So you are about to make an offer on a home and you are not sure if you should pay the $300-500 for a home inspections. Your Relator tells you that you should have one, but is it really necessary for you, or is it just to protect your Realtor? My answer is a little bit of both and we will explore why. First, we need to define the differences between a Home Inspection and an appraisal. An appraisal will be done mainly to establish a value of the property. An appraiser may note work items that should be done prior to the close of escrow, however, this is only for health and safety items and known code violations. A home inspector does not take value into consideration when doing the inspection. The home inspection is to identify problem areas with the construction of the home itself.
The home inspector is extremely thorough in inspecting the home and the systems within the home. A home inspector has a list of all the systems a home could have and he or she will inspect all the systems and make sure they are either working or if they need repairs or upgrades. As a home buyer, this is important to know as the home inspection can bring up faults to the house where the potential buyer may not want to buy the home without the items fixed. It is also important to know that if the sales contract is contingent upon the home inspection the buyer’s lender may request a copy of the report. Lenders can ask for certain items in the report to be repaired as a condition of getting the loan. So if you know there might be problems with the house and you don’t want the lender to have a say in the repairs you should get the home inspection on your own and not make it a condition to close. Remember in most Real Estate contracts there is what is called an "inspection period" for the buyer, usually 17 days, and during that inspection period you can, as a buyer, request any kind of inspections including a Home inspection.
So what does the inspector look for in a home? They look at the entire construction of the home. The inspector will note the age of the home and what the construction standards were when the house was built, in addition, they will note the new building codes that they believe the house should be upgraded to, if necessary. The inspector will go under the house, if there is a crawl space, and they will note the condition of the floor joists, foundation, plumbing, electrical and any deficiencies and they will recommend fixes. They will go room to room in the interior of the house checking floors, walls, ceilings, electrical, doors, floor coverings etc. and recommend fixes. In the bathrooms, they will inspect the plumbing, the fixtures, water flow, and floors, ceiling, and walls. In the Kitchen they will make sure the appliances are working, the garbage disposal (if installed) works, lighting, flooring, cabinets, and doors, they will note cracks in the counters if there are any. Then they will go into the attic space and check the roof from underneath, the electrical, plumbing, and any systems that might be in there such as the Heating and Air conditioning system. The inspector will walk around the outside of the house and note any leaking faucets, or pipes. They will inspect the paint and the siding of the house as to the useful life left. They will go on the roof and check the roof and make any recommendations as to the useful life of the roof and any other notations that they might find.
Once the inspector has completed the physical inspection they will take their notes and compile a written report which they will deliver to the person who ordered the report, usually the buyer. Within the report, the inspector will give his or her opinions on the status of the systems in the home. Home Inspectors don’t have to be contractors so they don’t offer a price to fix any of the problems they find. The reports themselves can be 50- 100 pages so the detail is there. They note everything they see from normal wear and tear to major issues they find. Most of the time, they will point out the major problems of the house in the beginning of the report and point you to the pages to see the detailed write-up of the problems and suggested fixes.
When you are reviewing a Home Inspection my advice would be to look at the whole report and look for major work that might end up costing a lot money to repair first. Also, you might want another professional opinion on a system that the inspector notes as in need of repair. For example, the inspector may note that the air conditioning is not blowing cold air. The inspector is not an air conditioning system repair person so they would only make a notation that the system is not working properly. So in cases like this you should seek a professional heating and air person to inspect the unit, as the problem might just be a $5.00 fuse. They may also make a notation that there is a crack in the concrete in the garage. The notation might read that there is a possible foundation issue when in reality there are cracks in most all concrete garage floors. So be careful of what is noted in the report and use common sense. Remember, the inspector is also covering their own liability issues so they will note everything and every possible problem that it might be. Don’t let these notations scare you away from purchasing a house as the inspector will note everything they see. They will note cracks in tiles, which doesn’t mean the entire counter top needs to be replaced. So when you are reviewing a Home inspection know that they are noting everything and every possible conclusion to cover their own liability.
Sometimes, getting a Home Inspection is not necessary, like I said in the beginning. If you are contractor and understand construction your Realtor will still suggest a home inspection as it is their duty to do so, but if you inspect the home yourself there would be no need to pay the additional money. If you have built a home in the past and understand construction you may be just as qualified to inspect the home yourself. My advice still would be to download the MAE Capital Home Inspection quick checklist and go through the house as thoroughly as a home inspector would. Note any problems you find that you would want the seller to fix prior to you purchasing the home so you were not burdened with the expense. The sale might be an “as is sale” and you would have to make the determination if you still wanted to buy the home for the price you negotiated previously. You might be able to make the fixes yourself after you own the house and are willing to take the home in the “as is condition.
Inspecting a home should be done no matter if you do it or if you contract with a licensed Home Inspector to. You never know what might be hiding behind that wall or fireplace. I would also highly recommend that you get a termite inspection as well as a home inspection as termites, beetles, and dry rot can be major future expenses as well. A termite company will guarantee their report for a period of time, so if you do move in and find there is termite damage that the inspector failed to find then the company will repair your home at their costs. You should be prudent with your inspections of any home you are purchasing even if your intent is to fix and flip the property as you never can know fully what is going on until you move in, which could be too late. Something we do for our buyers, that is not a requirement, we buy them a Home Warranty with every sale we do. The Home Warranty warrants the major systems in the house like the heating and air, plumbing, electrical, and some will have extended options for septic systems and wells. At MAE Capital Real Estate and Loan we do this for our customers as we want to ensure a good buying experience and repeat customers. If you have any questions please don’t hesitate to leave them here on our blog and feel free to wander around our site there is ample information for any home buyer. We would love to earn your business.
Is it time to buy Real Estate? Is it time to invest in Notes? These questions face investors every day. With the Stock Markets hitting all-time highs you might be asking yourself if you should take your money out of those markets and buy real estate or focus your new investments in Real Estate and Real Estate related investments. Great questions, so let’s explore what is going on to drive the Real Estate Markets upward over the next few years in California, and might just be the case for the entire Nation.
Basic economic theory states that where there is a shortage of supply prices will go up. So the question of supply in the Real Estate Markets comes to question here. The supply of Real Estate is actually a ridiculous concept as there has always been a limited supply of Real Estate, as last I checked the world is not adding any new land. That being said, we already know there is a limited supply of Real Estate and we also know that our population keeps growing, and the housing markets have to keep up with that demand. Problem has always been to keep up with that demand and not over building while attempting to keep pace with demand.
In 2005 we hit record highs in building new housing and commercial space. It has taken until now to actually have demand catch supply in housing. In economics we call this the equilibrium point. Have we reached this equilibrium point or is it just a moving target. As we know economics is very fluid and has several factors that affect the theory. In housing there are far more factors that actually effect housing, such as jobs in the area, demographics, or the age of the population. As an example of how jobs affect the Real Estate Market, take a look at the Silicon Valley in the San Francisco Bay area. Here there are a limited supply of housing and high paying tech jobs in a concentrated area. People tend to want to stay within a 20 mile radius of their jobs. Thus, you have a limited supply of homes with a high demand for them with people making a higher than normal income. The average price of a single family home in this region is over $900,000. Prices in this region of California are so high that a worker with a normal paying job just can’t get in to the buying market in this area. If you take this micro economy model and apply the basic theory to any Real Estate area you will be able to see what areas are poised to see increases in Real Estate Values.
Although, this sounds easy, people have been trying to do this with accuracy for decades. We also have to take demographics into the big picture. Yes, that age groups that are buying Real Estate and what has traditionally been their trends. Traditionally, the average age of the first time home buyers have been in their mid-twenties, and we have seen this pretty consistently for the last 70 decades. However, this trend has been bucked in last decade. Yes, the traditional 20 something’s buying their first home has actually moved to the early thirties. This is due largely to the economic rescission that started in 2005 through 2011. When a formative child or teen see their parents go through the Real Estate hangover, or failure, they tend to stay away from what hurt their parents. Another huge reason the 20 something’s have not entered the Real Estate Market has been the lack of good paying jobs. The government has been telling us that the unemployment number has been declining, but what they have neglected to tell us is, the jobs created have only been in the low paying areas. If you have low paying job that maybe you had to take to get started or survive with, those jobs don’t qualify you to buy a home but the unemployment numbers go down. The number of better paying jobs has increased over the last few years allowing for more people to consider buying a home.
Now that your economic lesson is over we can apply what you have learned to the Real Estate Markets. We now know that supply and demand affect the Real Estate Markets, and that good paying jobs or the lack of good paying jobs in a specific area will also affect the Real Estate Market. We know that a certain group of traditional home buyers have stayed away from buying Real Estate longer than normal trends have been. So what does all this mean and how do you apply this to your Real Estate Investing plan? It means that we are starting to see those millennials enter the market several years later than they usually did and we also see that the next generation is right on their heels to buy at the same time. We also know that new house building has not been active since 2005 due to the lack of demand from the recession. We know that it will take time for builders to start building again as the demand heats up. We know the job market is regional and some urban areas have better jobs than others with different pay scales in California.
Looking at California there are areas that are more affordable areas than others due to these factors, but what areas are the best for investors? A first time home buyer will buy in the area in which there income is produced in. A Real Estate investor has to evaluate what their overall plan is, such as flipping, holding and creating rental income, or investing in Notes in a specific area. The affordability has to be taken into consideration as well. We know that places with high demand such as the Silicon Valley, and certain Beach communities in Southern California will always have a high demand. These high demand areas are not really that good for investors as there is a high cost to enter those markets and they are not as liquid as they should be for an investor. Most investors are looking for returns that will can be consistent and fairly liquid. That being said, a stable job area is always a good for investors to be looking in. Areas like Sacramento and surrounding communities have a high government job market which creates a stable job market. Regions like the Los Angeles area have the entertainment industry, as well as a good mix of financial and manufacturing type jobs.
Overall California has a good job market and is poised for growth. The most affordable housing markets in California are located in the Central Valley, From Sacramento on the Northern end to Bakersfield on the Southern end of the Central Valley. As we see more folks hitting the Real Estate Markets we are going to see supply of homes for sale dwindle and that will send prices rising again. This makes now the best time to invest and hold in Real Estate that we have seen in over a decade. Builders will start to enter the market but will not be able to keep up with demand for a year or two, keeping prices rising. Knowing that builders were heavily hit by the last Real Estate Bubble, they will be hard pressed to build as fast as they did in the past, keeping supply limited during this new business cycle and prices up. So all in all Real Estate Investors should be looking to invest now either in the Real Estate itself or by investing in Notes. Notes are a great investment as you can get high yields with very low risk with rising Real Estate Values. As Real Estate rises in value people are far less likely to let their house go to foreclosure, making investing in Real Estate a far safer risk than before. At MAE Capital Real Estate and Loan we look forward to helping you with your Real Estate needs from buying and selling Real Estate to investing in private notes. We look forward to assisting you with all of your Real estate needs.