how do you as an out of state buyer verify repairs during DD

Question

hi, how are you, as an out of town,/state/country buyer, aquiring an as-is repairs needed, fixer, and verifying repairs?

in reality, an agent can take a quick look, and send you pictures, if its not already pending by then, and you can get an inspector during the DD, to give a report, but getting a licensed contractor during your DD to give you estimated repairs needed, is not a simple call just for them to go over there.. And agents are busy, and they dont want to get too involved in that stuff.

Do you get your confidence from the agent, pictures, or just the inspector?

or do you just rule out wholesale, mls, auctions, flips, hard money, and anything needing repairs and buy near retail for a hold?

in Jacksonville Fl for example, contractors run 14 days behind to look at your project, if you get a response at all...and don't just go for free, and agents are busy..

Care to share your secret or strategy?

Ken Breeze · Answer

The "secret", in my multifamily experience, is that, come due diligence, you'll need at minimum a licensed property manager and/or general contractor and any other certified and bonded professional necessary for your project to do their jobs in inspecting and estimating costs. Ask 10 professionals at the same time to get one to show up. You'll need to foster multiple relationships to have a plan B and C contractor handy anyway.

Relying on someone else's pictures is not a good idea, even if you're the pro in doing repair estimates. The non-pro doesn't see things the way the pro does and therefore will miss things that will come to haunt you later. Come DD time it's pay time. Or pay much more later.

Jay Hinrichs · Answer

Hire third party inspectors just google for them  every big market has them  they are the same guys the banks hire the HML hire etc..

when done then hire a home inspector for   a full report to make sure your contractor did not cut corners. and everything is to code..

Also if you buying an older home unless absolutely sure you have a new waste line.

first thing out of the block is a sewer scope.. much better to deal with that before tenants move in.

sewer may work when inspector flushs toiled once or twice and runs the water for a minute but when house is put into full service and you get a back up.. you now have an emergency plumbing issue that will be 2 to 3X as expensive if you just put a new one in while under rehab.. plus it will last the life of the investment.. the number one issue with rentals is plumbing.. so take care of if prophilacticaly

Greg Scott · Answer

PS.   Related to the contractor, or any service provider, I think it is important to choose quality and reliability over price.   Everyone I met in Dallas would tell my my contractor charged 5-10% more than other contractors in the area.   But, my experience with my first contractor taught me that the cheaper guy often costs you way more than that in added holding cost, lost rent, and shoddy work that doesn't attract the best tenants.    Paying extra for the right people, big picture, is actually the lowest-cost solution.

Greg Scott · Answer

Matt:

Here is what has worked for me.

1) Hire the right contractor.   I bought and rehabbed 9 properties in DFW.  The first one was painful.  The remaining 8 were a breeze because I finally found the right contractor.

2) Use incentives.   If you are worried about how long the work will take, add a carrot/stick clause.   I often ask contractors how long the repairs will take. If they say 2 weeks, I will put in a due date for 3 weeks and add a bonus for finishing early and a daily penalty for being late.

3) Get inspections.   To do my rehabs, I used a hard money lender.  That hard money lender had a requirement that they only released funds for rehab from an escrow account at certain intervals of completion, verified by an independent inspector.   So, for example, if we finished replacing the roof, I'd make a request to release funds and the inspector would verify the roof was completed and appeared to have been done correctly.  (Note:  each inspection cost about $100)

4) Have you Property Manager verify.   Unfortunately, my property manager had to deal with some of the issues on my first property, but I did find them to be a good resource.   After that, I would have them go look at every property just before we started renting it and get a report if they saw anything that needed fixing.  With my "good" contractor I never had a major problem but the property manager might notice some small things they missed.

Good luck

Joey Hamaoui · Answer

Hey @Matt Berklacy,

I've worked in the Jacksonville market for the past 3 years and ran into each of these problems with my investors in addition to some others.

I started doing project management and charging a fee for it in addition to my regular agent services because I just couldn't justify working for free for clients after the sale and they kept running into problems trying to manage the projects from abroad.

Now I typically will go to the property and give an estimate, take photos and create a scope of work in the first 3 days, then we revise it when the inspection report comes back, and then we bring in the contractors.

We're usually pretty spot on in our pricing estimates during due diligence and we try to finalize the contractor bids the same week.

The biggest issue I found is that contractors won't give you an accurate bid unless you tell them exactly what you want to do so the Scope of Work is the most important piece of the puzzle.

I would recommend implementing a scope of work into your process from the get go and I think everything will run smoother from that point.

Scott Parker · Answer

Greg,

Sounds good to me... Keeps that 90 day project from turning into a 6 or 9 month issue.  Also I personally add a "Time is of the essence clause" within my contract. Just something to think about.

how do you as an out of state buyer verify repairs during DD

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