More By Brad @ www.unitinginvestors.org


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