The American Education Institute

Remember that, as a real estate investor, your financial needs must supersede your emotional needs.  Another thing to remember is that, in real estate, you really make money when you buy and not (as you might otherwise expect) when you sell.  Primarily what this means is that you are buying today, and the deal must make good financial sense today.  If it’s good today, it will more than likely still be good tomorrow.  You cannot afford to make a bad deal today and somehow expect the market to change so that it become a good deal in the future. 

In short, this means you’d better be buying under terms you can also sell with.  Think:  assumable mortgage.  You want terms that are easily assumable by you today, so that they will still be easily assumable by some other buyer tomorrow.  If you never forget this, you won’t ever be tempted, for example, to buy under terms on Monday that you know already you won’t be able to sell under on Tuesday.  In other words, you should be thinking about selling even before you’re buying.

Here’s a tip:  Always ask yourself whether you could find another buyer to accept these same terms today.  If you start telling yourself that, no, you’d probably have to change something before you would likely attract another buyer–stop!  Don’t buy under these terms.  This is a pretty good indication that your emotions are involved.  For any deal—right now today—to be good for anybody, it also have to be good for everybody right now today.  A good deal is a good deal no matter who’s involved.  A good deal stands on its own.

The best way for you to determine whether a deal is good or not is to do a financial analysis.  This is explained in detail in my text entitled “100% Financing When Buying Real Estate,”  but for right now your best financial analysis is your own good Common $ense.

In the first place, trust your own eyes and ears.  Always inspect each and every property in which you might be interested before submitting any offer to buy it.  You don’t need to be a qualified real estate appraiser or building inspector to walk or crawl through every possible part of a building and to see everything there is to see and to listen to every noise already present inside and out.  This is a very basic thing, isn’t it?  Wouldn’t anyone’s common sense dictate to do this regardless?  You’re thinking about investing a small fortune here!  Shouldn’t you carefully inspect everything yourself to know what you’re buying?  Absolutely!  And yet, you would be surprised to learn how many properties are actually purchased without their buyers inspecting them.

You owe it to yourself to physically inspect every possible part or piece of a building in which you’re thinking of investing.  Do it systematically, carefully, thoroughly.  Start with the exterior and move to the interior.  Once inside, start with the lowest possible level and work you way to the highest.  Go from public passageways (in an apartment building, for example) and progress through each and every single rent able or occupied space.  You are entitled to do this. 

An owner selling a building has the legal right to enter and who potential buyers all individual units.  This is generally written into every lease agreement.  Renters are protected, however, by such wording as “during reasonable hours,” so you needn’t worry about disturbing anyone in an apartment.  The owner should have given all tenants reasonable notice of such a showing of their apartment.  If, however, your inspection does “surprise” a tenant of if a building owner refuses to show you some units or if he keeps putting you off and makes excuses as to why you can never see them, be suspicious!  No doubt there’s a reason for this behavior.  Very possibly there could be a problem here that you don’t want to inherit.  Remember, inspect all of the apartment units or do not buy the building!

Normally, your property inspection should proceed as follows:  Walk around the grounds, and examine both the land and the exterior or the building.  Do you see evidence of burrowing animals?  Do you smell evidence of skunks or other pests?  Is there an abundance of weeds and/or unkempt shrubbery?  Is thee a sewer or septic system?  If the latter is the case, check the plant life about the septic tank.  If this is too green or lush, that tank may not be absorbing correctly.

Does the building  foundations have any cracks?  Do you see evidence of dry rot in any wood?  Are there exterior cracks at the corners (evidence of settling)?  Are the porch or stairway steps level?  Does the roof show excessive wear?  Climb a ladder and see for yourself if, for example, the roof is flat and not visible from the ground.  (If possible, look at a peaked roof in wintertime.  If snow is done from the roof but still on the ground, this is a clear indication of poor insulation.)  Are there any signs of water leaking beneath the eaves or gutters?  Is the exterior paint or mortar in good shape?  Look carefully at the chimney.  (Use binoculars if the roof is inaccessible.)  Is that brick or stone and mortar intact?  Is it covered by a screen?  (See the following convenient summary list of what to look for both outside and in.)

On the outside of a property,  look for the following:

1.  Unkempt grounds

2.  Poorly absorbing septic system

3.  Foundation cracks

4.  Cracks in exterior walls, especially at corners

5.  Dry rotted wood

6.  Tilting porches or steps

7.  Worn roof and poor insulation (melted snow in winter)

8.  Evidence of water leaks

9.  Cracked or peeling paint/gaps in mortar

10. Unscreened or badly mortared chimney.

On the inside of a property, look for the following:

1.  Poorly functioning doors and locks

2.  Cracks around door and window frames

3.  Foundation cracks

4.  Badly stained ceilings

5.  Freshly painted ceilings or paint doesn’t match walls

6.  Stained ceilings/walls in closets

7.  Suspiciously damaged or unmatched new carpeting

8.  Non-working appliances, switches, and outlets

9.  Poorly functioning heating, cooling, plumbing systems

10.Accessibility of electrical panels and shutoff valves

11. Any leaks–in, under, or around any fixture

12. Hidden evidence of fire or other damage (check attics, crawl spaces and look behind removable paneling. 

Dr. Eric T. Martin / 100% Financing When Buying Real Estate / 6-13-09