We’re through inspections and appraisal on the The WI-1 House, and we’re scheduled to close by the end of the month…
The inspections went well, though the inspector found two relatively big issues. The first was the chimney — the previous owners had “modified” it to support a gas stove and had to cut through the brick and flue to make the modifications. We knew there were chimney issues, and disclosed them on our written disclosure for the house; we expected the buyers to request repairs and decided to wait until the inspection was complete to discuss how those would get done instead of doing them ourselves before we listed the property.
We had gotten a couple quotes in the $3000-3500 range for the chimney, but agreed to allow the buyer to get their own quotes from their contractors. Unfortunately, their quotes came in quite a bit higher than ours. Ultimately, we settled on giving the buyers a $4300 credit towards the chimney work — depending on the weather up there, it may or may not get completed prior to closing. I’m not happy about paying extra for their chimney contractor, but it’s my fault for holding off on doing the work instead of just doing it as part of the rehab (for some reason, it made sense to me at the time :)).
The second issue was the wall between the garage and the house — it’s technically not a firewall and it’s not insulated. The buyers requested that we add insulation and upgrade the sheetrock to make it a legal firewall. This isn’t too big of a deal, and the work will likely get done in the next couple days.
Those were the only major issues found. There were a few other minor things that we’ll be fixing as well (cracked window that’s under warranty, bad electrical splice in the attic, install a new hose bib, and fixing a minor HVAC configuration issue).
The appraisal was also done on this property, and came back a couple thousand dollars above the sales price. We’re thrilled about this, especially considering this is one of the highest priced sales in the neighborhood in a long time. According to our agent, the neighbors will be very happy as well, understandingly. The best part of the appraised value is that it means we should be able to get about $10-20K more for The WI-2 House than we originally anticipated, as it’s only about 100 yards away.
We’re scheduled to close by the end of the month, so hopefully nothing major will pop up between now and then…
Hey J,
How did you, as the seller, get the appraisal numbers from the buyers?
Thanks,
Cody
Hi Cody,
It’s not uncommon for the buyer’s agent to ask the listing agent or the lender what the appraisal came in at, or even to ask for a copy of the appraisal. We always ask for a copy (or have our agent ask for a copy) so that we know what comps are being used and so we can use that information in the future when selling other houses in the area.
In this case, our agent asked the lender what the appraisal came in at, and he happily told her.
Hey J,
I’ve just recently discovered your site and really enjoy it. I noticed that you are in GA. What area of the state? I’m in Gwinnett and am looking to get into the business this year. Glad to see that you are having success.
Hey James,
I’m in Cobb County on the west side of the city (outside the perimeter)…congrats on taking the leap!
Hi, Jason:
Nice work on all your projects. I know you hire your own project manager instead of a general contractor now. I have a question about dealing with general contractors though- Do you order an inspection after every time a house is finished, and make the contractor complete any work listed in the inspection report before releasing the final payment?
I finished my first house last year and did not perform a final inspection because the contractor had a good reputation in the local REA. Later when the tenant-buyer moved in and found a list of things that needs work, the contractor began to argue that they were nothing related to what his crew had done during the rehab, and tried to charge me for any extra work on the house. Because the tenant just moved in, those problems must have been caused by items not properly addressed during the rehab.
So do you have your contractors sign a warranty on their work? Or what do you do to prevent these things from happening? Thanks.
Hey Howard,
While I don’t get a paid inspection at the end of the rehab, I have my project manager go through a formal checklist to make sure that the house is in basic working order and ensure that if/when a buyer has an inspection, all the basic stuff should pass without issue. I’m not sure if I have inspection checklist posted with the rest of my Newsletter goodies, but I’ll check and if it’s not there, I’ll post it so you can see it.
While I don’t get formal warranties from my contractors (for the most part), they all know that if there is something that should have been addressed during the rehab, if it wasn’t properly fixed or if it breaks, they’ll be on the hook to fix it for the buyer. This is just part of the relationship we have where they gets lots of work and I get assurance that they’ll do what’s necessary/right for our buyers.
As for your situation, I would recommend the following:
1. Never work with that GC again, and let him know that you won’t be giving him a good reference to other investors;
2. For future projects, run through the checklist (or the scope of work for the project) and make sure everything is in working order. Do this when the GC is finished and before you pay the final draw. Anything that isn’t working must get fixed before the final payment is made;
3. Have the GC warranty the labor for six months or a year, so you know that if they screwed up something that’s non-obvious, you’ll be covered should the buyer find it.
Hi, Jason:
Thanks for such a quick and solid response. I wish I had found your blog earlier; I could testify to your words that a new rehabber should be prepared to make almost every mistake in the first couple of projects- that’s exactly what happend on me. And that is after I studied a rehab course I got pretty well- no education is better than actually doing an actual deal.
There is one more related question, if you will.
For the scope of work, do you recommend ordering an inspection to discover any possible problems with the house, or use a checklist instead? My concern is that there seems to be issues that are hard for to find out even for an inspector, like these problems I met:
1. A broken pipe to the water heater was intentionally stuck inside a wall behind it, which caused serious leaking after the tenant moved in.
2. About a week after the rehab was completed, some grasses in the front yard grew suspiciously flourishing; later it turned out that a pipe underneath busted, probably because the house had been sitting vacant for over 6 months.
3. Some power outlets had not been grounded, while others were improperly wired.
Hi Howard,
Until you are comfortable doing everything an inspector does during an inspection, I highly recommend getting a professional inspector to your property before you purchase. All three of the issues you mention above *should* be found by a competent inspector, so even finding one issue like that every couple deals will ultimately save you money.
That said, after several deals (about 5 or 6 for me), you’ll start to realize that the stuff an inspector looks for is pretty much a checklist and you’ll start to have a decent understanding of building methodologies and building codes in your area (especially if you’re asking LOTS of questions during those first several inspections). At that point, you can probably start doing the inspections yourself.
In fact, even after doing about 50 rehabs now, I still will occasionally bring in a specialty inspector (structural engineer, mold inspector, etc) to look at an issue that I’m not comfortable looking at myself. And now that we’re doing projects in other cities where building codes are different, building materials are different, soils are different, etc., we’re doing a lot of inspections to avoid any major surprises. Once we’re comfortable in those cities, we’ll probably start doing them ourselves, but I’m never ashamed to admit what I don’t know and I have no problem bringing in someone more knowledgeable than I am, especially when it can save me money.
The last thing to mention is that, if you mention to an inspector that you’ll be doing a lot of projects, there’s a good chance he’ll give you good deals on the work.
Jason,
Another quick question about the Atl. area. Are you a member of the GaREIA? I’m trying to figure out where to get plugged in and start making some good contacts. Any info would be appreciated.
Hi James,
I’m not a member of GAREIA, but I sometime speak there. What I’ve seen with most of the REIAs around here, the folks that attend tend to fall into one of two categories — very experienced and looking to sell something or very inexperienced and vulnerable to buying stuff they don’t need… 🙂
While there is certainly some great networking opportunities to be had at the REIA meetings (especially the sub-group meetings), don’t get sucked in by seemingly expert investors at the main meetings. Many of them have ulterior motives…
Very interesting. Thanks for the info. So, if not that is not the best place then where have you found to be the best places to expand your network of other investors? I really appreciate all the info!
James –
I definitely like some of the sub-group (specialty group) meetings for the various REIAs. The people there tend to be more serious and are generally a bit more experienced. I’m not a big networker, so I’m probably the wrong person to ask… 🙂
Somethings are the same no matter what state you live in!