How To Inspect A Potential Investment Property – With Ben Everingham
Ben inspects over 1,200 investment properties a year and in this video he shares with us how to inspect a potential investment property effectively.
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When you’re interested in an investment property, you’re going to need to inspect that property and to understand whether or not it’s a good property to invest in.
Hey, I’m Ryan from onproperty.com.au, helping you find positive cash flow property. Today, I’ve got with my buyer’s agent of choice, Ben Everingham from Pumped On Property. And today, we’re talking about how to inspect a property. Ben inspects a lot of properties as a buyer’s agent.
Ryan: How many do you think you do a year, do you think?
Ben: I think we’d be doing at least 100-150 a month now. So, what’s that? Over 1,200 properties a year? A lot of property inspections.
Ryan: Yeah. We’re not expecting you guys to inspect that many, but Ben has a lot of expertise on how to inspect properties. So we thought it’d be a good topic to go through because it’s one that a lot of people get really nervous about and they don’t really know exactly what to do.
We’ve got a checklist that we’re going to through. The different things that you really want to cover when you’re inspecting a property. And so, we’ll just get straight into it.
First, let’s talk about the interactions with the real estate agent. Because I think that’s where people just get nervous in the beginning. What sort of things should we be asking the real estate agent? How should we be interacting with them when we’re inspecting a property?
Ben: Brilliant. A lot of people, obviously, myself included, are a little bit cagey around real estate agents. A lot of people don’t want to be coming across as too positive with the property. They don’t want to be coming across as too [inaudible 1:25] with the property and they really don’t want to be spending much time with most real estates in general. But often, real estate agents are one of the best ways to actually pull high quality information out of a property.
In terms of my general process when I actually get to the property, I always spend 5 minutes with the agent before I walk in. That time is firstly about building the rapport and then asking a series of questions which help you identify the demand for the property, where it sits and if you can get any sort of price concession, which is what it’s all about.
Ryan: Most people, when they go to inspect a property, the agent is at the door and they kind of wish they could just slip through without giving their phone number away to the agent. Because I think they’re worried they’re going to be called and sold like a used car salesman would sell them. But you’re saying do the actual opposite, stop at the door, talk to the agent, build rapport and ask about price concessions.
What sort of things do you do to build rapport? What sort of questions do you ask to get an idea of the demand? And what can you do so early in the game to understand if there’s a potential for a price concession?
Ben: The easiest way to build rapport – this is something I picked up when I used to work back in the corporate world and it’s called the FORD model. It’s just really simple for building a relationship. FORD stands for talk about their Family, talk about their Occupation, talk about their Relationship and then talk about something Deeper. So, in a 5-minute conversation with an agent, I’ll just really quickly spend 30 seconds on each of things. Just building a little bit of an in-depth relationship.
Ryan: Isn’t it weird to ask a real estate agent about their family when you’re just looking at a house?
Ben: It’s really funny, man, what people will actually open up to you. I get, obviously, keep in touch with the same agents. So, I’m seeing the same agents week in, week out where, I suppose, for someone that randomly walks up at a property house inspection.
Ryan: How’s your mom?
Ben: How’s your mom going? Is she alright? The agent will be scratching his head. But in reality, it’s about building a bit of rapport with those guys so that people sell things and give price concessions to people that they like and trust. It’s not a one-way sales process. It’s you selling yourself as a potential candidate and a serious candidate as well.
Ryan: Yup. Okay.
Ben: There’s more deeper questions.
Ben: It’s really about understanding how many weeks has the property been on the marketplace. If you know that the average time on market is 45 days in [inaudible 3:51] in Queensland, but this property has been sitting on the market for 80 days. There’s either something wrong with the property, there’s something wrong with the agent or —
Ryan: Okay. We cut out a bit there, but you were saying asking the agent how long the property has been on the market for and if it’s been on the market for longer than it’s likely to sell in the area, you were saying that there’s either a problem with – what were you saying? Problem with the agent, problem with the property or problem with something else?
Ben: Problem with the price, potentially. It might be listed too high and that’s why nobody’s bought it.
Ryan: Yup. Okay. So we’re asking them about how long it’s been on the market. What else do we want to ask the agent about?
Ben: A really important question is to identify if there’s been any other written offers. Every single agent that you walk into, any investment property, when you ask, “What’s the demand like? What’s the market been like?” He’s going to say huge amount of people coming through the open homes. Huge amount of people inspecting the property. Huge amount of offers. That one question cuts through all of the BS that the agent is going to talk about. In reality, in most states in Australia, if there’s not an offer in writing, the demand or the “number of people through the door” actually doesn’t mean anything.
So, that will tell you almost immediately how motivated the agent is. If the property has been on the market for let’s say 30-60 days and they haven’t gotten a written offer, they are more likely inclined to take any offer to the owner and for the owner to be more willing to accept that low-ball offer as well.
Ryan: Okay. So, we want to ask them specifically if they’ve had any written offers on the property, not, “Have you had any offers on the property?” Because then they can just say, “Yeah. We’ve had heaps of offers, but they’ve all been random people just saying it and not actually committing to it.
Ryan: Is that how you find out whether or not you’re likely to get a price concession? Or are there other questions you ask as well?
Ben: There’s definitely some other things in relation to price concession. One of those things might be that the property is an average condition. Obviously, not many people can walk into a completely un-renovated, ugly property and see what it could potentially be. So, a lot of those people that comes through those cheap properties get turned off because it looks too much like hard work. So, they’re the perfect properties to get that price concession on.
There’s a heap of different ways to get price concessions as well; like using building and pest inspections to negotiate. There’s $10,000 worth of things that needs to be fixed up, give us a $10,000 reduction. The other one is to ask the agent how many sales they made in the last 12 months and you know if the agent is just living above the poverty line because they’re not selling a huge amount property, they’re going to be more motivated to make a sale as well.
Ryan: And the agents actually tell you that? How many sales they’ve made in the last 12 months?
Ben: Yeah. The good agents will tell you that because they’re proud of their accomplishments and how many sales they’re making. Some of the not-so-good agents will keep that pretty quiet, but that’s public knowledge. You can search the agent’s name in Rate My Agent and find out how many sales.
Ryan: Okay. So there’s some good questions that we can ask the agents. Guys, Ben is giving us a free checklist that we’re giving out to all of you guys. You can check that out, go to onproperty.com.au/334 and there’ll be a link to the free checklist over there. If you want to know all the different questions you can ask, it’ll be on that checklist.
Let’s say we talk to the agent, we make it through the door and we’re now looking at the property. What sort of things should we be looking for when we’re inspecting the property? Actually, maybe we should look at the street first. When we’re out on the street, before we even talk to the agent, are there things we should be looking for straight away?
Ben: Definitely. There’s a lot of things that are important to me. For example, the distance to things like high schools, primary schools, train stations, bus stops, shopping centers, major shopping centers, cities, beaches – all of those sort of “key infrastructure” things that are meaningful to people and meaningful to renters. The other things that I like to look for is if the house on the main road? Is it near train lines? Is it under power lines? Because some of those things, like main roads, power lines, train lines can actually – from a valuation perspective – reduce the valuation and future value of the property by upwards of $50,000 to $100,000 and I’ve seen that happen. If they’re within a certain distance of those things, immediately wipe that amount off the price.
Other things that we look for, is it directly next to a park? Because some people like to live opposite a park. Other people don’t like it because it makes them feel open and exposed. I really look at the street and go, “Are houses in the street well maintained?” How many of the houses in street are renovated versus un-renovated? Are the people in the street owners or are they renters? Easiest way to tell, how well do they look after their garden? All of those sorts of things begin to piece together the bigger picture of, “Is this a desirable area?” A simple way to ask those questions is would I live in this street if this was my property? You’re not always buying where you want to live, but if you can mentally see yourself or someone that would live in that area renting that from you, then that can be a great place to start as well.
Ryan: Okay. So, kind of assess the area to understand its desirability and avoid those black spots, I guess, you would say, that under power lines or right on the train line or things that could diminish the value of the property.
I think the biggest thing that people want to know is when they’re inside a property, often, you’re really caught up in the emotion. It’s very exciting. There’s a lot of other people in there, too. You don’t really know what to look for. Are there specific things we should be looking for once we’re inside the property to understand if this is a good property to buy or if it’s just going to be a money pit.
Ben: Definitely. And that’s a really good question because I was definitely one of those people. I used to get wrapped up in the experience of buying a property. So I’d walk into a property that I was inspecting for myself and be so excited, but after I’d inspected 15 properties in a day, I couldn’t remember one property from the other. And the notes at the end of the day looked like a blur. This checklist that Ryan’s got with the 83 different things could be really helpful if you downloaded it. Walk through that checklist. That gives you a systematic way of looking at things.
Definitely, how many bedrooms, bathrooms? Does the floor plan work? Is another really good question. Is it livable? Is it open plan? Could you open up that floor plan? Is there walls that you take out that are non-structural that would give the illusion of a bigger space? And then, you start going into all of the bits and pieces. So, what’s the age and conditions of the kitchen and bathrooms? What’s the tiles, the carpets, the floor painting look like? Is there asbestos? Is there air conditioners? How big are the bedrooms? You really want the bedrooms to be at least 3 meters by 3 meters as a rule of thumb. Anything smaller than that feels funny when you look into those bedrooms and feels small.
Ryan: This sounds like a lot of stuff for people to do. Are they trying to do this on the first inspection or is this over maybe a first inspection and then a solo inspection that they might do themselves?
Ben: I like to do this in the first inspection. So that when I’m comparing 3 properties against each other, I can compare apples with apples. But you could use this checklist. If this is overwhelming and a lot of stuff do to, you could go have a look at the inside and outside the property then you could go back and have a look at the street and do the market research and ask the agent the questions as well. It doesn’t have to be all or nothing at once.
Ryan: Yeah. Just be careful with that mic because you keep hitting it by accident.
Ben: So sorry.
Ryan: Really, it’s all pretty basic stuff that we’re talking about. We’re looking at number of bedrooms and number of bathrooms, which is easy to remember. We’re also looking at the size of the bedrooms, making sure they’re at least 3 by 3, is that what you said?
Ben: Yeah. Absolutely.
Ryan: So 3 meters by 3 meters. We don’t want to be too small or too pokey. I guess 3 meters by 3 meters gives you the opportunity to put a double bed in there as well, is that right?
Ryan: We also want to look at the condition of the kitchen and the bathrooms to see how they are, how good the condition is because, obviously, the kitchen is probably the most important part of the house followed closely be the bathroom. We then want to look at the condition of laundry, if there’s a laundry.
What about the walls, the roof, timber, tiles, those sorts of things? Are we looking at that and making notes of that? Because I’m not a builder, I wouldn’t know what dry rot even looks like, let alone how to find it. Should I be looking for that stuff or should I just wait for the building and pest inspection?
Ben: In reality, it’s good to get an idea of that stuff, but as you said, none of us are builders and most investors aren’t. So, always get that building and pest inspection done and compare that to your own inspection. And then it just gives you that broader picture of the property. If there are any major issues that come up in the building and pest that you didn’t pick up, you can always ask for a price concession. You can pull out of the property if they’re too much. Or you could ask the owner to fix them before settlement, which a lot of owners will actually do for you.
Ryan: So, really, when you guys go inside a property, you’re looking at those major things. Also, as Ben was saying before, you want to look at the floor plan and to understand, is this something that is livable and are there opportunities in this floor plan? For example, if the kitchen is separated from the living room, is that a load-bearing wall? Can I knock that down and actually open it up and it’s only going to cost me $2,000 to do that. Is that the sort of things people should be looking for when they’re analysing the floor plan?
Ben: Absolutely. I’m always looking, how can I add the most value to this property through manufacturing — sorry that’s my ring tone. Sorry guys. So, basically, I’m always looking where can I add the most value to this property? So, let’s say for example you’ve got this beautiful big kitchen-living-dining area in a house and it’s a 3-bedroom, 1-bathroom home. If you can tweak that floor plan so that you can fit a 4th bedroom and a second bathroom in, in most suburbs, in Brisbane or Sydney, that alone can add between $30,000 to $50,000 on top of the renovation cost to actually make that happen. So, you’re always looking for a way to manufacture some growth into the property as well.
So, after you’ve gone, “Okay. Does this look okay? The renovation’s not going to be too heavy. What else can I change to add direct value to the property?” So that instead of saving the next $30,000 for deposit, you can make that happen through a quick renovation and pull that out so you’re not having to work and save this hard all the time.
Ryan: Yeah. A lot of people go into a property and they’re just looking at, “Is this property okay or does it have a lot of problems that need to be fixed?” But what we should be doing is taking it one step above that and saying, “Yes, we want to see if there’s any problems in this property, but also we want to look for opportunities to improve this property which could potentially get us some instant equity or really quick equity in the property.” And also, it could potentially get us some better cash flow and better rental income from the property because we can make it more desirable for people. If there’s an extra bedroom or an extra bathroom.
There was a house that I used to live in and the only way to get outside – I have this massive backyard – but the only way to get outside was through a pokey door in a laundry. There was the opportunity to open up. The kitchen had a lot of space in it. You could put a small deck out there and it would have just changed the house and made it rent for $30 to $50 more per week, for sure.
As Ben was saying, look for those problems, but also you need to look for the opportunities when you’re inspecting a property. That’s why, I guess, this checklist is so great because you can go through it, you know all the problems are ticked off and gives your mind some freedom to think about those opportunities.
I guess that kind of covers the inside of the house and people can check out the checklist if they want more details. What about the outside of the house? Are there things that we should be going around the outside looking at are we going down the side lane checking out I don’t know, the roof? Are we climbing into the roof? What are we doing?
Ben: You are getting a little bit [inaudible 16:10]. Hopefully, not climbing into any roofs, especially if the dodgy insulation scheme from a couple of years back where I would never advise a normal person to jump into a roof these days.
Ryan: Leave that for the building inspector.
Ben: Leave that for the professionals.
Ryan: What about – you’ve got on your list checking the stumps of a property to make sure the stumps are good which would require you to go under the house. So are we going to be going under the house? Should we bring our overalls?
Ben: I’m wearing a suit most of the time when I’m inspecting these properties. So I get down on my hands and knees and maybe you’re not crawling underneath the house through the spider webs, but you can definitely get a good idea from just ducking your head underneath the property, especially if it’s on piers. Obviously, there’s properties which is slab on ground and then there’s properties that are stood up, in a lot of areas in Australia as well, on concrete or steel piers. All you’re doing when you chuck your head underneath is basically looking if the piers are straight and they’re not cracked and just to make sure that the beams are supporting or in the center of these piers.
Little tips and tricks like that. Definitely looking at structurally, does everything look okay? If there’s a pier that’s exploded and the piece of wood isn’t even sitting on in anymore, it may or may not be a huge issue. Cost of replacing those things isn’t significant, but it can really freak-you-out type thing if you’re not used to seeing it.
So, in terms of the outside of the house, it’s really how big is the block? What type of zoning is it? How old is the house? Has it been renovated? Perfect opportunity would be either where the board or brick home that hasn’t really been touched since it was built that you can either re-paint or render and re-paint type thing. Those sorts of things plus a little bit of landscaping, maybe a new carport, make a property feel so much better to a tenant and it’ll obviously have a lift as well in terms of manufactured growth.
Ryan: Yeah. So, again, the same sort of mentality that we took to the inside where we are looking for these problems, but we’re also looking for the opportunities is the mentality we want to take to the outside. Because we’re going to be looking for things like looking at the gutters, looking at the piping, looking at the piers. But really, we’re going to need a building inspection to understand how much are those going to cost to fix and that sort of thing.
I guess what you’re saying, we want to compare apples to apples. So, you want to find any problems that are obvious. So when you’re looking at 3 or 4 or 5 different properties, if one has an obvious problem, maybe you can discard that and not bother with it and focus on the other 2 or 3. But also, you want to be going around looking for the opportunities. Is the garden horrible but can be easily fixed to give the property a lift? Can you give it paint or a render? What are to opportunities on the outside to improve the street appeal of the property?
Ryan: Sweet. I think that kind of covers everything when it comes to inspecting a property. This is obviously a very big topic that we covered quite quickly. We talked about building rapport with the real estate agent and asking them a whole bunch of different questions to understand the demand for the property and if there’s any opportunity to get price concessions. We also wanted to do some research into the street and the area, see what it’s close to. We want it to be close to good things; like schools and shops. We don’t want to be close to bad things like power lines.
Remember that Aussie movie and they live under the airplanes?
Ben: The Castle.
Ryan: Yes! The Castle. They live under the airplane and then they go on holidays and they have a holiday house that’s directly under power lines. That’s the sort of stuff that we want to avoid because most people don’t really want that. So we’re doing our research into the area.
When we’re going inside, we’re looking for number of bedrooms, the floor plan, all that sort of stuff, but we’re also looking for opportunities. And then the outside, again, we’re looking for any structural problems or things that may be issues, but we’re also trying to elevate our minds and look for the opportunities to add some value to this property in either rental income or in growing equity from the property which we can then draw out to re-invest and grow our portfolio faster. Did I miss anything?
Ben: No. I think you’ve absolutely nailed that on the head. I suppose, I’ll just would love to finish up with an example. So, we might be looking at a suburb, for example, Wynnum West in Brisbane right now which is 13 K’s away from the city. I could buy an un-renovated, really ugly duckling property in that suburb on a 600 sqm block right now for between $440,000 and $450,000. I could buy exactly the same product, completely renovated for $550,000 to $560,000. So. there’s $100,000 gap there right now and to take it from $440,000 to let’s call it $540,000 may only cost you $50,000. $50,000 is $50,000, that’s a lot of money, but for every dollar you’re putting in, you’re getting a dollar back out.
So, you’ve made $50,000 in equity on that sort of deal and you can do that relatively quickly, within the first 12 months of holding your property. Then there’s another deposit to help you move forward into [inaudible 21:23]
Ryan: Yeah. So, definitely, the idea of being an active investor and rather than just buying a property that you love emotionally, actually understanding the market, understanding the area, understanding your strategy and finding a property that you can actually add value to. Because I think a lot of people do look at property investing as just a “get rich quick” thing or “I’m just going to park my money and I’m going to retire.”
But really, if we see it as “Well, how can we add value to the property?” “How can we add value to people’s lives that people are willing to pay for?” If we treat it like a business and look for the opportunities there, then I think we can inspect a property and really understand whether or not it’s going to be a good investment for our future.
Ben: Fantastic. Perfect.
Ryan: We’re losing internet again. Alright. Thank you so much. Guys, you can check out Ben. Go to pumpedonproperty.com. You can see his blog over there or you can get in contact with him and book a free strategy session. If you let him know that you came from Ryan at On Property, I do get a referral fee. So, thank you for that. If you want to get access to that checklist that we talked about that goes through all of the things that you want to check off when you’re inspecting a property, just go to onproperty.com.au/334 which is this episode number and there will be a download link there.
Thank you so much for your time, Ben. Until next time, everyone, stay positive.