This week, I share insights on how to conduct due diligence when you’re looking to buy a home. Whether you’re buying a primary residence or investing in rental real estate, rigorous due diligence is critical to ensuring you get a good property at a reasonable price. In this episode, I explain my entire process for thoroughly analyzing a property before writing an offer.
- 10 key things to look for when doing pre-tour due diligence
- The 4 big things to look for in disclosure packets
- How to evaluate the history of previous remodels, structural changes, or additions to the house done by prior owners
- Special tips for buying a condo – how to analyze HOA records, financials, rules, and CC&Rs
- My 12-point checklist on what to look for when touring a home in person
If you’ve bought a home before, what are the most important due diligence items you look for? Let me know by leaving a comment.
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- Battle-tested home remodeling tips for saving serious money and getting the most from your contractors
- How to find and vet good home remodeling contractors like a boss
- How to write an offer to purchase a house (that stands out and wins)
- How to do a residential property inspection step by step: What smart real estate investors look for
- How to research real estate markets: The single best resource you need
- Avoiding capital gains tax on real estate: how the home sale exclusion works
- The True Benefit of Homeownership (why buying has paid off over renting, even in a million dollar market)
- Schedule a private 1:1 consultation with me
- HYW private Facebook community
Read this episode as a post:
I hope you’re all doing well. Summer is fast approaching. That means it is ramping up to be the season of home buying again, and I wanted to do an episode on the home buying process.
I haven’t done a solo episode for a while, so today I’m going to do this one just solo. And what I wanted to talk about is my process for buying a home. I’ve now bought several homes before, both primary residence and investment property.
And while some of the due diligence process is individual-specific, based on people’s specific tastes, there are some aspects that I think are universally true for people who want to make sure that they’re buying a good home. So, I wanted to share a little bit about my own thought process when I buy a new home.
I want to chunk this out into three distinct phases. The first phase around before visiting the property, the pre-visit phase. What are the due diligence tasks that I tend to do, mostly online, before I reach out to any real estate agent or reach out to schedule a showing or even go to the open house?
The second phase is around what I look for in the disclosures. The disclosures are legally required disclosures, a packet of paper that the sellers will produce and will distribute through their real estate agent to potential buyers. They’ll contain a lot of information, most of which is not super helpful or relevant, but there’s some information that’s super critical to pay attention to in the disclosure, so I wanted to walk through a little bit about what I look for in disclosures.
And then finally, what I look for when I’m on site at the property, walking the property, at a tour or an open house. What are the kinds of things that I look for to make a determination? In the end, am I going to write an offer and try to purchase the property?
So, that’s the agenda today. I wanted to talk about those three things: pre-visit, disclosures, and the visit due diligence checklist. Hopefully, this is helpful to you if you’re thinking about buying a home either currently or in the near future.
Obviously, the housing market is super crazy. It was gangbusters last year, driven by the pandemic and low interest rates. It probably won’t be as crazy this year, knock on wood, but it is probably still going to be very competitive, so hopefully, these tips will help you if you are currently thinking about buying a home or considering doing so in the near future.
The first topic bucket I wanted to talk about was the pre-visit due diligence checklist. What are the things that I typically look for when I see a new property just hit the market, whether it’s from the MLS, on Redfin or something like that, or a private listing that got referred to me by a real estate broker or somebody in my network, etc.? What are the things that I try to look for right off the bat before I contact anybody?
There’s about 10 or 11 or so things that I look for. The very first thing I tend to look for is I check the school rating: elementary, middle school, and high school.
There’s a service called greatschools.org. They do standardized rankings of all the elementary through high schools, I think mostly in America, certainly all the public schools. I’m not sure if they do private schools as well, but it basically gets all the coverage that you need.
And in case you don’t know, the quality of schools typically very powerfully influences the value of the homes in the school district, because often people who buy homes are young families, families who are moving to a home because they want more space, they’re thinking about where they’re going to send their kids to school.
So, checking the GreatSchool ratings on greatschools.org, which actually are syndicated now, so most of the major real estate websites like Redfin and Zillow, they’ll just show them there. I tend to look to see what the quality of the schools are.
My mental shortcut is it’s a 10-point scale. 8-10 is good, 6 and 7 are so-so, and 5 and below are not so good. And you’ll generally see housing prices or home values strongly correlate with that.
So, I tend to try to look for homes that are in the better school districts. If I’m going to live there myself, I probably will be a lot more rigorous about looking for an 8, 9, or 10. If I’m looking for an investment property, 8, 9, or 10 is great.
But if the pricing is too high for that quality, then I will sometimes dip down to a 7 or even 6’s, because for investment properties, if you’re not going to live there, it’s perhaps, for you, a little bit less relevant, and all that matters is what your tenant base is interested in.
So, GreatSchool ratings, that’s number one. That’s probably the most important thing that I look for.
The second thing I do is I do a whole bunch of mappings to local shops and services. I map, for example, the distance to the local major grocery stores, whether it’s Safeway, Kroger’s, Albertsons, Vons, Whole Foods, Walmart Grocery, Ranch 99, whatever your local grocery store is. I tend to use Google Maps, and I use the Nearby feature.
You type in your address, you hit Enter, it shows your address and then there’s a Nearby button that you can search for all the nearby businesses. So, you type in Kroger or Safeway or something like that, it will just show all the local Safeways nearby, and you can hover your mouse and see the driving distance in minutes to each of the local major grocery stores. I do this for groceries, for big box stores like Costco, Walmart, Target, Home Depot, Lowe’s, things like that.
I also plot the distance to the workplace, so if I’m going to live there, my workplace, my spouse’s workplace, to my kids’ school, not just the current school that they’re at, but I try to think of all the schools they will likely attend while we’re living there. I try to plot the distance to all of them to see what the commute time will be. So, preschool, elementary, middle school, high school.
I do all these mappings to see the distance to things because, as I say in real estate, location is everything. That determines such a huge amount of the home value, and verifying the proximity and convenience to local services and amenities is a key part of the pre-visit due diligence.
The third thing I look for is the presence of good quality parks nearby. This is not something that I thought of as importantly when I was earlier in my real estate investing journey, but as a parent now, I actually think this is really important. I think a lot of families look for this because they want a place that they can take their kid to on the weekend or in the afternoon, ideally that they can easily walk to.
Because right now, home lots generally are not so big outside of a few states. Generally, you’re looking at a 5000-6000 square foot lot. And you might have a yard, and maybe it’s nice for a little kid to able to play in it, but it’s a different feeling to be able to play soccer in a park, or go play on a playground, or go swim in the community pool at the park, or whatever the case may be.
And generally, parks have a lot of amenities that are very desirable to young families, children. Like I mentioned, playgrounds, baseball fields, pools, water recreational stuff, picnic areas, barbecue areas, things like that. And good parks will generally have a combination of all these things, and will generally tend to be very large.
And if your home is located especially walking distance to a park like that, it really reinforces the home value and makes it a lot more desirable place to live. I would want to live close to a park, and that’s one of the things that I certainly look for. And I do see that home prices correlate very strongly to how close they are to a good quality park that has a lot of amenities and that’s safe.
In modern times, in these parks, having a good amount of tree cover is also really important. If you’re near a park that doesn’t have a lot of trees, it’s just directly exposed to the sun, maybe it’s just a big soccer field or something like that, that’s okay. It’s better than nothing.
But the summers are getting hotter, and a park that has diversity of foliage, a lot of trees, big trees that provide shade cover, and a lot of different types of amenities are going to be the most desirable parks because they’ll be able to appeal to the most diverse cross section of potential residents. So, that’s one thing I look for in parks.
The fourth thing I tend to do is I’ll use Google Maps and I’ll use the Street View feature and the Satellite View feature, not just the flat 2D map, but I’ll enable the Street View feature or the Satellite View feature to navigate around, to pan around and see what the overall neighborhood looks like. I also will look very closely at the home itself to see how it’s laid out, how large the backyard and front yard appear to be, what the roofing material seems to look like it’s made of.
From the street view perspective, I’ll try to take a look at the surrounding street to get a feel for what might it feel like to live in this area. Are there a lot of cars parked on the street, or are they generally neatly parked in people’s driveways? Are there potholes in the street, oil stains, or do the streets look pretty clean?
And I’ll even navigate around street view. You can traverse street view, you can move around the streets to do a virtual neighborhood walking tour to get a feel for the surrounding houses. How does the house that I’m considering look compared to surrounding houses?
Does it look better, does it look worse? What is the look and feel of the neighborhood itself? That can give you a lot of information about the neighborhood and the home.
Not necessarily the most quantifiable information, but a lot of this is about how you feel. Do you feel comfortable in the home and in the neighborhood? Street view is a really efficient way to get that signal without even getting out of your chair.
Another tool that you can use for this is Google Earth. It’s related to Google Maps but not the same, because it will have a 3D rendering which you can spin around and rotate to see the home and see other aspects of the neighborhood, so you can get a feel in 3D both what your home looks like, how it’s situated in the neighborhood, and what the overall neighborhood looks like.
The next thing I look for is I want to get a sense of the volume and type of crime that may exist in the neighborhood.
There’s crime everywhere, even safe neighborhoods. There’s petty crime, there might be theft of Amazon packages, porch pirates, and stuff like that. There’s crime in every neighborhood.
I typically use, just for convenience, Trulia’s website, trulia.com, and I look up the home there. Underneath the photo carousel, there’s a button that is an overlay heat map using colors to show the amount of crime that’s around your home and in the surrounding neighborhood. Generally, green or blue is low crime, and orange and red is perhaps a lot of crime.
It doesn’t necessarily mean that it’s unsafe, but it’s a directional data point. It’s an indicator that is useful to get a sense of the type of crime that may exist. If it’s bright red, and it’s red for blocks around, that probably is going to make me pause and reconsider.
But I also want to get a sense of what type of crime. On the Trulia crime map tool, when you click it, it not only shows a heat map, but it actually shows a list of police reports that were filed, so you can see. And the most important thing, I think, to pay attention to here is whether it’s violent crime or not.
If there’s robberies, purse snatchings, or whatever, God forbid, murders, that’s pretty much an instant no for me, and I won’t consider the home any further, especially if there’s very incidental amounts of that type of crime, like violent crime. If it’s more petty crime, like graffiti or loitering (loitering is maybe a gray area), porch pirates, stealing Amazon boxes, petty theft, that might be okay.
Here, I think it’s also helpful to sanity check what the Trulia crime map is telling you versus what locals are telling you when you go visit on site, or local real estate agents, if you call some up and ask them, “Can you tell me about this neighborhood? How safe do you believe it to be, and what have you heard about the crime levels and safety, etc.?”
You do that a few times to people who are unconnected to each other, you’ll get a pretty good quick sense and a sanity check on what Trulia is telling you, and get a real life version of whether the area is safe and how much crime there is.
The next thing I look for is I will do a residential zoning lookup, not just for the specific home I’m considering, but for the surrounding blocks and neighborhood. And you can look this up online, usually from your local county records. They’ll often have maps that show boundaries for different zoning codes.
Knowing that will tell you something about the kind of neighborhood that you’re potentially going to be living in or renting in. You might be able to draw some inferences about the kind of residence, your neighbors, are they going to be renters, are they going to more likely be owners, what the street parking situation might be.
If you’re right next to a big apartment complex, then there’s probably going to be less street parking because there’s a lot more residents packed into a small square footage, and they’re going to have cars. If you’re in a single-family area, there’s probably going to be more street parking available because everybody has got a driveway and everybody is parking in their driveway.
So, I tend to look at the zoning designation not just for the home. That should probably be clear when you first see the listing, but sometimes it’s not. I’ll look up the home and also the surrounding areas.
Let’s say I want to buy a single-family home, and I’m really just focused on buying a single-family home. I would probably think a little bit differently between Scenario A, where I have a single-family home in a completely single-family neighborhood for many blocks around, I know what I’m getting, versus a single-family home that’s right on the border of a duplex zoning and then multifamily apartment zoning, etc.
The feel of living in each of those, they might both be single-family homes, and they might not even be that far away from each other, but the feel will be very different. You’ll have a lot more traffic and people when the housing density is higher, and that’s just the reality of it, and all of the attendant things to consider from that.
The next thing I look for is I try to get a sense of the sale history of the home, and what I’m looking for here is whether I see any strange transactions. I can get a very quick peek at this on the Redfin website. There’s a property history section for every listing.
It won’t have it for everything because Redfin tries to do this programmatically by getting this data from local counties, and sometimes the counties don’t have the data or they don’t share the data, etc. So, it’s not like it exists for every listing, but it exists for a lot of them. And you’ll often be able to see a full reverse chronology history of every time the property was listed, when it went pending, when it sold, how much it sold for, how much it was listed for.
Basically, what I’m looking for here is strange transactions. Are there strange transactions that look weird? Either lots of transactions in a row or the home price was changed very dramatically between listing and sale, things like that.
Sometimes you see homes that are listed and then delisted numerous times, or then they’re sold, and then months or weeks later, they’re resold again. It doesn’t mean that the home is bad, but you should certainly understand what’s going on and why that happened. What you want to make sure is that you’re not buying a lemon, that somebody didn’t go in, buy it without proper due diligence, realize something really disastrous about it, and then want to press the Eject button.
Or you don’t want to find out that there was something maybe not defective about the home, but something really undesirable about the home that wasn’t apparent until somebody made a transaction. Maybe there’s noxious smells nearby, like a sewage opening, or something like that.
You also want to make sure that sometimes if there’s a lot of transactions in a row, for example, a lot of quitclaim transactions, maybe there’s an issue with title. They’re having trouble clearing title and ensuring a valid title.
There could be more possible explanations than I can think of, but a big clue on whether there might potentially, not necessarily but potentially, be a problem is if you see lots of weird, strange transactions, especially lots of transactions in a row, or price swings that are pretty drastic between listing and sale, or even between transactions, etc. Again, it doesn’t mean the home is bad. It just means you should dig deeper.
The next thing I look for is related to climate change. I believe climate change is real, and it is really impacting home values, and people are starting to think about it. It’s also impacting the insurability of homes: fire insurance, flood insurance, things like that.
Five or ten years ago, I may not have considered the effects of climate change too much when buying a home or when seeing if the home was insurable. But now, absolutely, it’s on my checklist. I will call an insurance agent or an insurance company and give them the address, and ask them, “Are there any problems with insuring this home?” whether it’s fire, flood, or whatever.
And also, “Do you charge a markup, a premium to insure the home because of an increased risk factor?” If the home, for example, is located halfway up a hill or mountain, not located near other homes, but in a secluded area, and it’s dry, doesn’t rain very often, you’re constantly in drought, that’s a tinderbox. It probably is going to be very difficult or expensive to insure the home, or there might be insurance companies that don’t want to even insure it at all.
So, I definitely look for home insurability problems and whether the insurance prices to insure the home are higher than normal, because that will impact not only the cost of maintaining the home, but it’s also going to impact the resale value.
When I turn around and sell the home later on down the road, I want to make sure I don’t run into problems because other people are doing the same analysis, and it’s eroding the potential buyer pool because a lot of people are scared away that the home is not insurable or it’s very expensive to insure.
Lastly, I look for recent solds nearby, recent comparable transactions. I generally look no older than six months prior. Beyond six months, the home sale prices may not be very reliable because the market can move pretty significantly during that time. But within 0-6 months, and ideally 0-3 months, if you can have enough data points, it will give you a very good sense of potential pricing expectations.
And if you’re looking for a home for a while, you’ll be able to see the change in sold prices over time, sometimes even on a month-to-month or quarter-to-quarter basis. Pulling fresh comps that are 0-6 months old, and ideally 0-3 months old, is probably the most accurate way to get a feel for what pricing expectations will be.
So, those are all the issues that I tend to look for before the visit. Mostly you can do it online.
I’ll check for schools, distance to amenities, parks. I’ll look at street view, Google Earth, satellite view, crime statistics, the Trulia crime map. I’ll do residential zoning lookup.
I’ll look at the sale history to see if there’s strange transactions. I analyze home insurability. And then I also look at recent solds and recent comps.
Now, if the home checks enough of the boxes for you, and you’re interested in moving forward, the next bucket I advise paying attention to is around disclosures. Disclosures are legally required, exactly what they sound like, disclosures of documents that homeowners and, if you’re buying a condo, homeowner associations will have to disclose to potential buyers.
They contain a lot of information. Disclosure packets can range anywhere from short ones, maybe 30 pages, to long ones might be 600-700 pages, chock full of information.
Most of the documents in the disclosure packet, in my view, don’t matter, but about 20% of the documents actually really matter a lot. And it’s really important to be able to zero in on that 20% and really read them carefully to make sure that there aren’t any obvious major flaws about the home that would make it instantly a deal-breaker.
Typically, the most important things to look for are foundation, roof, termite, and major appliance systems. There might be a separate report for each of those things, or there might be a consolidated report that combines some of those things. There often will be a general home inspection report that may cover all of those things.
There will often be a separate roof report just for the roof. There usually will be a separate termite report. Sometimes there might even be a separate foundation report.
Look for all of those, and read them carefully. Every inspection company has a different layout and format for how they present this information, but they generally follow a common pattern, which is, they’ll walk through each of the major systems that they’re inspecting for, and they’ll do a write-up about the condition, the issues they see, and any suggestions or recommendations that they recommend for corrective action.
And their recommendations, they often will divide them into sections: an urgent section (they might notate that with a certain number or letter or color), and then they’ll have another section that’s more like good to have but not critical or mandatory right now. And these tend to be suggestions that help bring your home back to tiptop shape.
The optional bucket of suggestions, I don’t emphasize too much because the inspection companies are going to suggest doing every type of corrective action possible to bring the house up to new, because it’s their license, they’re on the hook if they neglect to tell you something, and then later you complain or you file a complaint that they didn’t do a good job at their inspection.
So, they’re going to recommend doing every aspect of work, but they will put the non-urgent stuff in that second bucket, that “nice to have” bucket.
The must-have bucket, the urgent work, I would really pay attention to those. Those will often be like Section 1 items, or Section A items, or the red color highlighted items, because those are items that either present a code violation, a potential hazard, like a fire hazard, for example, like your insulation isn’t up to fire code or something like that.
Or a health type of concern, like you might have asbestos in your ceiling or something like that, so you might want to remove that using a licensed remedial specialist, etc. Or you see that there’s heavy presence of subterranean termites, and they’ve eaten away at a large portion of foundational pillars in the home, etc.
So, I typically will pay a lot of attention to the Section 1 or the red-colored, the urgent items, and see what items I really need to do, make a personal assessment about “Do I agree with the recommendations? What items do I really need to do?”
And I’ll even try to get some contractor price quotes to see what it would cost, so I know, after I buy the home, how much more money am I likely going to have to spend to make sure that the home is up to the condition that I want it to be and need it to be, and it’s ready to go for the long term?
For foundation, I’m typically looking for things like major cracks that could cause shifting or buckling, if rebar is exposed to the air and is rusting and becoming more brittle, things like that. Those would be major signs of foundation problems that I would either want to factor into my budget or try to negotiate a credit from the seller or even get the seller to fix it.
For roof, I’m looking at what’s the expected lifespan of the roof and how many years left in that lifespan does the roof inspector believe remain? I look at what is the roofing material: Is it asphalt shingle, is it clay tile, things like that?
And what the major roof damaged items are. Are there leaks that were detected that are weakening wood beams or posts underneath, and what is the condition of the degradation? Because that’s going to give me a big clue about how expensive that might be to fix.
These items (foundation, roof, termite, major appliance systems) tend to be the most expensive things to fix when they get bad. That’s why the focus on them.
For termite, I tend to look for subterranean termite specifically because they’re far more aggressive and they eat a lot faster than dry wood termites. Dry wood termites are the ones that fly. Subterranean termites go for the ground, and they burrow through the ground, and they build tubes up from the ground into your house.
Neglected subterranean termite can eat away critical support beams and pillars, and really make it very expensive to fix that in a matter of 2-3 years if untreated and if there is a big colony that grows there and you’re just ignoring it. Dry wood termites, it takes a decade, maybe even two decades, because they just eat a lot slower.
And what type of remediation is being recommended? Does the inspection recommend whole house tent fumigation or localized treatment, etc.? Because those will all impact the cost right after you buy the home.
For major appliance systems, I’d typically look at things like the furnace, the water heater, the HVAC, etc. I’m going to actually speak a little bit more about that in a moment. But mostly what I’m looking for here is lifespan of the appliance and how many years are remaining, and whether there’s any safety hazards that have become exposed and that need to be fixed as a result of it.
I also typically look for whether there has been any structural changes, like improvements made to the house, or additions, extensions made to the house that were reported in the disclosure packet. Sometimes people buy a small home and then they build upon it. They build a second story, they build an extension, they reconfigure the layout, knock down some walls, move walls, etc.
If there’s been that type of work done, an addition or a remodel like that, or another popular one is converting a garage into an alternative dwelling unit (ADU) or a studio apartment, so that they can Airbnb it out or rent it out, and they don’t use it for parking. They use it as a living area.
When there’s that type of work done, I want to be sure that there’s a solid permit history, and the permits were approved, and they were finaled. It’s not common for them to do an addition or extension, but it might be more common to do an interior remodel or a garage conversion without a permit.
If there’s no permit, that’s a big red flag to me because not only do I not know about the quality of the workmanship, the craftsmanship, like was the work done up to code, was it done in a quality way, but it is also a risk that if the city finds out about unpermitted work like that, they can make you roll it back. They can make you literally tear down the addition or reconvert the garage back.
And that’s going to be on you, coming out of your pocket when that happens. You’re not going to be able to go after the homeowner because homes are typically sold as is. There’s no warranties of any kind.
So, when there’s major work done like that, whether it’s an interior remodel, an external addition/extension, or a conversion of some kind, I want to make sure that that work was permitted, permits were approved, all the permit inspections occurred, and then the permit was finaled.
What that means is that a city engineer, a city planner, actually looked at the plans, they approved them, they made sure that the plans were code-compliant. For example, there’s enough support to support extra load or shifted load, and during the remodeling work, there were city inspections along the way that were all approved.
So, at every checkpoint, the city inspector came and verified that the work was done in at least a code-compliant way. They’re not necessarily looking for it to be done in the most beautiful way, but they need it to be code-compliant.
And then finally, the permit was finaled. That means a city inspector is putting their stamp of approval and saying that this work that was done, it meets basic standards of safety and code compliance. And not only will the city not make you undo it later, because you got it permitted and finaled, but also you can have more confidence that the work was done in the right way.
So, that’s disclosures. Everything that I’ve been talking about is more related to homes without an HOA. That’s typically single-family homes or small multifamily where you purchased the entire building.
There’s an extra type of disclosure that pertains specifically to condos. Condos are popular because they tend to be cheaper than single homes, and a little bit better than apartments. Often, a lot of the people are homeowners, they own their condos, so you’ll generally have a resident base that cares more about the community and the upkeep of their home, etc.
In condo sales, in the disclosure packets, they should be disclosing to you an HOA packet, and this packet will have lots of information about how the HOA operates. Other than this, I would say condo due diligence in terms of disclosures and everything we talked about earlier is largely the same. But for condos specifically, there’s this extra thing that you want to pay a lot of attention to, which is the HOA packet.
The HOA packet will have a lot of information. It has the bylaws and the operating agreement for the HOA. It will have the CC&Rs (conditions, covenants, and restrictions) and basically has the rules for the HOA. What are the things that you can do and cannot do as a condo owner in that HOA?
There are many things that I look for in the HOA packet. One thing I look for is how much of the HOA dues. For condos, you have to pay a monthly fee to the HOA.
It’s not rent; it’s a monthly maintenance fee that goes to the upkeep of the larger condo community. It typically funds things like landscaping, pavement, roof, exterior painting, things like that, stuff that is not easily divisible into individual units and that everybody has a vested interest to have done for the overall look and feel of the community.
The HOA will pay for that for everybody, and they charge each of the units usually a pro rata share, so each of your monthly maintenance HOA dues go to fund these activities.
So, I look for what the HOA dues are, as well as what the historical growth of those dues have been. Have they been flat for many years or just growing very nominally, where they actually grow a lot year by year? Because that’s going to tell me how much I’m going to be on the hook to pay for, and how much I may be on the hook to pay for if I live there for a few years.
Maybe the amount is growing very rapidly, or scheduled to grow very rapidly, so whatever the fee is right now, I can’t rely on that being the fee a couple of years from now. Maybe it’s going to be a lot higher, and I should factor that into my consideration.
Another thing that your HOA fees pay for is what’s called a reserve balance. That’s a special pool of funds that a good HOA will tap into that source of funds when there’s major capital improvements that need to be made, like very expensive improvements or upgrades that need to be made.
This would be things like replacing the roof for all the condos in the community, repaving the streets. Those are the big ones. If there’s a community clubhouse or pool, if that has to be majorly renovated, or replaced even, those can be very expensive.
A well-running HOA will be squirreling away a little bit of money each month and every year from every single maintenance dues payment that they make, so that they’ll often have a schedule of this. “Every 25-30 years, I have to replace the roof, so I should be amortizing those savings linearly over 30 years, so that when the time comes, I have all the money ready and I can just replace the roof.”
A well-operating HOA will plan out ahead on a multi-decade timeframe to make sure that those reserves are always adequate to fund these large expensive capital projects. A poorly operating HOA will not do this well, and then when the time comes, like there’s a big leak on the roof, they’re going to just impose a special assessment. And they have the power to do this by imposing a lien on your house if you don’t pay.
Maybe it’s time to replace the roof, and it’s going to cost the HOA $2 million across all the units, but there’s only $500,000 in the reserve. Now they’ve got to cough up another $1.5 million, and they’re going to have to impose a special assessment, which means that they’re going to do a one-time charge to every unit to pay for the rest. And that can be a very surprising expense that crops up if you are not expecting it.
Maybe you were saving for something else, and all of a sudden, now you have to pay in $5000, $10,000, $20,000, $30,000 to fund a big capital project. It can really make things very unpleasant. If you don’t have the money, literally the HOA can impose a lien, sell your property to collect that special assessment.
So, the reserve balance and how well it’s operated, and also looking at the special assessment history. How often, when in the past has the HOA imposed special assessments is very telling about how well-operating that HOA is, how well is it managed, and how good are they managing the money. Those are some very important things that I look for.
I also look for just general expense history, the growth of common expenses over time, the growth of the reserves over time, the growth of special assessments over time, to get a broad picture about how well this HOA is managed.
One thing I also try to look for is the HOA meeting minutes. I will actually read HOA meeting minutes because what I’m looking for is dispute history between HOA members, or between condo association members and the HOA board.
I want to see, for example, have there been controversial capital projects done where there was a fair amount of opposition among HOA members or even dissenting votes? Because that can tell you something about the dynamics of the HOA, how well they work together, and whether is it a fight every time there’s a capital improvement project that is going to be done, or are the members generally on the same page about capital improvements and are generally not getting into those kinds of disputes?
That might be something like the HOA is considering replacing the roof five years early or building a pool where one didn’t exist before. I would look at the HOA meeting minutes to see when those items were discussed. Was there a lot of pushback from certain community members saying the roof currently is fine?
If you want to replace the roof five years early because you just want an extra safety cushion, but that’s going to cost every home to have to cough up extra $5000, there might be condo association members who oppose that. They might be overruled, and that should all be recorded in the meeting minutes.
Or in the case of the pool, maybe slightly less than half of them don’t want the pool, and there’s a lot of lobbying to not build the pool because it’s very expensive to build and maintain, and half the people aren’t going to use it anyway, whereas the other half, they want it for whatever reason. And is there a lot of infighting for projects like that?
Because if there is, then you have to be aware of what you’re potentially walking into. You might be walking into those fights, and which side of the fights are you on? Do you want to be spending a lot of your energy battling HOA board members or other community members for projects that you don’t believe in, but that you have to pay for?
That’s why I typically look at meeting minutes. Related to this, I also try to see if there’s been any litigation history within the HOA, or between HOA members, or by HOA members against the board. That’s a very extreme expression of disapproval of certain decisions.
Also, it will give you a sense of the dynamics among the HOA. Is it friendly and collaborative, or is it very hostile and litigious? That’s one thing I look for in relation to dispute history as well.
I also want to look at the number of units in the HOA: What is the governance structure? How many board members are there? What’s the election procedure?
Because maybe after I buy the condo and move in, the HOA originally was doing well, and then over time, I didn’t like what they were doing, so what’s the process to replace HOA board members? What’s the election process?
If you believe you have better ideas for the HOA, how can you be elected to the board? And how would you challenge board decisions or board members? Basically, what are your rights and responsibilities in terms of the HOA governance?
For the CC&Rs, I look for what are the things that I’m not allowed to do to the home versus I am allowed to do to the home? For example, am I allowed to remodel? Can I remodel the interiors without HOA approval?
Often, that is the case. Usually inside the home, you can do whatever you want. Unless it’s structural, unless you’re changing the load that can impact adjacent condo units, or you’re removing beams or pillars that could impact the integrity of other units, that’s probably not allowed.
But more cosmetic interior remodels, like changing your kitchen countertops, often are allowed without any other HOA approval. But maybe the CCNRs restrict you on the type of exterior changes you can make.
Can you paint the exterior of your condo to any color you want, or does a committee have to approve it? Can you change your window shades to a different type or color, or does it have to be in conformity with other units? Can you change some of the landscaping in front of your condo unit, or does it have to conform to the community rules or standards?
Sometimes you’re not even allowed to change a doorknob on the exterior because it’s visible from the exterior, and they want to make sure all the doorknobs are in conformity. Maybe all the doorknobs in the community are black, and you want to change to a silver one, then yours is going to stick out like a sore thumb. It’s just important to be able to know what restrictions apply to you in terms of the kind of changes that you can make.
Also in the CC&Rs, you’ll have specified who is responsible for each aspect of maintenance. Do you as the condo owner have to pay, or does the HOA pay for specific items? For things like the roof, often the HOA is responsible to pay, but for things like a plumbing leak inside the home, often you’re responsible to pay.
And then there’s a gray area sometimes, like if your condo has a small patio backyard with fencing. Who is responsible for the fencing: you yourself, the HOA as a whole, or just you and your neighbor who share the fence?
The CC&Rs and related HOA docs will often specify these rights and responsibilities. It’s important to know what they are, so you know what you’re getting yourself into.
Also in the CC&Rs, there will likely be some clauses about pet or dog policy, an Airbnb/rental guest policy. What you want to do is make sure that whatever your lifestyle plans are, that you’re going to be in compliance with the rules there, and that you’re not going to immediately get into a big fight because you are immediately out of compliance.
Maybe the CC&Rs allow dogs that are under 20 pounds, but you have a St. Bernard, and that St. Bernard is 85 pounds. Knowing that upfront is really helpful to know because you might have to give the dog up or not buy the condo.
Similarly, there might be an Airbnb type of policy where transient guests are not allowed for money. You can’t rent it out for two days at a time, and they might require a minimum of a 30-day rental in order to be compliant with the CC&R rules.
They don’t always do that. Sometimes they don’t have any restriction on this. But the point is it’s important to know what they are.
Also, one thing that is useful to know is if there’s a music policy. Maybe you’re moving in with your young family, and your child plays the piano, the guitar, the drums, or something like that. Is there something in the CC&Rs that restricts the hours, the type of instruments that can be played, the volume?
You want to know these things because it will impact your ability to live there and ability to do the things that you want in the condo.
Also, how many parking spaces are allocated to your unit, and where are they located? Is it an attached garage, is it underground, or is it in a garage that you have to walk to some distance away?
Finally, I think most condos now will have the washer-dryer unit inside the unit or maybe in the garage of the unit, but there are occasionally some condos that still use a common laundry room. Knowing that is helpful. That’s not so much in the HOA docs, but something just to know viewing the listing or when you visit on site.
But all the things that I mentioned earlier about the HOA docs are really important to know specifically for condos because it can dramatically impact your experience living in the unit and your ability to live there.
So, the HOA dues, the historical growth of those dues, the reserve balances, special assessment history, expense history, dispute history, HOA meeting minutes, litigation history, number of units and the governance structure, what the HOA is responsible for repairing versus what you’re responsible for, the right to remodel interiors versus exteriors or change the appearance of things, who has to approve, pet/dog policy, Airbnb guest policy, music policy, and how the parking situation is.
Those are all the things that I would really focus on when it comes to disclosures, both for single-family and we’ve spent a good chunk of time talking about condos.
The next thing I want to talk about is the due diligence checklist when you visit on site. When you go to tour the home, go to the open house for a single-family home, for a condo, for an investment property, what should you be looking for? Here I have a bunch of items that hopefully will be useful to you and save you a lot of headache and repeat visits when you go look to buy a home.
When I step into a house, the first thing I pay attention to is what is the floor plan, especially when it comes to how the living room and family room and dining room and kitchen are connected, because those are the main spaces in the home where you’re going to be spending a lot of your non-sleeping time.
For example, these common rooms, are they individual rooms that are boxed off and you have to pass through each one to get to the next one, or are they connected in more of an open concept, open living kind of way? This actually makes a dramatic impact in terms of how it feels to be in the home, how comfortable it feels, how spacious it feels, and things like that.
And everybody has personal preferences on how the layout configuration is. I personally tend to prefer a more open concept, fewer walls, more connected spaces type of a feel because it makes it feel bigger, makes it feel more communal, etc. But it’s just something to pay attention to because that layout and configuration of the floor plan makes a big difference.
I also want to pay attention to whether there are any weird aspects about the floor plan that could potentially raise concerns in a future buyer. I’ve toured a lot of homes. Some examples that come to mind that I recall seeing when I stepped in a home, thinking “That’s weird,” are things like a washer-dryer being located in a private hallway that leads to a bedroom.
I’m not talking about sometimes there are washer-dryer units in a common hallway, but I’m talking about inside the bedroom has its own mini-hallway before you get to the actual living quarters, and then oddly, the washer and dryer are there, even though it’s not so accessible to other residents of the home because it’s in a private bedroom area. That’s weird. I’ve seen that before.
I’ve seen a full bathroom located inside of a washer-dryer room before, which I hadn’t seen that often before, so it struck me. I was like, “There’s a shower and a toilet inside the same room where your washer and dryer are.”
I’ve seen where hallways have multiple sharp turns as you move through the house, which I don’t personally like because it makes it feel more cloistered, more boxed in. I don’t really like hallways in general because I feel like they’re wasted floor space, but especially if there are lots of twists and turns. It indicates to me that the floor plan wasn’t the best it could possibly be laid out.
I’ve seen where fireplaces are smack in the middle of the living room versus on the side where I personally prefer it, because you may not be often burning a fire, so to have it occupy right in the middle of the living room feels a little bit like you’re just breaking up the space.
And just stuff like long linear spaces in the home where your living, dining, kitchen, and family are literally in a serial line, one after another, as opposed to more of an L shape or more of a box configuration. It can make it feel like it’s a long walk from one end of the home to another.
These are just examples that I’ve seen of strange or just not quite mainstream floor plan designs that would raise concerns to me in a future buyer because they just look weird. So, that floor plan and your initial impression of it when you walk in is really important to pay attention to when you go visit the home.
Second thing I look for is, when I walk in the home, even if the floor plan is not ideal, what walls might I be able to open up or move or reconfigure, including what’s likely to be load-bearing or a shear wall or not, and whether that type of layout reconfiguration is possible, and how hard it looks like it might be to do.
It’s not necessarily a deal-breaker if there’s something suboptimal about the layout and floor plan, if there’s a clear way, a clear vision that I can see for how you could make some simple changes to the layout configuration and then actually turn an otherwise less-than-ideal floor plan into a really great floor plan.
Those opportunities do exist. They’re not everywhere. But that’s why, yes, look at the floor plan, but don’t be beholden to it because there might be options that you might be able to do to change the layout and make the floor plan really good.
So, paying attention to what those options might be, where the load-bearing walls are, what walls might be easier to move or eliminate, in case you want to build extra walls, etc., what are some of the changes that you can do that can upgrade, improve the floor plan pretty dramatically, ideally with some simple changes.
Obviously, this is also a matter of cost, so you do have to pay attention to especially which walls are likely to be load-bearing because that will heavily influence the price of changing the layout. If you only want to change load-bearing walls, then you’re going to have to redistribute that weight and perhaps build shear walls, or build new pillars or posts, pour new foundation, add rebar, and things like that.
If layout changes all involve changing load-bearing walls or perimeter walls, that can certainly become very expensive, so having a sense of what that might be when you walk in. You don’t have to know the exact dollar price, but you can at least make note of “All of them are load-bearing walls” or “Only one of them is a load-bearing wall.” It will at least let you do a T-shirt sizing of: is the cost to improve the floor plan likely to be small, medium, or large?
Another thing I look for when I’m visiting on site (I alluded to this earlier in the disclosure section) is whether there are any structural changes or additions that have been done, or if there’s been an alternative dwelling unit (ADU) that’s been built.
If I’ve seen that in the disclosures, especially if the disclosures were available before I visit the house (they’re not always, but sometimes they are), if I’ve seen that there was an extension or an addition, or a big layout change, or a garage conversion, or something like that done in the disclosures, when I go visit, I want to see the quality of the work with my own eyes.
Does it look and feel like the addition or the ADU was done in a quality way or a cheap way? Does it look like it matches the overall look and feel of the rest of the house?
And if there’s no ADU, I also want to pay attention to the overall lot size of the home and the relative position of where the main house currently sits on the lot. Because I might be thinking, “Maybe I don’t have an ADU right now, but I want to build an ADU in the future.” Is there enough room and adequate space that you could build an ADU on the remaining lot space if you wanted to?
If you do that, that can open up a really nice additional way to earn some income off a property by renting it out to a long-term tenant or Airbnb-ing it. But you won’t even have that option if the physical lot doesn’t have enough code-compliant space with the proper setbacks and floor area you need to even build an ADU.
So, if you’re thinking, “I’ll buy a big lot, or I’ll buy a lot that has a house on it, and I’ll build an ADU in the back,” do a sanity check to make sure that you would roughly be able to fit an ADU that would be desirable to rent out or to live in, if you’re going to house an in-law or something like that. Make sure that you actually have the space to accommodate that.
And if there already is an ADU or an addition or extension, as I mentioned earlier, you want to verify that it’s been properly permitted, because that not only ensures that there was a minimum level of craftsmanship that had to pass city inspections to be approved, but it also derisks the chance that the city makes you reverse the changes and restore back the original if later it finds out you made some upgrade to the house that wasn’t permitted, so it’s not up to code and has to be reversed.
If you rent out part of the house or rent out an ADU that has been unpermitted, by ensuring that those changes are permitted and finaled, it reduces the risk that you get sued by the tenant for an unpermitted conversion or an ADU or something like that.
I have heard situations of tenants who are just trying to get free rent or squatting, they move in, it’s clear that they’re living in a garage (or what’s been converted into a garage), and then later they sue. They file a report to the city, saying “This is unpermitted; I can’t pay the market rent.” Obviously, the bigger change it is, the more important it is to make sure that those changes were properly permitted.
The fourth thing I look for is how much wasted square footage is due to hallway space. This might be a very personal thing. I really don’t like hallways because I feel like, especially long hallways, they waste a lot of space because you can’t do anything with it.
The only thing you can do is walk in the hallway. You can’t put any furniture. It can’t be used for anything except for getting from one place in the house to another.
And that’s all included in the reported square footage of the listing, so I consider those all wasted space. A really efficiently laid-out house is one that minimizes hallway space, in my taste, in my opinion.
And when there’s a lot of hallway space, it makes an otherwise similarly sized home feel smaller. With a lot of wasted hallway space, that floor space gets counted in the square footage, makes the actual usable portions of the home, the sleeping rooms and the living rooms, feel smaller because you’re wasting a lot of space on hallways. So, other things being equal, I tend to shy away from homes that have a lot of hallway space.
Fifth thing I look for is whether the floors are all level flat or whether there are any stair step landings that break up the space or break up the room. Sometimes you’ll see, when you walk into a home, there’s two steps to get up to the living room landing area, and then you walk a little bit, and then you’ve got to take a step down to get to the dining room, and then you walk a little bit more, and you take two steps to get to a den, or something like that.
It’s not stairs that go to a second floor. It’s just one or two steps that just change the elevation of a different section of the same floor.
I don’t really know why architects design certain homes like this. There might be something that requires them to do that in the foundation, or it might be an aesthetic choice. I actually don’t know.
But I don’t like it because when you have these stair step landings that are one, two, or three steps, it breaks up the room. And it not only forces you to break the space of the room in a way that you may not want, but frankly, it’s also a tripping hazard. If you have an elderly senior who lives or even just visits the home, it’s much more likely they’re going to trip and stumble and fall on a stair and hurt themselves than it would be if you just have a totally flat floor.
So, I definitely prefer homes that each floor is fully level. There’s no single or double steps up or down that break up the floor plan, the layout. Because when you have those, it dictates where you can put furniture, how your house is going to be arranged, whereas if it’s all flat, especially if it’s all open concept and connected, then you have a lot more options in terms of how you furnish the place.
I remember visiting an open house in a neighborhood nearby. It was a beautiful single-family home. And the floor plan, though, was just really weird when you walked in.
You walked in, you had to go up three steps, and then you immediately had to go down a step to get to the living room, so the living room was sunken a little bit. Then you have to get out of the living room, you have to take that step up, and then you walk to the dining room, and then there’s a family room that’s two steps down, and then there’s some bedrooms around the corner that were another step down. I hated that break-up of space.
When I see homes like that, it really reduces the value, the price that I’m willing to pay. In that case, it didn’t matter. That home still sold for well over $3.5 million, so they definitely went way over the list, but that’s probably more a function of supply and demand rather than that specific home, because that specific home really had not a great layout.
So, that’s just something I look for. I think most people would share that view, but it is somewhat still a matter of personal taste.
Related to this, I do view homes that are one story versus two stories differently. I personally prefer a single-story home, especially a fully flat single-story home, for the reasons I just mentioned, but also because a two-story home may feel like it’s bigger somehow, but I don’t think it is, because just like with hallways, you waste a lot of space on the stair steps themselves. That takes up a decent amount of square footage.
And then also, you’re dealing with accessibility issues. If you have somebody who is elderly in the house, it’s just harder for them to get upstairs. It’s more of a tripping hazard if your kids are constantly running up and down the stairs, you have to deal with the noise of foot traffic above if you’re on the first floor, and things like that.
So, I personally don’t like two-story homes if there’s an otherwise similar one-story home that’s similar size and quality.
When you have stairs, especially if the stairs are carpeted, but also if there’s wood paneling, it’s just so expensive to replace that material. Imagine if your carpet is dirty, you’ve got to rip all the carpet out. It’s a lot faster and easier to do it on a level floor than then have to go do strip by strip each of the stair steps of your staircase, replacing carpet there.
When a carpet installer comes to quote recarpeting your home, the moment they see stairs, your quote is going to jack up because it’s a lot more work for them to do that. They have to spend way more time, multiples of time, laying out carpet on the stairs compared to laying out carpet in the bedroom.
So, on top of all the other things that we talked about in terms of tripping hazard and waste of floor space and noise of foot traffic, it’s just another thing that makes the consideration between first and second floor something to pay attention to.
Another thing related to flooring is to pay attention to whether there’s any weird foundation sloping issues. For this, I will often bring to showings or to open houses some marbles, or better yet, a heavy rubber ball that has a completely smooth surface, not like a tennis ball which has little fuzzy hair on it, something that’s almost like a bowling ball type of density and smoothness…
…so that when you’re walking around the house, if there’s sloping that is more than a couple degrees, your foot and your sense of orientation will already be able to pick up on it. It may not be able to immediately call out, “There’s sloping right here,” so that’s where having a ball or some marbles with you at the showing can help because just literally drop the ball on the floor.
Not from high up; place it on the floor and see if it rolls and what direction it rolls. I’ve definitely seen this in numerous homes that we have visited in the past. You can get balls to roll.
It’s not necessarily a deal-breaker, but it’s something to be aware of, because if you’re going to fix it, it’s going to cost money. You don’t necessarily know how much. Is it something that is relatively easy to fix by introducing some additional padding in the subfloor, or is there a more fundamental foundation issue where there’s shifting or sinking that could be more expensive to address?
These are all factors that go into ultimately the price that you’re willing to pay for the home and even whether you’re willing to buy the home at all.
The next issue I look for is how the natural light feels in both the morning and the evening when all the lights are off. Often, I’ll try to go twice at different times of the day, because natural light is a major factor that influences the mood of the home. And the directions that critical windows in the home face are a key determinant of the amount of natural light that the home gets.
I personally tend to focus on the living room and family room and bedrooms because that’s where you’ll spend a lot of time. And other things being equal, I prefer large, bright, airy, open windows that get a large amount of natural sunlight in, because then you don’t have to have the lights on so much, and also it just feels like you’re more in nature. That, I have noticed, is an important factor for potential home buyers, not just me.
Another thing I look for is whether the windows in the home are original, from the original building, especially if it’s an older home. If it’s a newer construction, then it may not matter. They may already be using the latest materials that are updated.
But if it’s an older home, paying attention to whether the windows are original or updated, and are they single pane or double pane or even triple pane? Some of the older homes, say 30 years or older, built in the ‘90s, ‘80s, ‘70s, and earlier, the windows are just not going to be the thickness and quality of the type of window product that you get today.
And if they’ve never been updated at all, they’re all still original, they might be single pane only, and that impacts the heat insulation, the sound insulation of the house. It’s solvable, you can certainly upgrade the windows, but it can be fairly expensive to upgrade windows if you’re dealing with originals that are very old.
Even if you’re just doing retrofit inserts, which means you’re not actually busting out the original window frame and ripping out drywall and stucco or wood paneling, etc. to get down to the studs. An insert is where you just take a slightly smaller window and you just mount it directly onto the existing window frame, so you don’t have to change anything about the existing framing or remove any of the existing finishing wall material.
Even just doing those retrofit inserts is not cheap. It definitely is pricey. Windows are not cheap, especially some of the modern ones that have double or triple panes that are really sturdy, that are anti-fog, that have all the UV protection or all that sort of stuff.
They’re pricey, for sure. And even if you’re doing a simple job, if the windows that exist are not the ones that you want when you’re living there, you’ll have to factor that into your budget. So, I tend to look for that as well when I’m visiting.
I look at the major utility systems, just moving on down the list here. What is the condition and age of the major utility systems, like the HVAC, the heating? For heating in particular, I want to look at what type of heating it is.
Is it forced air, is it electric baseboard, is it radiant heating, etc.? Because those determine, first of all, how warm the place can get, how evenly the heat can be distributed throughout the home, how efficient it is at heating, how much time it takes to heat up, perhaps how expensive it is to heat, how much energy it takes to heat up. It’s just something to be aware of.
Also, the potential replacement cost. Some of the really older homes have radiant heating or electric baseboard heating. If those broke down and you needed to upgrade your heating, it might be hard to hire an installer who even has the materials and the expertise.
You may not want to do it if it’s radiant because you might have to rip open all your floors to get into the flooring. Or you may not want to put electric baseboard heating. Maybe it’s a fire hazard or whatever it is.
So, what would be your option? You might have to go forced air, but then having to create cavity space inside the walls to run ducts through, or underneath your subfloor, in your crawlspace. It just all factors into the budget because that stuff is not cheap.
So, being aware of what the heating and cooling systems are, what the path to upgrade is if you think you’re going to end up needing to do that, is really important. And how efficiently those things run, and what their lifespan and remaining useful life is.
I look for things like the water heater, the stove, the oven, the house lighting, like if it has recessed lighting, for example. How new or old do those things look? Does it look like that stuff will need to be replaced anytime soon?
I also look at the flooring of the home: is it carpet, wood panel, tile, laminate? Certainly, flooring is changeable. If you don’t like the original flooring, you can change it.
But it’s not cheap and it is also a hassle to change. You can’t really live there or have the place furnished when you’re replacing the floor because they need access to the floor. So, knowing whether you’re going to have to change it upfront is an important consideration, and how comfortable or acceptable you find the existing flooring all factors into the price you’re willing to pay.
Also, walking around the outside of the home, one thing I look for is how does the surrounding lot slope around the house? Typically, what I have seen is that they would try to almost build a slightly upward-sloping, subtle hill, and then sit the house on top of the hill. They do that so that when it rains, the rainwater flows away from the house, downhill.
It isn’t always the case. So, does the home sit on that type of subtle mini-hill? It’s very subtle, so it’s not like it’s going to be sitting on a hill where you have to huff and puff and walk your way up, although there are those type of homes too.
In most flat terrain neighborhoods, there’s a slight elevation, just a couple of degrees to help the water flow away. But sometimes it’s inverted. I’ve seen homes that essentially sit in a mini-crater.
And that to me is really bad because that means when it rains, it’s pooling all in that crater, and then you’re likely to have more issues around water damage and dampness and mold and insects and pesky critters and things like that, as opposed to the normal way where it sits more on an elevation.
Sometimes the home sits on a slope, like you’re basically on a hill and it slopes one way, and that impacts how the rainwater flows. It’s going to flow toward your house uphill, and it’s going to flow away from your house downhill, and that’s probably going to influence what the condition of the home is on each side.
That also, in turn, impacts things like susceptibility to termite damage, for example. So, knowing the slope of the lot and how the house is situated against it is really important.
Expanding outside of the house now, I try to spend a good deal of time in the surrounding neighborhood, especially if I’m serious about the home. I’d walk around the house in a three- or four-(maybe even more) block radius. Do it during the daytime and at nighttime to see how you feel about it.
Do you feel safe? Does it feel quiet, does it feel noisy? Is there lots of traffic, little traffic?
How well-lit is it at night in terms of street lights? Are people’s lawns well-maintained and trimmed, or are there lots of weeds growing around? Is the street well-maintained and paved, or does it look like it’s cracked and crumbling in more than a few places?
And even do the neighbors seem friendly? I’d even knock on the doors of some of the neighbors to ask them how they like living in the neighborhood, because that can tell you a lot about your future potential neighbors and how friendly you feel like it will be. Does everybody’s gates have double locks and a barred door with a “Beware of dogs” sign, or does it look like open homes with bright lighting and feel more welcoming?
It’s very hard to come up with specific markers or heuristics or quantitative measures to analyze this. This is all just gut feel. You have to go and just walk in the neighborhood yourself and talk to folks in the neighborhood.
Do people have their garages open, and do they sit out in their lawn chairs, or is it all behind closed gates? Things like that will give you a feel for the neighborhood.
And then the last thing I look for is more specific to multifamily investing properties. If the property you’re looking at for investment purposes is multiple units, I definitely encourage you to physically access and view every single unit in the building. Do not just tour one to two units and assume that all the units are the same or in similar condition.
Even if, on paper, the layout configuration is the same, you will see different conditions and different issues in different units, and also the kinds of tenants that are residing in different units. And that will give you a chance to see their living condition, which you incidentally may end up inheriting, and may need to manage those tenants if you end up acquiring the property.
So, really taking the extra effort, even if that means coming back multiple times or going through some scheduling acrobatics to get access to every single unit, I definitely strongly encourage accessing, going inside, walking every single unit for multifamily properties.
So, that’s pretty much the list of things that I would pay attention to inside the home. I know that was a lot, but to recap: floor plan, walls that might be configured, any structural changes or additions or ADUs that exist, making sure about the quality, the permitting, analyzing the hallway space, whether there are stair step landings in an otherwise singular floor, whether the home is one floor or two floors, any weird sloping issues, the feeling of natural light, whether windows are original or updated…
…utility systems, flooring, the slope around the house, the surrounding neighborhood. And then for multifamily properties, walking all the units.
Those are the major things I would definitely pay attention to when you go visit. There might be others as well that are case by case, but those are the common ones that you’ll see typically in most homes.
So, that’s it. We covered the pre-visit diligence, the disclosure diligence, and the on-site diligence. I hope this was useful to you in terms of providing a little bit of framework and insight into the checklist that I use when buying real estate property.
I’ve now bought numerous properties and I’ve toured many hundreds of places, so these are the things that I’ve picked up on. Feel free to drop a comment in the show notes page, if there are things that you feel like I missed or questions that you have, or you feel like there are important aspects of due diligence that you do that maybe I didn’t touch upon enough. I would love to definitely get your feedback.
I hope you enjoyed this episode, and we will definitely see you next time!