Prepare to undertake many physical inspections when the seller accepts your offer on a rental property. In fact, if you're a real estate agent involved in the transaction, modify your schedule so that you can attend the inspections at least once.
Of course, the kind of inspections necessary may vary from offer to offer, and your rejection of some first inspections may even kill the contract and eliminate the need to proceed. However, you should expect at least five physical inspections of the income property once escrow is opened, barring any unexpected issues.
The Inspection Walk-Through
You get to physically enter and inspect all of the units in the rental property during a "walk-through" inspection.
Remember that no reasonable seller will let you into the units unless they are pleased with your offer and your capacity to complete the transaction. Why? Because anyone who owns investment real estate knows that tenants dislike disruption, are anxious, and may even leave if they fear the income property is changing hands.
The goal of this inspection is simple: you're looking at the carpets, appliances, fixtures, and tenants in general to see how they're doing. If any unpleasant surprises arise, you may decide to renegotiate your offer or walk away entirely.
Simply make sure that your purchase offer includes a provision like "subject to a walk-through and buyer satisfaction of all interior units" in this situation.
Inspection of the Infrastructure
Following your acceptance of the walk-through, this inspection will take place.
This is when you examine the rental property's "bones," such as the walls, plumbing, electrical, and roofing—areas where only a skilled professional can discover potential problems. Obviously, you want to be aware of any flaws that may require costly replacement or repair after you become the owner.
In this situation, employ different contractors to do termite, plumbing, electrical, and roofing inspections, or perform a "whole home" examination (i.e., hire one contractor licenced to make all the inspections). Make sure your offer is conditional on your formal approval of the inspections.
Infrastructure Improvements
If the rental property has to be repaired, the next step is to have it done.
You might be able to renegotiate the price with the seller and postpone the repairs until you become the owner in some rare situations. However, because lenders typically need repairs before providing a loan, it's more probable than not that the income property's repairs will be completed (and paid for by the seller) during the escrow period.
You may or may not choose to be there when the repairs are being completed, however some real estate investors do show up at the property to keep an eye on the contractor. In any case, you'll want (and the lender will require) evidence from the contractor stating that the repairs were completed and the problem(s) were satisfactorily resolved.
The Evaluation
Following your approval and satisfaction with the repairs, you will need to arrange a bank evaluation.
In this situation, the appraiser will do his own inspection of both the exterior and interior of the property, which may or may not include entering every unit or at least enough to get a good understanding of each configuration, depending on the appraiser.
His assessment of the income property's fair market value and overall condition will be used by the lender to determine a loan decision.
Units are being inspected again.
You might want to do another walk-through of the units after you have your loan commitment and can agree on a fair closing date.
Keep in mind that the escrow period for income property might last anywhere from 3-6 months, which is a long time since you first saw the apartments. Though it is not typically desired by real estate investors, it may be a good idea for you to return to the rental property a week before escrow closes to ensure that nothing has changed dramatically behind those closed doors during that time. Property Inspections Melbourne are most effective when they are absolutely objective and accurate.