Module 5: Finding and Evaluating Properties

A Beginner's Guide to Building Wealth Through Property

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Module Overview

Time Required: 90-120 minutes
Difficulty Level: Beginner to Intermediate
Prerequisites: Modules 1-4 completed

Learning Objectives

By the end of this module, you will be able to:

1. Identify multiple sources for finding investment properties
2. Work effectively with real estate agents to find deals
3. Evaluate property condition and identify major issues
4. Understand the property inspection process and what inspectors look for
5. Estimate repair costs for common issues
6. Recognize red flags that signal problem properties
7. Conduct thorough due diligence before making offers
8. Develop a systematic property search strategy
9. Know when to walk away from a deal

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Part 1: Where to Find Investment Properties

Finding good investment properties requires knowing where to look and being persistent. Let's explore all the major sources.

The Multiple Listing Service (MLS)

What It Is: The comprehensive database of properties listed for sale by real estate agents. This is where most properties are found.

How to Access:

• Work with a real estate agent (they have MLS access)
• Use public MLS portals: Zillow, Realtor.com, Redfin
• These sites pull data from MLS (with slight delays)

Advantages:

• Largest inventory of properties
• Detailed information and photos
• Standardized listing format
• Properties are verified and legitimate
• Agent expertise included

Disadvantages:

• High competition (everyone sees same listings)
• Properties may be priced at market value
• Best deals go quickly
• Need to act fast in competitive markets

How to Search Effectively:

Set Up Saved Searches:

Target Criteria:
- Location: [Your target neighborhoods]
- Property Type: Single-family, Multi-family
- Price Range: $150,000 - $250,000
- Bedrooms: 2-4
- Condition: Any

Receive daily email alerts when new properties match criteria

Look for Keywords:

• "Investor special"
• "Needs TLC"
• "Handyman special"
• "Sold as-is"
• "Motivated seller"
• "Estate sale"
• "Cash only"

Filter Strategies:

• Sort by "Days on Market" (older listings = more motivated)
• Look for price reductions
• Search for properties listed 30+ days
• Check "Coming Soon" listings for early access

Analyze Quickly: When new listings appear:

1. Run preliminary numbers immediately (5-10 minutes)
2. If promising, schedule showing same day or next
3. Speed matters in competitive markets

Foreclosures and Bank-Owned Properties (REO)

What They Are: Properties repossessed by lenders after owner default, now owned by banks wanting to sell quickly.

Types:

Pre-Foreclosure:

• Owner hasn't made payments but still owns property
• May be willing to sell before foreclosure completes
• Can negotiate directly with owner
• Most complex, requires experience

Foreclosure Auction:

• Property sold at courthouse steps
• All-cash purchase required
• Buy "as-is" with no inspection
• May have liens or title issues
• High risk for beginners

REO (Real Estate Owned):

• Bank now owns property after foreclosure
• Listed on MLS through agents
• Inspections allowed
• Cleaner title
• Banks motivated to sell

How to Find:

• MLS (search for "REO" or "bank-owned")
• RealtyTrac.com
• Auction.com
• Hubzu.com
• Bank REO departments

Advantages:

• Potentially below-market prices
• Banks motivated to sell
• Multiple properties available
• Can negotiate

Disadvantages:

• Often poor condition (prior owners may have damaged property)
• Sold as-is (no repairs from bank)
• May need significant rehab
• Competition from other investors
• Long closing timelines with banks

Best For:

• Investors comfortable with repairs
• Those with renovation budgets
• Patient investors (bank bureaucracy is slow)
• Not ideal for beginners wanting turnkey

For Sale By Owner (FSBO)

What It Is: Properties sold directly by owners without real estate agents.

How to Find:

• Zillow (has FSBO section)
• ForSaleByOwner.com
• Craigslist
• Facebook Marketplace
• "For Sale" signs in neighborhoods
• Local newspapers

Advantages:

• No listing agent commission (seller saves 3%)
• Direct communication with owner
• May be more flexible on terms
• Potentially better deals
• Owner may offer financing

Disadvantages:

• Smaller inventory
• Owners often overvalue property
• Less professional transaction
• May lack proper disclosures
• Can be more time-consuming

Negotiation Strategy:

FSBO sellers often:
- Overprice because they're emotional
- Don't understand market
- Are willing to negotiate more once reality sets in
- May accept creative terms

Your approach:
- Do thorough market analysis
- Present facts professionally
- Be respectful but firm on value
- Offer quick closing or terms they value
- Explain how you save them hassle

Off-Market Properties (Direct Marketing)

What It Is: Finding properties not officially listed for sale by contacting owners directly.

Methods:

Driving for Dollars:

1. Drive target neighborhoods
2. Look for distressed properties:
   • Overgrown yards
   • Boarded windows
   • Peeling paint
   • Accumulated mail
   • Old "For Rent" signs
   • Multiple cars/junk in yard
3. Note addresses
4. Look up owner information
5. Send letters or knock on door

Direct Mail:

1. Identify target owners:
   • Absentee owners (don't live in property)
   • Inherited properties
   • Longtime owners (50+ years)
   • Out-of-state owners
   • Pre-foreclosure lists
2. Purchase mailing lists
3. Send postcards/letters consistently
4. Follow up on responses

Sample Letter Template:

[Your Name]
[Your Address]
[Your Phone/Email]

Dear Property Owner,

I'm a local investor interested in purchasing properties in [Neighborhood]. 
I noticed your property at [Address] and wanted to see if you'd consider 
selling.

I can offer:
- Fair cash price
- Quick closing (as fast as 7-14 days)
- Buy as-is (no repairs needed)
- No fees or commissions
- Flexible terms

If you're thinking about selling, I'd love to discuss it. Even if you're 
not ready now, keep my information for the future.

Thank you for your time.

[Your Signature]
[Your Name]
[Your Phone]

Advantages:

• Less competition (or no competition)
• Motivated sellers
• Better prices possible
• Build relationships with owners
• Creative terms possible

Disadvantages:

• Time and effort intensive
• Low response rates (1-3% typical)
• Requires consistent effort
• May feel uncomfortable initially
• Can be expensive (printing, postage, data)

Best For:

• Serious investors building pipelines
• Those willing to do marketing work
• Investors targeting specific neighborhoods
• Not essential for beginners (start with MLS)

Real Estate Auctions

What They Are: Properties sold through public or online auctions to highest bidder.

Types:

• Foreclosure auctions (courthouse steps)
• Estate sales auctions
• Tax lien/tax deed auctions
• Online auction platforms (Auction.com, Hubzu)

How They Work:

1. Properties listed before auction date
2. Limited due diligence time
3. Deposit required to bid
4. Highest bidder wins
5. Payment due immediately or within days
6. No contingencies

Advantages:

• Potential for below-market prices
• Multiple properties available
• Faster acquisition
• Less negotiation

Disadvantages:

• Very high risk
• Buy sight unseen or limited inspection
• All-cash typically required
• No financing contingency
• May inherit liens or title issues
• Difficult to assess true condition
• Strong competition from experienced investors

Critical Warnings:

• Not recommended for beginners
• Requires extensive due diligence
• Need significant cash reserves
• Can't back out after winning bid
• May face eviction challenges
• Potential hidden costs

Wholesalers

What They Are: Investors who find discounted properties, get them under contract, then sell the contract to other investors for a fee.

How It Works:

1. Wholesaler finds motivated seller
2. Gets property under contract (example: $150,000)
3. Assigns contract to you for fee (example: $160,000)
4. You close directly with seller
5. Wholesaler gets $10,000 fee

How to Find Wholesalers:

• Real estate investment clubs/meetups
• Facebook groups for investors
• BiggerPockets forums
• LinkedIn
• "We Buy Houses" signs/ads
• Ask other investors for referrals

Advantages:

• Properties already vetted
• Below-market potential
• Network with active investors
• Learn from their experience
• Less time searching

Disadvantages:

• Wholesaler fee increases your cost
• Deal quality varies widely
• Some wholesalers lack integrity
• May be properties others passed on
• Need to verify numbers independently

Working with Wholesalers:

Questions to Ask:
1. What's the property condition?
2. What's your estimated repair cost?
3. What's market rent?
4. Why are you wholesaling vs. keeping it?
5. What problems does the property have?
6. Can I tour the property?
7. What's your assignment fee?
8. How did you arrive at contract price?

Always verify their numbers independently!

Real Estate Investment Clubs and Networking

What They Are: Local groups of investors who meet regularly to network, learn, and share deals.

How to Find:

• Google "[Your City] real estate investment club"
• Meetup.com
• BiggerPockets local groups
• Facebook groups
• Ask at local real estate offices

Benefits:

• Meet other investors
• Learn from experienced members
• Hear about off-market deals
• Find partners, lenders, contractors
• Stay motivated
• Get local market insights

What to Expect:

• Monthly meetings
• Guest speakers
• Deal sharing
• Networking time
• Some trying to sell services
• Mix of experience levels

Networking Strategy:

1. Attend regularly (consistency matters)
2. Introduce yourself to 3-5 new people each meeting
3. Ask questions and listen more than you talk
4. Follow up with valuable contacts
5. Give value before asking for help
6. Build genuine relationships

Your Property Search Strategy

Multi-Channel Approach (Recommended):

Primary Channel (80% of effort):

• MLS through real estate agent
• Set up daily alerts
• Respond to new listings quickly
• Analyze 10-20 properties per week

Secondary Channels (20% of effort):

• FSBOs (check weekly)
• REOs (monitor foreclosure sites)
• Networking (attend monthly meetings)
• Drive target neighborhoods (weekly)

Activity Goals:

• Analyze: 10 properties per week
• View: 2-4 properties per week
• Make offers: 1-2 per month
• Close: 1 property per 6-12 months (realistic for beginners)

The Funnel:

100 Properties Analyzed
    ↓
25 Worth Viewing
    ↓
10 Make Offers On
    ↓
2-3 Accepted Offers
    ↓
1 Successful Closing

This is normal! Don't get discouraged.

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Part 2: Working with Real Estate Agents

A good real estate agent specializing in investment properties is invaluable. Let's learn how to find and work with them effectively.

Why You Need an Investment-Savvy Agent

What They Provide:

• MLS access with instant notifications
• Market knowledge and insights
• Property showing coordination
• Comparable sales data
• Negotiation expertise
• Transaction management
• Professional network (inspectors, contractors, lenders)
• Local neighborhood knowledge

Cost:

• Buyer's agent commission paid by seller (typically 2.5-3%)
• FREE to you as the buyer
• No reason not to use an agent

Finding the Right Agent

Not All Agents Understand Investment Properties:

Traditional Residential Agents:

• Focus on homebuyers' emotions
• May not understand investor math
• Emphasize aesthetics over numbers
• Less familiar with rental markets

Investment-Focused Agents:

• Understand cash flow and returns
• Can discuss cap rates and NOI
• Know rental markets
• Comfortable with distressed properties
• Have investor networks

How to Find Investment Agents:

Method 1: Ask Other Investors

• Attend REI club and ask for referrals
• Post in local investor Facebook groups
• Ask on BiggerPockets forums

Method 2: Interview Multiple Agents

• Contact 3-5 agents
• Ask questions (see below)
• Choose the best fit

Method 3: Look for Clues

• Agents marketing "investor specials"
• Those with rental property listings
• Agents who own rentals themselves
• Reviews mentioning investor clients

Interview Questions for Agents

Experience with Investors:

1. How many investment property transactions do you handle annually?
2. Do you personally own rental properties?
3. What percentage of your clients are investors?
4. Can you provide investor client references?

Market Knowledge: 5. What neighborhoods offer the best cash flow? 6. What's typical cap rate in this market? 7. What rental rates are realistic for [area]? 8. What's current vacancy rate for rentals?

Process and Communication: 9. How quickly can you show properties after they list? 10. Do you provide MLS access or daily email alerts? 11. Can you help estimate repair costs? 12. Do you have relationships with investors' lenders? 13. What's your communication style and availability?

Investment Understanding: 14. Walk me through how you'd analyze a rental property. 15. What metrics do you focus on for investment properties? 16. How do you handle multiple offer situations?

Red Flags:

• Can't answer basic investment questions
• Pushes emotional selling points
• Doesn't know rental markets
• Unavailable or slow to respond
• No investor clients
• Discourages offers below asking price

Green Flags:

• Owns rentals themselves
• Asks about your investment criteria
• Discusses numbers naturally
• Understands you'll make many offers
• Moves fast on new listings
• Has contractor/inspector network

Setting Expectations with Your Agent

First Meeting Topics:

Your Criteria:

"I'm looking for:
- Property type: SFH, 2-4 units
- Location: [Specific neighborhoods]
- Price range: $150,000-$250,000
- Target cash flow: $200+/month
- Target cash-on-cash return: 8%+
- Condition: Anything I can rent immediately or with minor repairs
"

Your Process:

"Here's how I work:
- I'll analyze properties quickly (within hours)
- I need to see properties within 24-48 hours of listing
- I'll make offers below asking if analysis warrants
- I'm prepared to make multiple offers to find the right deal
- I have financing pre-approval
- I'm serious and ready to close on the right property
"

Communication Preferences:

"For communication:
- Email/text preferred for non-urgent
- Call for time-sensitive showings
- I'll respond within [X] hours
- Send me all new listings matching criteria immediately
"

Working with Your Agent Effectively

Be a Good Client:

Respond Quickly:

• New listings appear and disappear fast
• Respond to agent's messages within hours
• Make decisions promptly

Be Realistic:

• Understand good deals go quickly
• Don't expect perfection
• Be ready to act when you find a deal

Run Your Own Numbers:

• Don't expect agent to analyze every property
• Use agent for data, you do analysis
• Make your own investment decisions

Make Offers:

• Don't just look; make offers
• Agents like active clients
• Expect many rejected offers
• It's a numbers game

Be Professional:

• Show up to showings on time
• Don't waste agent's time on properties that don't fit criteria
• Provide clear feedback
• Follow through on commitments

Communicate:

• Let agent know if criteria changes
• Explain why you passed on properties
• Share what you liked/disliked
• Keep agent informed of timeline

What NOT to Do:

Don't:

• Call about every minor question
• Request showings for properties you haven't analyzed
• Make lowball offers on everything
• Get emotional or pushy
• Bad-mouth agent to sellers
• Work with multiple agents in same area (unethical)
• Expect agent to educate you (do your homework)

Multiple Offer Situations

In competitive markets, multiple buyers often want the same property.

How to Strengthen Your Offer:

Financial Strength:

• Larger earnest money deposit
• Pre-approval letter from reputable lender
• Proof of funds for down payment
• Minimal contingencies

Terms:

• Quick closing (sellers often prefer speed)
• Flexible closing date
• As-is purchase (waive repair requests)
• Cover buyer-side closing costs

Personal Touch:

• Write letter to seller (if residential)
• Explain why you want property
• Be friendly and professional

Escalation Clause:

"I offer $200,000 and will increase my offer by $2,000 above any 
competing offer, up to a maximum of $215,000."

This keeps you competitive without overpaying if there's no competition.

When to Walk Away:

• Don't overpay because of competition
• Stick to your numbers
• Another deal will come
• Winning a bad deal is worse than losing

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Part 3: Property Condition Evaluation

Before making an offer, you need to assess property condition. Let's learn what to look for.

The Initial Drive-By Assessment

Before scheduling a showing, do a quick drive-by:

Exterior Quick Check:

• Roof condition (sagging, missing shingles?)
• Foundation (cracks, settling?)
• Siding/exterior (peeling paint, damage?)
• Windows (broken, boarded?)
• Yard (overgrown, debris?)
• Driveway (major cracks, potholes?)

Neighborhood Context:

• Neighboring properties maintained?
• Cars on blocks or excessive vehicles?
• Overall neighborhood feel
• Proximity to busy roads, industry, etc.

Decision:

• Worth showing? Yes/No
• If major exterior issues visible, may indicate worse inside
• Estimate exterior repair costs before viewing

The Property Showing Walkthrough

Bring these items to showings:

• Flashlight
• Measuring tape
• Camera/phone for photos
• Notepad or smartphone for notes
• Copy of listing
• This checklist

Systematic Walkthrough Process:

Exterior Evaluation

Roof:

• Age? (ask listing agent)
• Visible damage, missing shingles?
• Sagging or uneven areas?
• Signs of leaks inside (we'll check later)?

Estimated Costs:

Minor repairs: $500-1,500
Partial replacement: $2,000-5,000
Full replacement: $5,000-15,000 (depends on size/material)

Roof life:
- Asphalt shingles: 15-25 years
- Metal: 40-70 years
- Tile: 50+ years

Foundation:

• Visible cracks? (small cracks normal; large = concern)
• Settling or shifting?
• Water stains indicating drainage issues?
• Doors/windows stick (sign of foundation movement)?

Estimated Costs:

Minor crack repair: $500-2,000
Foundation leveling: $5,000-15,000+
Major foundation repair: $10,000-30,000+

Foundation issues are serious—get professional inspection!

Exterior Walls:

• Siding condition (wood rot, missing pieces?)
• Paint condition
• Cracks or damage
• Proper drainage away from foundation?

Estimated Costs:

Painting: $2,000-8,000
Siding repair: $1,000-5,000
Siding replacement: $5,000-20,000+

Windows:

• Number of windows
• Single or double-pane?
• Broken panes or seals?
• Proper operation?
• Old/drafty windows?

Estimated Costs:

Per window replacement: $300-800
Whole house (15 windows): $4,500-12,000

Landscaping:

• Overgrown and needs cleanup?
• Drainage issues?
• Trees too close to house/foundation?

Estimated Costs:

Basic cleanup: $500-2,000
Grading for drainage: $1,000-5,000
Tree removal: $500-2,000 per tree

Interior Evaluation - First Impressions

Overall Condition:

• Smell (musty = moisture; smoke; pets?)
• Cleanliness
• Dated finishes (cosmetic) vs. actual damage
• Natural light
• Layout flow

Floor Plan:

• Does layout make sense?
• Adequate bedroom sizes?
• Bathroom count and locations?
• Kitchen size and functionality?
• Closet space?

Major Systems Evaluation

HVAC (Heating, Ventilation, Air Conditioning):

What to Check:

• Age of furnace/AC unit (look at label)
• Does it turn on and blow air?
• Strange noises?
• Proper airflow from all vents?
• Recent maintenance? (ask)

Age Guidelines:

Central Air: 12-18 years
Furnace (gas): 15-20 years
Furnace (electric): 20-30 years
Heat Pump: 10-15 years

Replacement Costs:
Central AC: $3,000-6,000
Furnace: $2,500-5,000
Full HVAC system: $5,000-10,000+

Red Flags:

• No cold/hot air
• Loud unusual noises
• Rust or corrosion
• System over 15 years old
• No maintenance records

Electrical System:

What to Check:

• Electrical panel (circuit breakers or fuses?)
• Panel size (100 amp minimum, 200 amp preferred)
• Aluminum wiring? (older homes, fire hazard)
• Adequate outlets in rooms?
• GFCI outlets in bathrooms/kitchen?
• Light switches work properly?
• Any burning smells or scorch marks?

Red Flags:

• Fuse box (outdated—needs upgrade)
• Aluminum wiring (insurance may be difficult)
• 60-amp service (inadequate for modern use)
• Burn marks on outlets/switches
• Flickering lights
• Loose outlets

Estimated Costs:

Panel upgrade (100 to 200 amp): $1,500-3,000
Rewiring house: $3,000-10,000+
Outlet/switch replacement: $100-200 each
Aluminum wiring remediation: $2,000-8,000+

Plumbing:

What to Check:

• Turn on all faucets (water pressure?)
• Check under sinks for leaks
• Flush toilets (work properly? adequate pressure?)
• Look at water heater (age? condition?)
• Visible supply lines (copper, PEX, or galvanized?)
• Signs of leaks (water stains on ceilings/walls)
• Drainage speed (slow drains = clogs or venting issues)

Water Heater Specifics:

Age: Check label
Life Expectancy:
- Tank: 8-12 years
- Tankless: 15-20 years

Replacement Costs:
- Tank water heater: $800-1,500
- Tankless: $2,000-4,500

Red Flags:
- Over 10 years old
- Rust/corrosion
- Water pooling at base
- Strange noises

Pipe Material Issues:

Galvanized Steel Pipes:
- Common in homes pre-1960
- Corrode and restrict water flow
- Should be replaced
- Replacement cost: $4,000-12,000+

Polybutylene Pipes:
- Gray plastic, used 1978-1995
- Prone to failure
- Many insurance companies won't cover
- Replacement cost: $2,500-8,000+

Room-by-Room Evaluation

Kitchen:

• Cabinets (condition, enough space?)
• Countertops (condition, material?)
• Appliances (age, working, included?)
• Flooring
• Adequate lighting
• Electrical outlets (GFCI near sink?)

Updates Needed?

Cosmetic update: $3,000-8,000
Mid-level remodel: $10,000-20,000
High-end remodel: $25,000-50,000+

For rentals: Keep functional and clean, not high-end

Bathrooms:

• Fixtures condition
• Tile/tub/shower condition
• Signs of water damage or leaks
• Ventilation (exhaust fan?)
• Adequate water pressure
• Flooring

Updates Needed?

Basic refresh: $1,000-3,000
Mid-level remodel: $5,000-10,000
Full remodel: $8,000-15,000+

For rentals: Functional and clean matters most

Bedrooms:

• Adequate size (at least 10x10 for rental)
• Closet space (required for bedroom designation)
• Windows (egress requirement for bedrooms)
• Flooring condition
• Electrical outlets (enough?)

Living Areas:

• Flooring condition
• Wall condition
• Lighting
• Electrical outlets
• Overall feel and flow

Flooring Throughout:

Carpet (rental grade): $2-4/sq ft installed
Vinyl plank: $3-5/sq ft installed
Laminate: $2-4/sq ft installed
Tile: $5-10/sq ft installed
Hardwood refinish: $3-6/sq ft

1,500 sq ft house flooring estimate:
- Carpet: $3,000-6,000
- Vinyl plank: $4,500-7,500
- Laminate: $3,000-6,000

Red Flags and Deal Breakers

Major Red Flags (Often Deal Breakers):

Foundation Issues:

• Significant cracks (>1/4 inch)
• Doors/windows won't close properly
• Sloping floors
• Visible settling/shifting
• Professional inspection MANDATORY

Structural Issues:

• Sagging roof
• Cracked support beams
• Soft/bouncy floors
• Visible structural damage

Water Damage/Mold:

• Musty smell
• Visible mold
• Water stains on ceiling/walls
• Soft spots in floor
• Basement flooding history

Major System Failure:

• No heat/AC
• No hot water
• Plumbing not functional
• Electrical hazards

Environmental Hazards:

• Asbestos (common in homes pre-1980)
• Lead paint (homes pre-1978)
• Underground oil tanks
• Contaminated soil

Code Violations:

• Unpermitted additions
• Illegal bedrooms (no egress windows)
• Major electrical/plumbing code issues
• Zoning violations

Moderate Red Flags (Proceed with Caution):

• Roof over 15 years old
• HVAC over 12 years old
• Old water heater (8+ years)
• Dated electrical panel
• Galvanized plumbing
• Deferred maintenance throughout

Minor Issues (Negotiating Points):

• Cosmetic updates needed
• Minor plumbing leaks
• Old appliances
• Dated finishes
• Landscaping needs work
• Minor roof repairs

Creating Your Repair Estimate

After viewing, create detailed repair estimate:

PROPERTY REPAIR ESTIMATE
Address: _______________________

IMMEDIATE REPAIRS (Before Renting):
- Item: _____________ Cost: $_______
- Item: _____________ Cost: $_______
- Item: _____________ Cost: $_______
Subtotal: $_______

MAJOR SYSTEMS (Likely Needed Soon):
- Item: _____________ Cost: $_______
- Item: _____________ Cost: $_______
Subtotal: $_______

COSMETIC UPDATES (Optional):
- Item: _____________ Cost: $_______
- Item: _____________ Cost: $_______
Subtotal: $_______

TOTAL ESTIMATED REPAIRS: $_______
CONTINGENCY (Add 20%): $_______
TOTAL BUDGET NEEDED: $_______

Always Add 20% Contingency: Repairs always cost more than estimated. Hidden issues emerge. Budget accordingly.

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Part 4: Professional Property Inspections

Even after your walkthrough, a professional inspection is critical before closing.

What Is a Home Inspection?

Definition: A comprehensive examination of property condition by a licensed professional inspector.

What Inspectors Examine:

• Structural components
• Exterior (roof, siding, foundation)
• Interior (walls, floors, ceilings)
• All major systems (HVAC, electrical, plumbing)
• Appliances
• Attic and basement
• Garage
• Grading and drainage

What Inspectors DON'T Do:

• Determine value
• Guarantee everything works forever
• Inspect behind walls (unless visible access)
• Determine code compliance
• Test for environmental hazards (separate tests)

Cost:

Single-family home: $300-500
Multi-family: $400-700+
Larger properties: More expensive

Worth every penny—can save you from disasters

Timeline:

• Inspection typically 2-4 hours
• Report delivered within 24-48 hours
• Usually conducted during due diligence period (7-14 days after offer acceptance)

How to Find a Good Inspector

Sources:

• Agent referrals (but verify independently)
• American Society of Home Inspectors (ASHI.org)
• International Association of Certified Home Inspectors (InterNACHI.org)
• Online reviews
• Other investor recommendations

Questions to Ask:

1. Are you licensed/certified?
2. How long have you been inspecting?
3. How many inspections do you perform annually?
4. Do you have errors & omissions insurance?
5. Can I attend the inspection?
6. What's included in your inspection?
7. When will I receive the report?
8. What's your fee?

Red Flags:

• Won't let you attend inspection
• Gives verbal-only report
• Charges extra for standard items
• No insurance
• Very cheap (quality costs)

Attending the Inspection

Why You Should Attend:

• Learn about the property firsthand
• Ask questions directly
• See issues in person
• Understand severity of problems
• Builds your knowledge for future properties

What to Bring:

• Notepad
• Camera
• Questions about anything you noticed
• Willingness to learn

How to Behave:

• Let inspector work without interrupting
• Ask questions during or at end
• Don't touch or interfere
• Take your own photos
• Focus on major issues, not minor cosmetics

Understanding the Inspection Report

Report Sections:

1. Summary: Major findings and concerns
2. Detailed Findings: Room-by-room, system-by-system
3. Photos: Visual documentation
4. Recommendations: What needs immediate attention

Issue Severity:

• Safety Hazard: Immediate danger (electrical, structural)
• Major Defect: Significant cost or failure risk
• Moderate Defect: Should be repaired but not urgent
• Minor Defect: Cosmetic or low priority
• Maintenance Item: Normal upkeep needed

How to Prioritize Findings:

TIER 1 - MUST FIX BEFORE CLOSING/RENTING:
- Safety hazards
- Major system failures
- Code violations
- Health hazards (mold, lead)

TIER 2 - FIX WITHIN 6-12 MONTHS:
- Aging systems near end of life
- Moderate repairs
- Weatherization issues

TIER 3 - PLAN FOR IN BUDGET (1-3 YEARS):
- Items nearing replacement
- Preventive maintenance
- Cosmetic improvements

TIER 4 - COSMETIC (When Budget Allows):
- Dated but functional items
- Aesthetic improvements
- Nice-to-have upgrades

Specialty Inspections

Standard inspections don't cover everything. Consider these additional inspections:

Sewer Line Inspection ($150-300):

• Camera inspection of sewer line
• Identifies roots, breaks, bellying
• Replacement cost: $3,000-10,000+
• Highly recommended for older homes

Radon Testing ($100-200):

• Tests for radioactive gas
• Common in certain areas
• Mitigation cost: $800-2,000

Mold Inspection ($300-600):

• If musty smell or water damage history
• Identifies mold type and extent
• Remediation varies: $500-10,000+

Lead Paint Testing ($200-400):

• Homes built before 1978
• Required disclosure
• Mitigation/encapsulation: Varies widely

Termite/Pest Inspection ($75-150):

• Often required by lenders
• Checks for wood-destroying insects
• Treatment: $500-3,000+

Chimney Inspection ($100-250):

• If property has fireplace
• Checks for safety and blockages
• Repairs vary: $500-5,000+

When to Get Specialty Inspections:

• Standard inspection reveals concerns
• Older homes (pre-1980)
• Properties with known issues
• High-value properties
• Lender requirements

Using Inspection Results

Three Possible Outcomes:

Outcome 1: Clean Inspection (Rare)

• Minimal issues found
• Proceed to closing as planned
• Budget for normal maintenance only

Outcome 2: Expected Issues

• Repairs within your budget
• Issues you already knew about
• Decide: Fix yourself or negotiate with seller

Outcome 3: Major Issues Discovered

• Significant unexpected problems
• Costs exceed your budget
• Decide: Renegotiate, walk away, or accept

Your Options After Inspection:

Option A: Request Repairs

"Based on inspection, we request seller complete the following repairs 
before closing:
1. Replace water heater ($1,200)
2. Repair roof leak ($800)
3. Fix electrical panel hazard ($600)

Total requested: $2,600"

Option B: Request Credit

"Based on inspection findings totaling approximately $5,000 in repairs, 
we request a $5,000 credit at closing to offset repair costs."

This lets you control repairs and choose contractors

Option C: Reduce Purchase Price

"Based on inspection revealing $8,000 in needed repairs, we request 
purchase price reduction from $200,000 to $192,000."

Effect is same as credit but different mechanically

Option D: Walk Away

"The inspection revealed issues beyond our comfort level. We're 
exercising our inspection contingency and terminating the contract."

You get earnest money back (if within contingency period)

Option E: Accept As-Is

"We acknowledge inspection findings and accept the property in its 
current condition. We'll handle all repairs after closing."

Make sure your budget accounts for everything

Negotiation Strategy:

• Focus on major issues, not cosmetic
• Be reasonable (don't nickel-and-dime on minor items)
• Provide documentation (inspection report)
• Understand seller's motivation
• Have walk-away number in mind

In Competitive Markets:

• Sellers less willing to negotiate
• May need to accept as-is
• Factor all repairs into original offer
• Decide if deal still works with needed repairs

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Part 5: Due Diligence Checklist

Beyond inspections, complete these due diligence items before closing:

Title Search and Title Insurance

What It Is: Examination of public records to verify legal ownership and identify liens, encumbrances, or claims.

What Title Company Looks For:

• Legal description of property
• Current owner verification
• Outstanding mortgages/liens
• Easements
• Property tax status
• Legal judgments against property
• Ownership history

Potential Issues:

• Unpaid property taxes
• Mechanic's liens
• Mortgage liens
• Judgment liens
• Easements restricting use
• Boundary disputes
• Fraudulent previous transfers

Title Insurance:

• Protects you if title issues emerge later
• Lender requires lender's title insurance
• You should buy owner's title insurance
• One-time premium at closing
• Cost: ~$500-2,000 depending on price

Red Flags:

• Seller doesn't have clear title
• Multiple liens on property
• Ongoing legal disputes
• Boundary issues with neighbors
• Unreleased previous mortgages

Property Tax Verification

What to Check:

1. Current tax amount (county website)
2. Tax payment status (current or delinquent?)
3. Assessment value
4. Recent reassessments
5. Pending appeals

Post-Sale Considerations:

• Property may be reassessed at new purchase price
• Taxes could increase significantly
• Budget for higher taxes in analysis
• Some states have homestead exemptions that will disappear

Example:

Current Owner's Annual Tax: $2,400 (assessed at $180,000)
Your Purchase Price: $220,000
Estimated New Tax: $2,933

Increase: $533/year = $44/month
Factor this into your analysis!

Zoning and Permits

Zoning Verification:

• Is property zoned for your intended use?
• Residential vs. commercial
• Single-family vs. multi-family
• Any use restrictions?

How to Check:

• City/county zoning department
• Zoning maps online
• Call planning department

Permit Research:

• Were additions properly permitted?
• Unpermitted work can be problem
• May need to bring to code
• Could affect insurance or resale

Questions for City:

1. Is property zoned for rental use?
2. Are all structures permitted?
3. Are there occupancy restrictions?
4. Required rental licenses?
5. Any code violations on file?

HOA Documents (If Applicable)

Critical Documents to Review:

CC&Rs (Covenants, Conditions & Restrictions):

• Rules governing property use
• Rental restrictions?
• Occupancy limits?
• Architectural guidelines
• Enforcement mechanisms

Financial Statements:

• HOA budget
• Reserve funds (should be 70%+ funded)
• Delinquency rates
• Special assessments planned?

Meeting Minutes (Past 6-12 months):

• What issues are being discussed?
• Maintenance problems?
• Financial concerns?
• Upcoming major expenses?

Red Flags:

• Rental restrictions (limit or ban rentals)
• Low reserves (<50% funded)
• Rapidly rising fees (10%+ annually)
• Recent/upcoming special assessments
• Deferred maintenance evident
• High delinquency rates (>15%)
• Pending litigation

Utility and Service Verification

Contact These Providers:

Utility Companies:

• Verify average monthly costs
• Any unusual patterns?
• Service issues history?

Typical Questions: "Can you provide average utility costs for [Address] for the past 12 months?"

Water/Sewer:

• Monthly costs
• Is water/sewer public or well/septic?
• Septic system (when last inspected? pumped?)
• Well water (quality tested recently?)

Other Services:

• Trash pickup (cost if landlord pays)
• HOA services included
• Internet/cable availability

Insurance Verification

Get Actual Insurance Quote:

• Don't rely on estimates
• Need actual quote for your situation
• Different for landlord policy vs. homeowner
• Varies by location, age, condition

Questions for Insurance Agent:

1. What's annual premium for landlord policy?
2. What coverage limits?
3. Is loss of rent coverage included?
4. Any issues insuring this property?
5. Claims history on property?
6. Premium likely to increase?

Insurance Red Flags:

• Very high premium (risk indicator)
• Difficulty getting coverage
• Previous claims history
• Located in flood zone (requires flood insurance)
• Older home with outdated systems

Flood Zone Research

How to Check:

• FEMA Flood Map Service (msc.fema.gov)
• Enter property address
• Check flood zone designation

Flood Zones:

• Zone X (Minimal Risk): Low risk, flood insurance optional
• Zone A/AE (High Risk): Special Flood Hazard Area, insurance required if financed
• Zone V/VE (Very High Risk): Coastal high-hazard, very expensive insurance

Flood Insurance Costs:

Zone X: $400-700/year (optional)
Zone A: $600-2,000/year (required)
Zone V: $2,000-10,000+/year (required)

This significantly impacts cash flow!

Tenant-Occupied Properties

If property currently has tenants:

Request:

1. Current lease agreement
2. Rent payment history
3. Tenant contact information
4. Security deposit amount
5. Any ongoing issues/disputes

Verify:

• Lease terms match what seller claims
• Rent amount (is it market rate?)
• Lease expiration date
• Security deposit (you'll inherit this obligation)
• Tenant payment history
• Any pending evictions

Consider:

• Do you want to keep current tenants?
• Is rent below market (can you raise it)?
• Month-to-month or fixed lease?
• Will tenants cooperate with showings/inspections?

Environmental Concerns

Research:

• Previous land use (industrial? agricultural?)
• Nearby hazards (factories, landfills, gas stations)
• Underground storage tanks (UST)
• Contamination history

Resources:

• EPA Envirofacts (www.epa.gov/enviro)
• State environmental databases
• Local environmental health departments

If Concerns Exist:

• Phase I Environmental Assessment ($1,500-3,000)
• Identifies potential contamination
• Lender may require for commercial
• Protect yourself from liability

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Part 6: When to Walk Away

Sometimes the best decision is to not buy. Here's when to walk away:

Deal Breakers (Walk Away Immediately)

1. Numbers Don't Work

• Negative cash flow beyond your tolerance
• Insufficient return on investment
• Can't negotiate to acceptable terms
• Repair costs exceed budget

2. Major Structural Issues

• Severe foundation problems
• Serious structural damage
• Cost to repair exceeds added value
• Safety hazards can't be remediated reasonably

3. Title Problems

• Liens that can't be cleared
• Ownership disputes
• Legal claims on property
• Boundary disputes with no resolution

4. Environmental Hazards

• Contaminated property
• Extensive mold throughout
• Asbestos requiring major remediation
• Lead paint abatement too expensive

5. Zoning/Legal Issues

• Property not legally zoned for intended use
• Major unpermitted additions
• Code violations requiring expensive remediation
• Rental restrictions you can't accept

6. Location Red Flags

• Discovered during due diligence
• Undesirable features not apparent initially
• Neighborhood declining faster than expected
• Crime worse than research indicated

7. Emotional Red Flags

• Property gives you bad feeling
• Too much stress already
• Seller being dishonest or difficult
• Gut says "no"

Serious Concerns (Renegotiate or Walk)

1. Inspection Reveals Significant Issues

• Beyond minor repairs
• Costs approaching 10-15% of purchase price
• Major systems need replacement
• Seller unwilling to negotiate reasonably

2. Appraisal Issues

• Property appraises below purchase price
• Lender won't lend full amount
• You'd need to bring more cash
• Seller won't reduce price

3. Financing Problems

• Can't qualify for loan
• Rates increased significantly
• Lender finds issues with property
• Financing contingency deadline approaching

4. Market Changes

• Market deteriorating during due diligence
• Comparable sales declining
• Rental demand softening
• Economic concerns emerging

Warning Signs During Process

Seller Behavior:

• Won't provide requested documentation
• Lying about property condition/history
• Trying to rush closing unreasonably
• Hiding information
• Becoming hostile or difficult

Property Concerns:

• Each inspection reveals more problems
• Costs keep increasing
• Problems deeper than surface
• Neighbors reveal concerning information

Your Feelings:

• Stress outweighs excitement
• Losing sleep over decision
• Making excuses to convince yourself
• Ignoring red flags

The Walk-Away Decision

How to Walk Away Professionally:

[To Seller's Agent]

"After completing our due diligence, including the property inspection 
and further analysis, we've determined this property doesn't meet our 
investment criteria. We're exercising our inspection contingency and 
terminating the purchase agreement as of [date]. Please confirm our 
earnest money will be returned per the contract terms.

Thank you for your time."

Important Notes:

• Walk away within contingency periods (get earnest money back)
• Outside contingencies, you may lose earnest money
• Always walk away professionally
• Don't burn bridges
• Protect your reputation

Remember:

• Walking away from a bad deal is winning
• Another opportunity will come
• Better to lose some time than lose money
• Trust your analysis and instincts
• No deal is better than a bad deal

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Part 7: Key Takeaways from Module 5

Core Principles

1. Multiple property sources exist:

   • MLS (primary for most beginners)
   • FSBOs
   • REOs/foreclosures
   • Off-market/direct marketing
   • Network referrals

2. The right agent is invaluable:

   • Find investment-focused agents
   • Interview multiple candidates
   • Set clear expectations
   • Communicate effectively
   • Be a professional client

3. Property evaluation is systematic:

   • Start with exterior drive-by
   • Conduct thorough walkthrough
   • Evaluate major systems
   • Document everything
   • Estimate repair costs conservatively

4. Professional inspections are mandatory:

   • Never skip inspections
   • Attend the inspection
   • Get specialty inspections when warranted
   • Use results for negotiation or walk-away decisions

5. Due diligence protects you:

   • Title search
   • Zoning verification
   • Permit research
   • Insurance quotes
   • Utility verification
   • Environmental research

6. Walking away is often the right decision:

   • Trust your analysis
   • Don't ignore red flags
   • Protect your investment capital
   • Another deal will come

Your Action Steps

Before proceeding to Module 6, complete these tasks:

1. ✅ Set Up Property Search Systems

   • Contact 3-5 real estate agents
   • Interview and select investment agent
   • Set up MLS alerts
   • Bookmark FSBO sites
   • Join local REI club

2. ✅ View 5-10 Properties

   • Practice walkthrough process
   • Take notes and photos
   • Estimate repair costs
   • Build evaluation skills
   • Get comfortable viewing properties

3. ✅ Attend Property Inspections

   • Observe inspection process (yours or friend's)
   • Ask inspector questions
   • Learn what they look for
   • Understand report format

4. ✅ Research Your Market

   • What's typical days on market?
   • How competitive are offers?
   • What repair costs are common?
   • Who are good inspectors?
   • What contractors do investors use?

5. ✅ Create Your Systems

   • Property evaluation checklist
   • Repair cost estimating spreadsheet
   • Due diligence checklist
   • Inspection question list

6. ✅ Build Your Team

   • Real estate agent
   • Home inspector(s)
   • General contractor
   • Specialized trades (plumber, electrician, roofer)
   • Insurance agent
   • Property manager (for future)

7. ✅ Take the Module 5 Quiz

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Module 5 Self-Assessment Quiz

Test your understanding. Answers provided at the end.

1. What is the best primary source for finding properties as a beginner? a) Foreclosure auctions b) MLS through a real estate agent c) Direct mail campaigns d) Wholesalers

2. What does FSBO stand for? a) Foreclosure Sale By Owner b) For Sale By Owner c) Fast Sale, Best Offer d) Fixed Sale, Buy Online

3. When viewing a property, what should you bring? a) Flashlight, measuring tape, camera, notepad b) Just your real estate agent c) Contractor estimates d) Loan documents

4. How long does a typical roof with asphalt shingles last? a) 5-10 years b) 10-15 years c) 15-25 years d) 30-40 years

5. True or False: You should always add a 20% contingency to your repair estimates.

6. What is the typical cost of a single-family home inspection? a) $50-100 b) $150-250 c) $300-500 d) $800-1,000

7. Which is NOT typically covered in a standard home inspection? a) HVAC system b) Electrical system c) Sewer line camera inspection d) Roof condition

8. What are the CC&Rs? a) Credit, Closing, Rates b) Covenants, Conditions & Restrictions c) Contractor Costs & Repairs d) Commercial Construction Requirements

9. After inspection reveals issues, what are your options? a) Request repairs only b) Request credit only c) Walk away only d) All of the above plus more options

10. When should you walk away from a deal? a) Only if numbers are slightly off b) When major structural issues found or numbers don't work c) Never, all deals can work d) After you've made an offer

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Quiz Answers

1. b) MLS through a real estate agent
2. b) For Sale By Owner
3. a) Flashlight, measuring tape, camera, notepad
4. c) 15-25 years
5. True - Always add contingency for unexpected costs
6. c) $300-500
7. c) Sewer line camera inspection (specialty inspection)
8. b) Covenants, Conditions & Restrictions
9. d) All of the above plus more options (reduce price, accept as-is)
10. b) When major structural issues found or numbers don't work

Scoring:

• 9-10 correct: Excellent! You're ready to find and evaluate properties.
• 7-8 correct: Good work! Review missed concepts.
• 5-6 correct: Fair. Re-read sections about inspections and due diligence.
• Below 5: Review the entire module before proceeding.

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Conclusion: You're Ready to Find Your Investment

Congratulations on completing Module 5! You now have the knowledge and systems to find investment properties, evaluate their condition, conduct proper due diligence, and make informed decisions.

You've learned:

• Where to find investment properties
• How to work with real estate agents effectively
• How to evaluate property condition systematically
• What professional inspections cover
• Complete due diligence process
• When to walk away from bad deals

Most importantly: You can now confidently search for properties, evaluate opportunities, and avoid costly mistakes through proper inspection and due diligence.

The Journey So Far:

• Module 1: You understand real estate fundamentals
• Module 2: You can evaluate markets and property types
• Module 3: You know how to finance investments
• Module 4: You can analyze deals mathematically
• Module 5: You can find and evaluate properties

Next Step: Learn how to make competitive offers and navigate the closing process.

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You're ready for Module 6: Making Offers and Closing Deals.

In the next module, you'll learn how to structure offers, negotiate effectively, navigate the contract-to-close process, and successfully complete your first investment property purchase.

You've found a property. You've analyzed it. You've inspected it. Now let's learn how to buy it.

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"The best investment on Earth is earth." — Louis Glickman