Why Waste Money on Inspections?

In the big picture, the cost of an inspection is pennies compared to the money it saves you from closing on the wrong property. Be wise and avoid the “money pit” property.

by Sharon Restrepo

Great question! Over the course of my real estate investing career, I can give you thousands of reasons (in dollars) why spending money on inspections is not a waste. I’ve been investing a very long time and when anyone has been in their field for any solid length of time, they begin to think they are pretty good at it, almost to a fault. At least that’s what happened to me.

I’m certainly not an inspector or a contractor but having renovated many, many homes in my career, I believe I have a pretty good knack for figuring out rehab costs; however, I always include a misc. figure for items I may have missed or can’t see.

However, I can specifically remember each time I failed to pay for a professional inspection and used my own inadequate judgment, because it cost me dearly in profit.

Here are a few of my painful memories:

I bought a property with an in-ground pool yet the piping was above-ground. How much evidence of a problem do I need in order to get a professional opinion? The repairs were so much that the profit dwindled big time.

I bought a property with termites swarming around my head and yet didn’t get a termite company out there until after closing. How can you cushion a misc. figure when termites are that bad? Someone told me later that the only reason the house was standing was because the termites were holding hands.

I bought a property that was so overgrown outside and full of furnishings and misc. items inside that you could barely see the structure. An inspector would have found the major issues I missed.

Becoming over-confident in your skills is a hazard to an entrepreneur and fortunately, I’ve learned from my costly mistakes. We can never get too proud of ourselves or assume we know it all, when we clearly aren’t experts in everything.
As real estate investors, our paycheck relies on our ability to employ our key players and use their expertise when in doubt or just as good business practice.

Now I think of using an inspector as a type of insurance policy. For around $350, I can insure that my numbers on a project are realistic and expect to earn a profit. In hindsight, I’d gladly spend $350 to have saved time, expense and a financial loss on my books to boot.

When it comes to specialty items like pools, furnaces, air conditioning units, termites, foundation or structural issues, and the like, it’s even more important to obtain an expert’s opinion. When in a rush, I simply use the cost to replace the item completely. Many times as investors, we have to bid on properties without utilities being turned on. This makes it more difficult to determine what’s defective even with the help of an inspector.

Always get a decent inspection period timeframe in your sales agreements and use it wisely. I like to ask for business days in my inspection clause because it adds extra days to my timeframe, making it easier to get my due diligence completed.

In the big picture, the cost of an inspection is pennies compared to the money it saves you from closing on the wrong property. Be wise and avoid the “money pit” property.