Due Diligence Concern

Before I decide to make my offer on this home, a complete inspection and check for possible repairs need to take place. Can I advise the homeowner to have a contractor - I have a list compiled - come out to write a bid for repairs or should I contact these general contractors/handymen myself? If yes, wouldn’t this mean I would have to come out of pocket for these contractors/handymen since the home is not my property? In addition, I have an inspection form, yet I don’t even understand most of the terminology, let alone how to thoroughly inspect a home since this is my first time. Should I hire an inspector for this job? If yes, can I pay them at closing or must I pay upfront once the inspection is complete?

yes you should hire a professional for the job…whether or not the money will come out of your pocket or the seller has to be stated in the contract…i doubt the seller will pay for it…the inspector will have to be paid at completion of their job, and not at closing…it does not matter to the inspector when or if you close or not…but make sure that you state everyting in the purchase contract for the home that you want an inspection done prior to closing, and that if there is damage that will cost you more then $x amount, then you have the option to back out of the contract…good luck on your first deal…o


hi narmond
i am also a newby. by the way congrats on taking that first step. anyhow i was thinking of doing it just about the same way you r(when i do find a house). it is my opinion that if u ask the owner to hire a contractor to access the damage that this may kill the deal. if it’s a motivated seller they wamt to be done & over with it. but narmond, you shoul try to find an inspector who can also give you an estimate for repairs & he probebly will be able to reccomend some dependable contractors. thats my plan. just my 2 cents. good luck!

Thank you very much for your advice.

Howdy Narmond:

It is up to you to decide what repairs need to be done and get the bids. The seller is living there now and may not care if the repairs are ever done and may not even lift a finger to try to help you get bids. Then again the seller may already have a list of needed repairs and the estimates for the repairs.

You still need to do your own thing and get a repair budget from contractors. Most give free estimates but want to make sure there may be a job available. I would not even waist my time with the estimates until I have the house under contract. I usually will do a guesstimate of the repairs and then get contractors involved one I have a deal with the seller.

Here is an example of a deal I just passed on.

A duplex that the seller started rehabbing and quit is available for sale for $30,000. It has a new roof and siding and new windows. The kitchen and bath in both units has been gutted. I did a quick guess and figured about $10,000 more to get the place rented. This was a 5 minute estimate. I offered $21,000 for the property and was turned down cold turkey. The seller needs to net $28,000 which is basically they want full price. At that price I would have $40,000 in the property plus closing costs and lender fees. It may be worth $50,000 after repairs but will only rent for $600 total rent. I have another property under contract for $28,000 in the same area that is rented for $550 and is in good shape. Some rotten exterior boards and a paint job are in order at a cost of maybe a grand tops.

I like the idea of owning the other building but why do all that work when there are several more just like the one I am buying in town. I could still do it at that price and get a zero down deal but the cash flow just is not there at that total costs. Had I got more involved I would have found more stuff to fix too and it would have even costs more. My HML always makes me add about 10% as miscellaneous expense and I spend it on every deal on unknown repairs. Keep that in mind in your estimates.

LOL and hope this helps

Thank you, Tedjr.

Hi narmond,

To prevent wasting any money, I would only do the bids and inspection after the house is under contract. Here’s why: imagine you pay a contractor and a home inspector to assess the property on Monday. During the time they’re there, the seller accepts another offer from another investor. You lost the deal and your money because you were a few hours behind. Sounds silly, but I’ve had it happen. Don’t spend any out-of-pocket money until you know the house is yours if you want it. Just include a clause in your contract that reads, “subject to acceptable home inspection.” Most contracts I’ve signed allow a 10 day period to do the bids and inspection. If the seller accepts your offer, the house is under contract, and then your inspector says it’s littered with asbestos, you have the legal right to back out and still get your earnest money deposit back. Good luck.

Thank you, Mr. Fancypants, for your input.