The Due Diligence and Inspections We Complete Before Buying a Rental Property

So, we all know that cash flow and appreciation are two things’ investors are concerned with when buying rental properties.

Once you find a property, what EXACTLY should you be evaluating with regards to the neighborhood and the property itself before making an offer?

We are sharing our due diligence for the neighborhood to see if it’s a good fit for our strategy and checks all the boxes as well as the steps we take to do an initial inspection of the structural integrity of the property itself.

This week we are going over the process we are taking to break down all of the things we consider before we will even make an offer on a new investment property.

LINKS

👉 EP74: We Have $250K to Invest, What & Where Are We Considering?

👉 EP44: Deck and Balcony Safety Beyond California SB-721

👉 FBI Crime Data Explorer

👉 Course Waitlist: From Marketing to Move In, Place Your Ideal Tenant
👉 Text Us a Question! Two ways: SMS text to 650-489-4447. OR

One way text only, you need to include your email for a response.

👉 Email us your questions! Stacie@YourLandlordResource.com, Kevin@YourLandlordResource.com
👉 Access all our Downloads (Forms and Docs)

👉 Please leave us a review of our podcast!

Apple Podcast or ITunes, go to the bottom of our main page (with logo) and click “Write a Review”.

Spotify, click the 5.0⭐ on the front of our podcast page.

👉 Want the podcast link emailed to you? Subscribe to our FREE newsletter! Check out a sample here

👉 Join our ...

Transcript

Stacie: 0:00

And honestly, you guys, those are not huge expenses, but what it does show you is how the landlord has cared for the property. Because think about it. If you're getting something ready to sell, you're usually going to spiff it up and make sure everything is looking good and working well. You know, like when you're selling a car, it's usually the cleanest on the day you buy it and the day you sell it, right? If you're able to find a bunch of problems when checking out a potential rental property, you're likely just picking up than you prefer to handle. You're picking up someone else's problems. If it's obvious that the owner has not done preventative maintenance or you find clear lease violations in occupied units, you're looking for a lot of work to make that place top notch to yield your best market rents. Unless, of course, you plan to use the BRRRR method and gut the place and renovate it, then you can use those issues found as bargaining power.

0:59

Welcome to your Landlord Resource Podcast. Many moons ago, when I started as a landlord, I was as green as it gets. I may have had my real estate license, but I lacked confidence and the hands on experience needed when it came to dealing with tenants, leases, maintenance, and bookkeeping. After many failed attempts, fast forward to today, Kevin and I have doubled our doors and created an organized, professionally operated rental property business. Want to go from overwhelmed to confident? If you're an ambitious landlord or maybe one in the making, join us as we provide strategies and teach actionable steps to help you reach your goals and the lifestyle you desire, all while building a streamlined and profitable rental property business. This is your Landlord Resource Podcast.

Stacie: 1:48

Hey there listeners. Thank you for tuning in to the Your Landlord Resource Podcast. My name is Stacie and I'm here with Kevin who is my co host and partner in business and in life.

Kevin: 2:02

Well welcome landlords and thank you for taking time out of your busy day to listen to our podcast.

Stacie: 2:08

So if you listen last week, we talked about how we have$250,000 in capital to invest into our next rental property. And we went over all the different options we are considering during the process. From multi family, that we can self manage here in California, to what our options are out of state. Most of those options are multifamily, and one option is a short term rental by way of condo on the island of Maui, Hawaii. And today we want to discuss what it is we inspect and look for once we have narrowed down our search to a specific property. As well as some other factors we feel are important to know about the physical location and area of the property itself.

Kevin: 2:55

Yeah, and as you can imagine a lot of research goes into buying a rental property or rental properties. And last week we touched on the different geographical areas we're considering buying. Like Sacramento, California or Boise, Idaho, that's near our existing investment properties. And we've also looked at outside of Nashville, Tennessee, Indianapolis, Indiana, Greenville, South Carolina, Des Moines, Iowa, Pittsburgh, Pennsylvania, and Huntsville, Alabama.

Stacie: 3:27

Yeah, just a few to narrow down there.

Kevin: 3:29

Oh yeah, exactly. No worries. But if you want to learn more about why we like these areas, go back and give episode 74 a listen, it will be linked in the show notes for you. So those are the areas and even though some will appreciate much faster, given we are planning on the property being a long term hold of 10 years or longer, some will cash flow faster, so we need to figure out which is more important to us. And why we would consider appreciation over cash flow is because these are all part of our retirement portfolio. If the properties appreciate faster, we will hopefully, earn more equity and be in a position to either 1031 exchange the property or sell it to scale up and buy a bigger property that cash flows even more. You see, we have a plan in place and that plan has different stages. We have one, three, five, and seven year goals. And we generally do not like to look past seven years because it's really hard to determine what will happen and be going on in our lives that far out. I mean, not to mention the market.

Stacie: 4:39

Yeah, and to be honest, even five and seven years is a challenge for us to kind of keep up on. Yeah,

Kevin: 4:45

that's for sure. But just know that these are our goals and just that, goals. They are not set in stone, and if they do not happen, or maybe happen differently, then we just roll with it. It's like we are constantly riding a wave and sometimes we're really up high flying along, and sometimes we're sitting in still waters waiting for the next big wave to ride. There are a lot of factors that contribute to our investments and as with everyone else, where cash flow and appreciation are the two main things we are looking for, there are certain things in our own personal life that we have to consider as well into the areas we are looking to invest. So briefly, I will tell you that for the areas and locations, I mean the ones mentioned above, we are looking at things like how strong are the employment opportunities, how friendly are the tenant landlord laws, and what's the average appreciation?

Stacie: 5:38

So let me interrupt here and say that appreciation is a real tough one. Because some areas like Houston and Nashville, and Boise too off a few years ago and saw record levels of appreciation. And now they're suffering a little bit because reality has leveled off and they're working to keep up. And from what we can tell, they're, they're not doing a great job at that. Those kinds of markets are correcting themselves back to the kinds of increases that they used to see, which is a much slower appreciation.

Kevin: 6:13

Yeah. And well, I'll say we're seeing that especially for Boise. I mean, kid number two's girlfriend is looking to buy a townhouse in the area. And she's just thrilled the prices are leveling off so she can afford something. But it's that leveling off that's making it hard for us to justify buying our next property there. For us, the entry point is just too high for the lower appreciation and cash flow we prefer. Now, California is the opposite with strong appreciation and a lower cash flow than we'd like to see. So that is why we are taking our time and crunching our numbers with this next purchase. But in addition to all those factors I just mentioned, we will also consider weather in the area. Of course, extreme cold locations are not somewhere where you really prefer. Ice can be an expensive thing to deal with considering burst pipes, cleaning pathways, failing heaters, etc. And we know many, many landlords deal with those things every winter. But with us not being there and having to count on others to manage the rentals, this is something we prefer to avoid. And we know that some of the areas we mentioned get cold and get snow, but they're not like North Dakota where the numbers in the winter barely get above 10 degrees some weeks.

Stacie: 7:31

Yeah, right. I mean, no, thank you. So Kev, do you still track Carrington North Dakota on your weather app?

Kevin: 7:37

You know, I do.

Stacie: 7:39

So a quick side note here. Kevin's grandmother had land that she gifted to him a few years before she passed back in the late nineties. And it was farmland that Kevin got a pretty decent payout on each year, but in 2022, he decided to 1031 exchange that land and buy a fourplex in Idaho. And when I'm complaining about the cold weather here in California in February, Kevin likes to show me the weather back in North Dakota just to shut me up.

Kevin: 8:09

I do. I mean, I have no idea how people can live like that. And I know we're spoiled with our weather here on the West Coast. But when I see negative 10 or 15 degrees, and mind you, that can be the high, I even start to cringe.

Stacie: 8:25

Yeah, me too. And that's part of the extreme weather that we're talking about here. You also have Florida that sees hurricanes and, you know, flooding in a lot of places. So those are areas that we do try to avoid. You know, Tornado Alley, things like that. And of course, I know that when you live in that area, you know how to maintain it and handle it, but it's just something that we prefer to avoid for now. Okay, so we narrowed down a few areas that Kevin mentioned at the beginning of the episode. And after we determine a city, we will then look at the neighborhoods. And this is where we really start our own personal due diligence before putting in any offers. We want to know it's proximity to major employers. So is it walkable or is there public transportation available? Are the schools in the area good? And that's another thing that one might want to look at. And personally, we don't hold that number really high. If we're buying a single family home with the hopes of a family moving in and staying long term, then, yes, schools would be an important factor for us. But with apartments, we tend to see more single tenants or couples than we do full families. But safety of the neighborhood is definitely something that we're going to consider. We prefer B level areas or maybe C plus that's on the border of a B neighborhood where we can catch some of that overflow of the B level tenants. When we narrow down a property and we are going to do a walkthrough, we will look at the condition of the neighboring properties and the parking. We will sometimes walk the neighborhood, both in the daytime and the evening because sometimes things can change after 5 p. m

Kevin: 10:09

Yeah, you're talking about Chico right where the neighborhood was totally quiet during the day and actually most evenings, but come Thursday and Friday and that frat house two doors down just came alive.

Stacie: 10:23

It did. All right, another quick story. Right before we put our Chico rental property on the market, we were up there getting the house ready for the stager to come in with all her stuff and it was a Thursday around 4 p. m. And all of a sudden we hear all this noise and loud music, and we're like, what the heck is going on? So, I go outside, and two doors down they have this huge speaker blaring music. And, it's okay, it was good tunes, so, it was, that was cool. But they'd set up an impromptu car wash to raise money, I assume for the next party. And they were hooping and hollering at every car that went by to try to get them to pull in and get their car washed. So I video this going on and I sent it, well I sent it to kid number two asking if he missed this part of living in the Chico college town. And he responded with those are the best days of my life mom. I miss it so much, So I got a good laugh out of that. But then I sent it to the Realtor and jokingly saying that I guess we have to disclose this as a noise nuisance. And he came back with oh my god, unfortunately, yeah, we do. Then he also joked that maybe we'll only do showings at 6 30 a. m. But you guys noise is a huge factor that is supposed to be disclosed to a new buyer. And unfortunately, many landlords who are selling an investment property really don't live there or spend time at the property at different times of the day and night. So they're not really understanding what's going on and to be able to disclose it. This is why we like to walk a neighborhood or sit in our car for a while at night so we can see what goes on.

Kevin: 12:06

Yeah. I mean, in like in Sacramento, we can park easily during the day, but at night it's a different story. We might have to circle the block for, you know, 30 minutes or so waiting for a spot to open up.

Stacie: 12:18

Yeah, and, and you have dogs that bark too. Maybe the owner's gone all day at work and puts them out in the yard at night when they get home. And then they bark at everyone and everything that that goes by. You know, that's a nuisance as well. And it's one thing that might make us think twice about buying a rental property.

Kevin: 12:36

Something else we have done is when there's an open space next to the property, is to go to the city and see if there are any building projects on the books. And this is something we experienced in Sacramento. There was an open lot next to and behind our sixplex, and they ended up putting a three story residential building on both lots. And the city was so desperate to add housing, they allowed them to build within one foot of our property line.

Stacie: 13:03

Yeah, which is absolutely insane.

Kevin: 13:05

Yeah, and they also required an easement onto our property, as they had to have an exit from the garage as part of egress in case of a fire or an emergency where they couldn't get out of the front of the building. So this is why we are telling you to become familiar with the neighborhood. Talk to the planning department about planned developments and know where the schools, parks, grocery stores, and areas of interest are. One so you can find out what's going on in the neighborhood. And two, you can also use that to market the units when you have a vacancy. In both Sacramento and Idaho, our units are within walking distance to parks, shopping, eateries, and that's all a huge bonus for tenants. This is definitely something we will look for in our future properties as well. Because amenities are not just what you offer within the confines of your building. They also count for what is around your property as well. Now, of course we are evaluating financials before we even show up to look at a property. We want to know what the rent roll is. That's the current rents the owner is getting. What they are responsible for paying by way of expenses like water, sewer, trash, landscaping, snow removal, HOA fees, list goes on. We will ask to see the last 6 to 12 months of invoices depending on the season, as water in the summer months can be much higher than in the winter months for landscaping. And also for non municipal expenses like landscaping and snow removal, we will call and get our own quote. And the reason for this is that many of our properties, we negotiate a special price for our service workers and when we sell that property, for example, like in Chico, the price that the new owner will pay for, say, landscaping or pest control, is higher than what we are reporting on our P& Ls. So always do your own research. You might find that the old owner was using his son to mow the lawn and paid him a small wage, but now that he's going off to college, you'll have to hire a full fledged landscaping company to do the job, which will cost you maybe four times as much. For rents, we look at what they are charging and then what the market shows. Not what the realtor or property manager says, what the market shows. You know, on sites like Zillow or Apartments.Com. Because that's where the tenants are looking for rentals and that's what they're going to be willing to pay. This research also tells us how many units are vacant in the area, which high turnover is not something you want to see. So many times the pro forma statements that come from the seller are really off. So please do not depend on those numbers. Always do your own research and come up with your own numbers.

Stacie: 15:54

Yeah, we made that mistake in Idaho.

Kevin: 15:57

We did. Well, kinda. I mean, our issue was the market said one thing, but the property manager in charge of placing tenants in the complex as a whole was not necessarily following the market. And for perspective, we own one of twenty 4 plexes in a community and the property manager handles all of them. So what we didn't realize is that many of the other building owners, who bought their properties at half of what we paid or less, we're making profits hand over fist and we're thrilled with the rents this property manager could get. Where we were looking at the neighborhood as a whole and thinking we could get higher rents, not realizing that the property manager was marketing rents on his site for way lower. And so a tenant would potentially come in and see one unit being offered at say$1300 a month and we were asking$1500. Anyway, this was a major faux pas we made by not thoroughly doing our due diligence, and depending on the word of the Realtor, who frankly didn't know about this either. So you guys this is all the information that should be available to you before you make an offer. You also can usually walk through at least one unit before making an offer as well. Keep in mind they will offer up a vacant unit or their best and most clean unit for you to view. And we know this because this is what we do when we have an owner selling a building. Usually there is always one great tenant who is open to having their unit toured and they keep their place nice and clean, which is wonderful for a potential buyer to see. Now, of course, once an offer is made and accepted, all of the units have to be inspected, so that only goes so far. But it does help to have a nice unit for the buyer to see initially and then get excited about the condition of the property.

Stacie: 17:50

Yeah, it allows them to see the potential of the building even if all the other units are a mess.

Kevin: 17:55

Exactly. And we are talking about multi family properties here. So obviously with a single family home the viewing is different. But the neighborhood and expenses are not, so be diligent about evaluating and estimating those.

Stacie: 18:10

And a few more points on walking around the property in the area. You want to look at the condition of the sidewalk. Like are they maintained or are they all cracked and fallen apart? Are there dumpsters all over, and are they clean and neat and tidy, or is there a bunch of trash and dump furniture all around it? Do you see abandoned vehicles, or even driveways with a bunch of cars or junk in them? And I, I guess you could ask yourself. Is this somewhere I'd be willing to live if I had to?

Kevin: 18:38

Exactly. And as we target B level properties, this is something we do consider.

Stacie: 18:43

So let's say we find a property where the numbers work. And from what we can see, the neighborhood looks nice enough from the little yellow guy on Google where you can drop him down. Walk around the prospective property. Our next thing is to get into the property and do a viewing. Now for this if possible, we like to bring our contractor and obviously this is in Sacramento or closer areas. But we generally will try to see the property before making an offer on it. We are trusting, but no way are we investing a million dollars into something that we do not thoroughly investigate. So, if we're looking at a property out of state and do not have a contractor, we will find one. Either one that our Realtor has or we will ask in one of the many online forums that we're a part of. And we will either offer to pay them, or, if they don't want payment, and we end up not buying that unit, we're going to send them a hundred bucks for their time because it just creates goodwill just in case next time we need them again to inspect another property. But we usually like to have a general contractor with us so they can point out issues that we might not notice. Like water damage and termites, raised pavements, dry rot, et cetera. You know, you guys were not builders and we're looking at the property the way a potential tenant would, but we've been taught now to look up and look down, not just look straight ahead.

Kevin: 20:11

Yeah, we really have learned quite a bit over time, but we still miss things that a contractor will catch. So let's now talk about what structural things you should be on the lookout for when touring a potential investment property. And on a side note, we do like to walk the property ourselves. I mean, we know there are a bunch of people out there telling you that you don't need to travel to a property to buy out of state. And that's correct, you don't have to. Personally we don't like to operate like that. We like to have a finger on what we are buying. This is our hard earned money and we have certain standards, so it's important to us to do initial inspections personally and not rely on a Realtor to do it for us. Okay the exterior. I will start with the roof. Look up and see what you can of the roof. And you might have to go across the street to look if it's a high roof too. So oftentimes you'll see the description of the property online, new roof. And hey, like you, I'll be excited to have such a large expense already taken care of. But one thing to be mindful of is how many layers of roofs does it have? When we purchased our single family home rental in Chico, we noticed it was in the need of a new roof. What the bummer ended up being is that it had a total of three roofs on the home. And it's common to layer a new roof over the old one, but this can create issues where the roof line meets the gutters, plus they don't tend to last as long. If there were prior leaks, the sheeting likely was not pulled off and could be dry rotted if the roof leaked for a while. And sometimes adding a roof over an old one is just adding a bandaid and not fixing the problems, that can lead to way more problems down the road as well as expense. Lastly, the cost to remove all of them is much more than if it's just one roof, plus dumping and garbage rates are really crazy expensive to dispose of all the materials. Next let's talk about the materials used. Try to avoid wood shingles if the property is located near a wildfire zone. According to the pros, asphalt shingles are the most common and best material when considering life and expense. Of course, roofing materials change depending on the climate, so make sure you have a good understanding of cost if you're evaluating a roof in a different area of the country then you are used to living in and operating your rental property business. Roofs in California are much different than those in Florida. I mean, completely different climates. Extreme rain and wind with humidity in Florida, while California has much milder weather, but high wildfire danger. Places that get a lot of snow in the winter might need metal sheeting on the roof, so the snow can fall to the ground and not weigh the roof down. Be sure to check out gutters and downspouts. And clearly you can see if the gutters appear to be rusted or missing downspouts. And it might not seem like a big deal, but if the rainwater is not directed away from the foundation, it can find its way into the crawlspace or basement and create a mold issue. The next thing you want to look up at are the chimneys, if they're present, which for a single family and duplexes is quite common. Now, our single family rental had one, but the previous owner had covered up the interior of it. And oddly enough, they left the chimney stack going through the roof. We found when we had to tear out the three roofs, that the 100 year old bricks were crumbling and they had to be removed. Having a fireplace in a rental is nice, but it can be more hazardous, so we opted not to replace it. You're going to want to look for cracks or broken bricks in the chimney. Those openings could extend into the interior of the fireplace and be a fire hazard when a good blaze gets going. Heat and embers get through those cracks and can cause a fire. And repairs to fireplaces can be costly, and that's likely why the previous owners of our Chico rental opted to cover it up.

Stacie: 24:16

All right, so now I'm going to take the foundation. And I will tell you, look down when you're walking the perimeter of the property. For properties with a crawl space or a basement, it's really important that you're checking the foundation and all around it. Look at the foundation and see if you can find any cracks. So, small cracks are okay, usually easy to fix, and we had those in our Chico property, so we were good to go. Large cracks with gaps may require structural repair, and that adds up fast. Many properties don't have a foundation and are located on concrete slab, and cracks in the slab would only be able to be seen on the inside, and only if the flooring was removed. So, good luck trying to see those. You want to check the sloping near the foundation. And okay, this is where being on site really comes in handy. One issue that we recently found on a property that we were looking at, was that the land that led up to the foundation was sloping downward into the foundation, also known as a negative slope. Unfortunately, this is a way for rainwater to seep into the basement or crawlspace and create mold. And sure enough, when the crawlspace was inspected, there was mold present. Can it be remedied? Absolutely, but for a price. So look for property with land that slopes away from the house, not into it. And while looking at the sloping of the land around the foundation, look at the landscaping. Check around the perimeter of the property for large trees, where roots might extend under that foundation. And, if you catch those tree roots early, you can remove the tree without having foundation work to repair and secure. Large trees can also mean that the canopy hangs over the property and that can allow rodents to access the roof in the attic area. We have this problem in Chico. They also need maintenance. So make sure that you are considering all that in your expenses. In areas where there's a lot of rain, it's good to have gravel or cement around the perimeter of the home, as long as it slopes away from it. This is one of the most cost effective methods of preventing overgrown weeds and shrubs and possibly soil mounds from compromising your building. You want to check out the water and the gas meters. When you're buying a multi unit property, see how many water and gas meters there are. If it's a fourplex, but you see five gas meters, there may be an area where you can add an additional unit. Also evaluate where they are located on the property and do they have updated piping going into your building. And one water meter versus one for each unit means as a property owner, you are responsible for the water bill. And you can certainly use a RUB service. That's ratio utility billing service. And they use metrics and they divide the bill amongst the tenants. But in some areas, there are stiff regulations to follow, and it may not be worth it. Water bills can add up fast. So make sure you're accounting for the expense in your analysis. Air conditioners are another one you need to inspect. And, okay, maybe this is not evaluating a structural item on the property, but we have seen some doozies when we've been doing our inspections. Window units that were braced up and held by a 2x4. Not kidding there. Newer units that have vibrated nearly off the cement pad. And no, the people did not fix this before actually allowing people to come and look at the property. Roof units that were rusted and leaking and the list goes on. So where AC units are now becoming legal requirements in some states, we see you Oregon, they are absolutely a necessity in many areas where the summer heat and humidity can be unbearable. Does this mean that the previous owner took care of the units and had them service every spring? No, it does not. So you want to look for debris at the top of the unit, rust, or corroded fittings if you have access to it.

Kevin: 28:29

And depending on the number of units, air conditioners can be really expensive to replace. So yeah, super important to check those out. Okay, you're going to want to check on decks, stairs, railings, if there's any on the property. And DIYers have the best intentions, but building decks and stairs really needs to be left to the professionals. I mean, there are codes for a reason. It is important to know if the stair tread is the correct depth, the rise, that's the height of the stair, is not too tall or too short, and the railings need to be at a specific angle and height as well. Posts need to be bracketed and secured in cement to deter dry rot at the bottom, and a certain number of supports to avoid deck boards from sagging. Buying a rental property that has these structural issues can be a liability lawsuit just waiting to happen. Railings that are not secured and then leaned on can give way and someone could fall. An uneven stair tread can cause someone to trip while going down. Dry rotted posts and supports can cause the deck to collapse if too many people are standing on it. Now, California has enacted a law, it's SB 721, also known as the Deck and Balcony Law, for exactly these reasons. And we did a podcast all about it, and if you own or plan to own rental property in California, you really should give it a listen. The deadline is coming up, it's in January of 2025, and after that they will be issuing some pretty steep fines for non compliance. We will link that in the show notes for you.

Stacie: 30:05

Yeah. And sorry to be the bearer of bad news, but I need to just let everyone know that other states are also working on a law similar to the one here in California. So be aware that if you have any issues with your stairs or decks, you need to be diligent about handling it.

Kevin: 30:22

Yeah, good point. Okay, finishing up the outdoors. You want to look at the siding and especially around the windows and windowsills looking for dry rot and water intrusion. Which to be honest, we can now spot dry rot, but if a home is freshly painted, they could easily spackle or bondo over dry rotted wood and then paint and you'll have no idea.

Stacie: 30:45

My dad does that

Kevin: 30:47

Yes, he does So this is where your contractor or at some point the home inspector really earn their money. Professional inspectors are expected to, and will dig a little deeper with their inspections, and look for all the things we have mentioned, and still have to discuss. Okay, moving on to the inside of the property. Now it might be tough to find some of these issues as normally when you do an interior walkthrough for a rental property, it's pretty quick. Especially if there is a tenant living there. But if you can, look at the windows and look for mildew or fogginess to see if the seal is broken, making them not very efficient. You'd also like to know if the windows open properly for egress because this is a code for bedrooms and living areas in case of an emergency.

Stacie: 31:35

Yeah, we see a lot of this issue in older homes where the windows are those sash style with the rope and the pulley mechanics, where the ropes are broken and the windows don't stay open.

Kevin: 31:46

Yeah, and what we also see windows that are painted shut as well. I mean, we had a couple of those in Chico, but we're lucky. There were other windows in the room that did open. Not well, but they opened. If you get a chance, check out the water heaters and mechanicals. And unless you know exactly what you're looking for, it's kind of hard to tell what their condition is, but usually they will have a sticker on them that says when they were manufactured. So it kind of gives you an idea of how old they are and when they should be replaced. Now, older water heaters might not be as efficient, but they sure do last longer than the newer ones that are out now. You also want to see if there is any asbestos on the vent pipes because that can be a pretty hefty expense added if you have to get a whole new heating system. Take a minute to check under the kitchen sinks as well and look at the base of the cabinet for water stains. This could indicate a leak. This could also be from an aging garbage disposal that is rusted out and leaking as well.

Stacie: 32:47

Yeah, and do the same thing with the bathroom sinks. And honestly, you guys, those are not huge expenses, but what it does show you is how the landlord has cared for the property. Because think about it. If you're getting something ready to sell, you're usually going to spiff it up and make sure everything is looking good and working well. You know, like when you're selling a car, it's usually the cleanest on the day you buy it and the day you sell it, right? If you're able to find a bunch of problems when checking out a potential rental property, you're likely just picking up than you prefer to handle. You're picking up someone else's problems. If it's obvious that the owner has not done preventative maintenance or you find clear lease violations in occupied units, you're looking for a lot of work to make that place top notch to yield your best market rents. Unless, of course, you plan to use the BRRRR method and gut the place and renovate it, then you can use those issues found as bargaining power. Okay, continuing with the inside. Look up. Look up at the ceiling. You're going to look for brown spots that indicate a leaky roof or a water leak. You want to look for smoke detectors. And you should find one in each bedroom, as well as the hallways and the living areas. Check around the top of the chimney for water stains. Cause there may be a need for some flashing work done outside to protect the roof. If you can get access to the crawlspace, peek in there and see if you can notice a vapor barrier to protect the foundation. If it's just dirt, then there's nothing to keep that water away from the foundation.

Kevin: 34:24

And we had this issue in Idaho. The vapor barrier was there, but was not installed correctly and the crawlspace smelt really mildewy. I mean, it can be for some, but for us, it wasn't a huge expense to remedy.

Stacie: 34:38

but if mold starts growing under there, you can have a major issue on your hands, because then you're looking at getting slapped with a health and safety violation from the city if the tenant finds out. Other things to look for are the materials used for the water, gas, sewer, and HVAC vents. You want to make sure there's no lead or galvanized pipes. And like Kevin mentioned earlier, no asbestos wrapped HVAC vent pipes. If you really want to dig deep on an older home, use a screwdriver to remove the plate to a light switch or a receptacle and check and see what kind of electrical wiring there is. You want to see thick white coated Romex. If you see knob and tube, you'll need to replace that pronto. And that is crazy, stupid, expensive. Many of these items may seem quite obvious, but we certainly have walk properties before that we just love. And we try to overlook many of the issues. Knowing they were there, we entered into a purchase contract only to have an inspection slap us in the face with reality. And like you, we are in this business to make money and some repairs are just not worth it. And in the end, we are glad that we, or someone that we hired, took the time to evaluate these items of the rental properties.

Kevin: 35:58

Okay, one last thing if the home or building was built before 1978 It is likely there was lead based paint used inside and out. Now, we're not saying you need to go crazy about this, but if your state requires you to disclose this in your lease, you better make sure you do. So that's it for the physical stuff to keep a lookout for. Now I want to quickly go over the leases and what you should be looking for at those. And what you should be looking at with those. And this is because if you buy a property with tenants in place, you usually will be honoring the existing lease until it expires. Some landlords will get tenants in place right before putting their property on the market so that it looks full and shows a lot of money on the rent roll. Now personally, we prefer to buy a place fully vacant so that we can go in and do all the renovations and then place new tenants using our own lease. Now you can request tenants sign a new lease with you you. But they don't have to do that. They have a lease with the old landlord and those leases do transfer over with the sale and remain in effect until expiration. Okay leases. You likely will not get to look at the leases until after you make an offer and it has been accepted. And this is why it's important to look at the rent roll that will give you what the current rents on a rental property are. But if you get to the point where you can inspect the leases, you want to be looking at their expiration dates. Some landlords, Stacie has a family member that does this, prefers two year leases on his single family home rentals. And you know what, that's a long time to wait if you end up having issues with an existing tenant. You also want to see what the current owner has agreed to. Some will pay tenants for maintenance work, and if you have your own team or prefer to do the work yourself, this will need to be addressed. And some leases are super old and not updated to include proper protections for landlords. There may be concessions for fees waived, utilities paid for by the owner, or use of space within the rental that you want to use yourself, you know, like a garage or storage shed. So if you get the opportunity, go over the lease line by line to see what it includes. And as we say on every single episode, know the landlord tenant laws. Some cities want to limit the number of rentals allowed and have a high permit fee or a lot of red tape you have to work through by way of expensive annual inspections. Property taxes are another one. Some states do not increase property tax rates until there's a sale, so go to the assessor's office online and establish what the new property tax will be. Understand the financial stability of the city you're buying in. A town in financial distress may hike taxes far beyond what a landlord can realistically charge in rent. Talk to the company or persons that manage the HOA to make sure there are no big assessments planned for the community. Check the crime rate in the area. I mean, no one wants to live next door to a hotspot of criminal activity. Check the rates for vandalism and for serious and petty crimes. Don't forget to note if criminal activity is on the rise or maybe declining. You also might want to ask about the frequency of police presence in your neighborhood. Online state and municipal sites, the local police, and even the public library should have accurate crime statistics for neighborhoods. can also research areas by going to the FBI's Crime Data Explorer page, and we'll link that in the show notes for you. Natural disasters are another one to understand. I mean, who would think that the little college town of Chico would be smack in the middle of where two of the four largest wildfires in California history took place. Now, insurance rates will be much higher in places with greater chances of floods, wildfires, tornadoes, and hurricanes. So, understanding how this will impact your profit margins is really important.

Stacie: 40:06

Yeah. I mean, those are all great points. So, here's the deal, you guys. If you're new to investing in rental properties, it's important to know that every state has good cities. Every city has good neighborhoods. And every neighborhood has good properties. And it takes a lot of footwork and research to line up all three of those. When you find your ideal rental property, keep your expectations realistic and make sure that your own finances are healthy enough to carry you until the property starts generating income. That is our show for today. We really do appreciate you taking the time to listen to all we have to say about landlording and owning rental properties. If you like what you hear, subscribe to the podcast or give us a follow so you don't miss out on any episodes. And if you really, really like what we have to say, would you do us a favor and leave us a kind review and tell other landlords that you know about us? We would be really grateful if you could do that. We would love to stay in contact with you. In the show notes, you can find links to all of the free downloads that we offer, ways to sign up for our free weekly newsletter, and the wait list for our upcoming course on placing your ideal tenant, of which a significant portion of the course will be on tenant screening. There's also links to our social media accounts where we share very informative and detailed tips and tricks for landlords. So check those out. I think that's about it. Thanks again for listening. And until next time, you've got this landlords.