There’s a science behind pest and building inspections, says BuildingPro founder Andrew Mackie-Smith, and in this episode of The Smart Property Investment Show, he reveals the top 10 things every investor should check to ensure their new property is the real deal.
Andrew gives listeners a rundown on the specifics of these inspections, the steps investors can take to successfully inspect a property for themselves, and he explains why undertaking these checks will help safeguard buyers against purchasing a money pit.
Tune in now to hear all of this and much, much more in this episode of The Smart Property Investment Show!
For a FREE copy of Andrew’s book, Building Success: Why Property Investors Need Building Inspections, send a question through to the SPI team to answer in an upcoming Q&A episode – email [email protected] today! Limited copies available.
If you liked this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: Facebook, Twitter and LinkedIn. If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!
Suburbs mentioned in this episode:
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How successful investors bring stability to their property portfolios
Phil Tarrant: Well, g’day everyone. It's Phil Tarrant here. I'm the host of The Smart Property Investment Show. Thanks for joining us. Always good to have you on board. I was looking at some of the numbers today. I just got off a plane and I was very happy to see The Smart Property Investment Show was ranking very highly on iTunes. Number 1 in property in Australia in business podcasts, so made me quite satisfied and I'd like to thank you all for tuning into the show and listening to what we're saying, it's obviously resonating, so I do appreciate it. Make sure you keep those questions coming through for the facts about what we're doing or if you'd like us to answer anything on the show it's just [email protected] If you do that, Tim will get in touch with you, but I digress from where we're going today.
I'm quite interested in today's chat because via my own property purchasing over the last couple months I've been pretty active and we are disclosing pretty soon, and we might have already done it depending on what cycle we put this podcast out, our most recent purchase, but some good stories around some of the recent buys in that subsequent to a pest and building report I've been able to negotiate with my buyer's agent who's been able to negotiate pretty effectively on price reduction. This is a tool, one of the many tools in a property investor's arsenal to look to purchase a property more effectively, but there is a science to pest and building inspections, and to help me out cover some of the ground I've asked one of Australia's best into the studio. Andrew Mackie-Smith from BuildingPro. Andrew, how are you going, mate? Thanks for coming in.
Andrew Mackie-Smith: Great, Phil. Thanks for having me on the show.
Phil Tarrant: So down from Brizzy today just to have a chat with me, so I do appreciate you making the flight. I guess we've both been on planes and you're flying straight back to sunny old Brizzy.
Andrew Mackie-Smith: Yeah, not much jetlag mate. It's a quick flight, but thanks for having me.
Phil Tarrant: It's good. I just got the note yesterday actually that I'm going to be forced to go up to watch the State of Origin so we're recording this just a couple of weeks out from the 3rd, the decider. So I'm going to be heading up to watch the game, so I look forward to it.
Andrew Mackie-Smith: Yeah, go, Maroons.
Phil Tarrant: Yeah. Hopefully I'll be sampling caviar and drinking some fine champagne in some box somewhere but don't you know the setup. I'm thinking it's going to be a good game.
Andrew Mackie-Smith: Yeah, it's going to be a cracker and I'll certainly be watching it.
Phil Tarrant: Yeah, it's good. A lot of the stuff that we've been purchasing recently has been up in Brizzie and that's your area that you mainly operate. Indeed, a couple of weeks ago I think you actually acted on our behalf to inspect a couple of properties that we purchased around Logan, sort of Springwood, Springfield?
Andrew Mackie-Smith: Springfield.
Phil Tarrant: Springfield way. If you remember fondly that experience dealing with me on a property purchase?
Andrew Mackie-Smith: I do, I do. They buyer's agent told me you were a VIP customer, I still remember that.
Phil Tarrant: Well, I think I got a good service. I remember, it's a good story, you saying, I guess a testament to my buyer's agent, you said, "How did you buy this property for the price that you did?" It was in cul-de-sac in Springfield and I think we got a pretty good buy.
Andrew Mackie-Smith: It would've been a good 20 per cent under market I thought at the time so yeah, you bought well.
Phil Tarrant: Yeah, we done well. Let's talk building inspections, pest and building. Let's go first, there's pest inspections and there's building inspections. They're different things, right?
Andrew Mackie-Smith: Absolutely.
Phil Tarrant: Please explain.
Andrew Mackie-Smith: Okay, so let's kick it off with a building inspection. A building inspection is there to find major defects and safety hazards. It's essentially not there to comment on minor defects, so if you've got a broken towel rail in the bathroom that may be included in the report, but doesn't need to be. It's essentially about more structural issues. Then a pest report is to do with finding timber pests. So if there's a snake in the roof that may be reported on as a courtesy, but doesn't have to be. It's about finding timber-destroying organisms and that's termites, fungal decay, and borers. In fact, a lot of people think that's all types of termites, but it does not include dry wood termites, borers, and fungal decay. Those are the three things. You also look for what termite protection might be in place and the risks that could be conducive with timber pest activities. So in a nutshell, those two inspections are done in accordance with Australian standards and there's a separate standard for each one that all inspectors should be working towards.
Phil Tarrant: Okay, and do you do both? I know you do building inspections, but you don't do pest inspections?
Andrew Mackie-Smith: No, I do both.
Phil Tarrant: You do both? Okay.
Andrew Mackie-Smith: Yep, so I cover both building and pest. I started off as a building certified, became a builder next, then went back into doing inspections, and for the last 15 years I've just focused on doing building and pest inspections and I do both.
Phil Tarrant: Okay, so some people do both and some people just do one or the other?
Andrew Mackie-Smith: Yeah, absolutely. I sometimes hear the odd "four eyes is better than two," but I think if you know what you're doing a single person can easily do both once they have the necessary experience. In Queensland you need to be licenced, but in some other states of Australia there's no licence required, I think for New South Wales, Victoria.
Phil Tarrant: Which is quite concerning considering it's a pretty important asset that you're investing in.
Andrew Mackie-Smith: I would think it's worthwhile trying to find an inspector who has the requisite qualifications and experience and especially insurance, that's always important, too, just in case you've had a bad day.
Phil Tarrant: Yeah, so you're a property investor yourself and I want to have a chat about your journey as a property investor, that's probably for another time because we don't have hours and hours. But what I'm hoping to achieve today is to extract some of the gems of information that you can share with our listeners. Yes, all good, all property investors should be securing a pest and building report before they purchase properties – it’s a given right and should be done. However, investors can probably do a lot more in educating themselves on what to look for in a property, which can help potentially alleviate a lot of the cost and time associated with bringing in a building or pest inspector. So thanks for sharing all your insights. I'm going to extract them out of you. You've recently put a book together. I've got a copy here, called Building Success: Why Property Investors Need Building Inspections and I'm going to give a couple of these away, and Andrew's been kind enough to leave a couple of copies here. So I'll do it at the end of the show.
But in terms of building inspectors and property investors, let's start with what an investor should be looking at when they go to a potential property for purchase, a side inspection, whether it's a house or a unit. What should they be doing when they're assessing a property for purchase or for investment from a building perspective? What's the first thing you would do when you walk up to a front door, or walk to the mail box of a good property?
Andrew Mackie-Smith: That's a good question. When I arrive at a property, as soon as I pull up in the car and have a look, I like to look at where that property is positioned on the street itself. Like, if it's on the top of a hill, that can be great, because you get good drainage, you might get breezes and views and other desirable things from a real estate perspective, but from the point of view of an inspection and checking the structure, if the property is located at the bottom of a hill, then you're going to get a lot of water run towards it. Water causes a lot of issues. It can cause subsidence, it can attract mould, termites are attracted to a damp environment, so a house or property or sight that is poorly drained will generally have a lot more issues. I also have a look from the asset to see if part of the property or house might be partly below ground level. So if you've got rooms partly below ground level, they can be a huge cause for problems. Again, water penetration through those walls into the areas, especially if they're living areas. They're just a couple of things.
Also, again, just looking from the street, have a look for overhanging trees. Large trees on the property can cause a lot of problems, things like tree roots lifting up driveways and paths causing tripping hazards, tree roots causing structural cracking to buildings, just even attracting bats, and leaves dropping in, and rusting out gutters, all those sorts of things that large trees can cause problems with.
Another thing you got to look for on the sight is whether or not there's retaining walls on the property. A huge cost that I see, Phil, is poorly constructed retaining walls, especially these housing estates where the retaining walls might be about 20, 30 years old, they might have timber-
Phil Tarrant: Copper's logs, yeah.
Andrew Mackie-Smith: Copper's logs, great in the day, but they have a life span of about 30 years, and a lot of these housing estates, they're getting to the end of their time. So if you've got retaining walls all the way around a property, or substantial matter of walls, you could be up for tens of thousands of dollars just to replace those. And that can be a deal killer right there. Very expensive cost. So, the walls might be alright for a few more years, but might need extensive repairs or even replacements, so that's something you got to look out for.
Phil Tarrant: And just on this point, you've described a lot of things you should be looking out for which may influence your investment decision, so, let's just go a step above really quickly. Why should you get a building inspection? So we're talking about specifics right now, about assessing it overall, is it because it's going to help you shape and frame an investment opportunity? Would that be the main reason?
Andrew Mackie-Smith: I think so. I'm an advocate, that, I think to, as a property investor too, I think you need a team. I think it's a team sport, property, and I think you need to have a good mortgage broker. You should perhaps have a good buyer's agent, especially if you're buying estate in an area you're unfamiliar with. You perhaps need to have a valuer, and a good appreciation expert. I think having a building inspector is another key part of that team. And someone who not only has the experience and qualifications and insurance, which is all critical, but someone you can discuss the inspection with and understand the property better. Because maintenance, as we all know, is a considerable cost. And the more some properties are high maintenance, and some are lower maintenance, and a building inspector should be able to help you understand what some future cost could be.
Also, someone who's a good communicator, who can discuss the report with you and explain it to you. Because I've read plenty of other inspectors reports, Phil, and I've got to say, sometimes I don't even know where the problems are, or I don't know the magnitude of the issue. I'm reading it, there's no photographs, and then I attend the property, and it might just say, repair still beams, and I've got there and find this whole structure needs to be replaced. And it might be $20,000 dollars’ worth of work, and that's not really expressed in some reports, the severity of the issue. I think, to answer your question, to come full circle at your question, I do think that people need a building inspection essentially to avoid future significant unexpected costs. Because that can really kill the investment. You buy property to make money out of it, not as a money pit. So, essentially, you need to know what you're buying.
Phil Tarrant: So it's pretty important.
Andrew Mackie-Smith: I think so. I'm a bit biased, but yeah.
Phil Tarrant: I completely agree with you, and I started this conversation around how I've used building inspection as a tool to negotiate down, and obviously a building inspection has identified some problems, and in our view it is a way to bid down the price. But that's just one application of a building inspection. But what we've talked about, there's a lot more macro, right? This can shape truly the feasibility of the investment. Going into the micro stuff and what you've said, speaking about in terms of from the street appeal and looking at issues which can determine whether a house on a hill vs. a house in a valley can be chalk and cheese, because of the nature of where they're situated, and the problems associated with it, and the cost to hold it. So if you're buying something which got plenty of rising damp, it might cost you a lot of money in terms of maintenance over the years. And that's probably going to play out into not being as attractive as something else in the future, on a resell.
Andrew Mackie-Smith: Yeah, absolutely. Another thing that just comes to mind looking from the street is, every few months or so a house, in particular in older areas where the houses actually appears to be built partly over the boundary, and that's...
Phil Tarrant: That can be the issue, right?
Andrew Mackie-Smith: It's quite surprisingly common. And I did an inspection even for a buyer's agent, and the property was about 300 millimetres over the boundary. He thought he could subdivide it at a 20 metre frontage. The house was on one side, but it was actually over the boundary, so no deal.
Phil Tarrant: So the houses were just a bit like a carport, or...?
Andrew Mackie-Smith: 300 millimetres of the house was actually over the boundary. So it was not fenced, and there was just an assumption by the buyer's agent that that was all cool. Now, you know, that was something I picked up, so again, when you look at a property, if it appears close to a boundary, check that out. There's also setbacks required under the building code for fire aiding reasons, too. Like you can't build within 900 millimetres. But another big issue that I commonly see is illegal building work. Just when we do an inspection, finding work that clearly doesn't comply with the building code in so many respects, you just strongly suspect that that won't have approval. And then when the buyer looks into it and does his searches through the solicitor it does confirm on approval, and then have issues with resale, or even getting the building insured because of this problem. So that's another thing I would stress to the listeners is check approvals.
Phil Tarrant: Sounds like a mine field.
Andrew Mackie-Smith: I don't want to put people off, but do your checks.
Phil Tarrant: Just on that basis, what type of building inspections is there? You've spoken about specifics in terms of location of property, whether or not it’s on building, is that the responsibility of a building inspector, or is that the responsibility of the conveyancer, who does it lie?
Andrew Mackie-Smith: Good point. This is just a tip for your listeners. However, in a standard building inspection, the inspector would not be expected to survey property boundaries to understand where the boundaries in fact are. But through a duty of care, if they notice something, they should be passing that on to you. That's a value add of an experienced inspector. When it comes to the other types of inspections, there's clearly swimming pool inspections, and if you've got a pool more than 30 years old, even more than 20 years old, if the pool equipment is original, chances are it needs to be replaced. And you often need to have swimming pool fencing compliant with AS1926, so you'll need a swimming pool fence inspection, at least. There's also you might need a structural engineer to do an inspection if there's cracking found that's significant, just to determine there's not major structural cracking.
You could also perhaps need to get a dilapidation inspection done. So, if for example your neighbour is going to do a major development, they're going to excavate or dig out a big hole right next to your property and close to your building, this could undermine the footings on your property, could cause cracking and movement, so if there's any road works, or significant building work next to your property, I would strongly suggest you get a dilapidation report. And that checks your building for cracks, puts a photographic record to it, and if anything comes up in the future, you've got that there is proof.
Phil Tarrant: And that's something you would pay to have as bit of piece in mind if there is major construction going on, because then you say, "Hey look, you cracked my building." And he goes, "It was already like that." And you go, "No, because I have this report right here."
Andrew Mackie-Smith: Exactly. And a lot of major developers and road government authorities who build roads will actually commission those reports.
Phil Tarrant: So by law, or by best practise, they will commission reports just for...?
Andrew Mackie-Smith: They will often commission them, but I had a client that is aware of border property, I did the inspection, the retaining walls were fine, they were boulder type retaining walls, they were actually higher than the house, they would have been about eight metres high. Sometime after he purchased the property there was road work, there was vibration from the road work, it caused those retaining walls to move, the boulder walls to move, and consequently tried to claim it on the road engineers, and wasn't able to successfully make a claim. So he was out the pocket $70,000 to fix up his walls. So having some sort of dilapidation report if there's any work done would have been helpful for him. He had my report, but that was more to do with the building and not these boulder walls.
Phil Tarrant: We've had some experience with this recently, reports around asbestos, so certain age properties where you appraise, in Brizzy, where we've been buying, a lot of these properties do have asbestos, in particular the roofs. So what's an asbestos report look like, and what's the purpose of something like that?
Andrew Mackie-Smith: Well, an asbestos report is a great idea if you suspect asbestos in the property. A standard building report does not actually include common omnipresence or absence of asbestos, and in fact in the inspection agreement you'll sign with the inspector, most cases it will be specifically excluded. This is for liability reasons. But if you're advised by your inspector to obtain an asbestos inspection report or order, I strongly recommend you do. It costs generally for a standard sized house, say, 3 bed 1 bath, maybe about $550 dollars. It will identify location and the type of asbestos in the property. Friable loose type asbestos, like if it was insulation, is quite dangerous and hazardous, if the asbestos is bound up into the shape, the experts advise that that is generally considered reasonably safe, provided you're not cutting it, drilling it, sanding it back, and so my advice to people is if you suspect asbestos, do have an audit done. That's worth the money.
Also, be very careful about buying a house that's constructed with asbestos ceiling and walls if the paint is peeling, because many painters will not be able to scrape that back and sand it back, they will actually have to remove the shades.
Phil Tarrant: Just a little tip, but it can be the difference between a lick paint and a full reshaping of a room or a building.
Andrew Mackie-Smith: That's right. It's $40 a square metre to have it professionally removed, and the cost can add up very quickly.
Phil Tarrant: It gets pricey.
Andrew Mackie-Smith: Yeah, then you've got the cost of the new shading, so...
Phil Tarrant: A lot of investors I chat to comprehend the need for a building inspection or pest inspection. But often it might not be necessary. They should be able to identify a lot of stuff themselves. You mentioned initially from the outside in, so location for property, potential for damp, overhanging trees, tree roots, this sort of stuff. Where else do you think investors can really expand their skill sets? So if you're going to say, here's 10 things, the 10 must-do checks before, when you do a property inspection, whether or not you want to progress with even assessing it as a potential investment property? What should you be looking out for?
Andrew Mackie-Smith: Well, 10 things including that previous list?
Phil Tarrant: No, I think 10 new ones, inside and out. Here you go. Make it tough.
Andrew Mackie-Smith: Let's go for some. Let's start with, I think most people know how to look for cracks. But you need to have a look for gaps around window frames and doors, because often it's there's building movement, you can get gaps between windows and doors that can indicate significant movement. Anything than about, say, five millimetres, that can be a significant issue. So that's number one.
Number two, I'd be pretty wary of houses that are recently rendered, especially because if you're in an area as an inspector we know that there's cracking, render can be a good way to cover over cracks. So if a house has been recently rendered, be on the lookout for signs of movement. Often there will be new hairline cracks just appearing, or there'll be those gaps around the window frames that are a bit of a tell-tale sign.
Phil Tarrant: So just on the point of rendering. Someone just rendered something, and you're looking to purchase it, you might think, well, they've dropped 5k on rendering the façade just to make to look okay, but really it's to hide a lot of significant problems?
Andrew Mackie-Smith: I'm not saying every render job is a cover up.
Phil Tarrant: But it's a clue that this might be potentially the case?
Andrew Mackie-Smith: Certainly it's a clue. And that's something you've got to be aware of. Another sign I look for is history of termite treatments at a property. So, open the electrical metre box, have a look in there, see if there's any stickers of past termite treatments. Walk around the outside and have a look for drill holes that have been patched on the outside, which will indicate a termite barrier. Few people will go to the expense of doing a termite barrier unless they've had past termite issues. Now on one hand that's a good thing, it means they've done a treatment, on the other hand it means that the house will need ongoing treatments, which you'll have to budget for, which could be 500 dollars a year you've got to put away. So that every eight years or so, you can do another termite barrier. So, that's an additional expense.
Other things I would check for carefully are, I've already mentioned retaining walls, one of my favourites. Not a ped height, but an area very prone to problems is tile decks. So if you have a tiled, slab-type balcony, they're usually pretty solid and good. But if you have a timber balcony that is being tiled -
Phil Tarrant: But with ceramic tiles?
Andrew Mackie-Smith: Ceramic tiles, correct.
Phil Tarrant: On a timber deck.
Andrew Mackie-Smith: Ceramic tiles on waterproofing, on shading, on a timber frame, as a deck or a balcony, they're so prone to leaking. I'd be very aware of those and be very carefully checking underneath for a sign of leaks. Repairing those is normally about $10,000 dollars if you got to pull all the tiles off, re-waterproof it, quite costly depending on the size of the deck. It's another thing to watch out for.
Walls below ground level. I might have touched on that before, but I've got to say it.
Phil Tarrant: That's number 5, yeah.
Andrew Mackie-Smith: I've got to stress that, honestly. Walls below ground level. If you've got any house or building with walls below ground level, the propensity or risk of leaking is very high. Most house builders these days will steer away from having rooms below ground. They'll prefer to set the retaining wall of the soil about a metre off the wall. So when you have what we call a wet wall, where there's soil or dirt on one side, and a bedroom or living room on the other side, have a look closely for things like blistering paint, tea coloured water stains, musty damp smell, those are the signs that you've got to watch out for. That I think is an important issue.
Another one is houses that have been renovated by owner builder. Someone watched The Block one too many times, or so forth. Owner builder renovations, in Queensland we actually have a law that if you sell a property, you actually have to disclose that on the contract that the renovations have been done by an owner builder, and that there's now home warranty insurance applying. But that's not the case in every state or territories have, so be aware if the property has been renovated, and it's an owner builder renovation, if those tiles are all lippy and not correctly glued down, and there's no expansion joints, if the painting's a poor paint job and you have to do it all again, it can be very costly, so, yeah, owner builder work is something you got to watch out for. And the worst culprit's trades people. Doing their own painting, tiling, and carpentry. That's very common.
Phil Tarrant: And why's that? They don't do it as well as they normally would do, or is it sort of slapdash, or...?
Andrew Mackie-Smith: I think they think because I'm a plasterer, therefore I'm a carpenter and a painter, of I think I'm an electrician, so I'm also a tiler and a painter. And they just get carried away with perhaps their own ability. I prefer someone using professional trades people. Makes my life interesting, and the builder's.
Phil Tarrant: That's good, that's good, number 6. So, number 7, I don't know, I’ll pre-empt you – if we're going to talk some electrical stuff, right? What should you be looking for in that sense?
Andrew Mackie-Smith: Sure, from my point of view as a building inspector, we don't touch electrical, and we don't include it in our inspection because in Australia, you need to be licenced to check electrical. In the United States, home inspectors will do courses and check electrical, whereas we don't here in Australia, so my tip for someone is, if you're buying property of more than about 30 years old, do get an electrical inspection. It's worth it. I've seen these buyer's agents I work with regularly, and they will always insist on having an electrician be there at the same time as the building inspection, and they will make their own list on older properties, and I'm saying again, from 30 years onwards. And what they find is surprising. Often there'll be older properties that have air conditioning installed, but didn't upgrade the mains. So the mains are actually insufficient, or they don't have adequate circuit breakers, so my tip is, older properties get an electrical inspection, but also open that switchboard up, have a look in there if you've got the old ceramic fuse types switchboard, just straight away you're up for about $4,000 at least for new switchboards straight away. So check for that.
In some houses, very few these days, but if you see the old fashioned fabric type covering on the wiring, that's got to be instantly replaced. That's very suspect. And there is also some cheap Chinese wiring made by, I think it's called Infinity Cable, and that's being deemed unsafe as well. So, my top tips for electrical would be, sure, you can go and switch on all the lights and things like that, sometimes talk to the tenant, if the tenant's there, they'll often tell you if there's problems with the power cutting out and so forth.
Phil Tarrant: So let's get number 8. What about from a water perspective? Knocking pipes, poor drainage, this sort of side.
Andrew Mackie-Smith: Sure, look, drainage is really critical. The building code is more performance based these days, so a minimal amount of drainage provided does not get into the house and causing damage, a minimal amount is deemed acceptable. There's not a prescriptive part in the building code anymore to state how many drains you need and the spacing of them, etc. So it's just about what's adequate. If you're assessing a house with a view to buying it as a property investor, be very aware if your house backs on to an embankment. So if you're next to a park or open reserve, you've just got properties hire up and retaining walls, and then you got a back yard, you're going to get a waterfall of water coming in when it rains, and you need to have some pretty good drainage. My top tip there would be, there should be drains around the house, there should be a series of collection pits, but especially if those pits overflow, can the water run off to the street, or at least off the property? If it can't and it's contained, you got a problem. So especially if the front and the back yard is higher than the house, you've got a massive problem. Because you'd have to pump the water out, and so that's a big issue.
One other point on, you said about water hammer and pipes, people often think that's loose pipes, more often it's just a loose washer is all it is. Not a big issue. You got to watch out on older properties if you've got the old galvanised pipes though, because they can often be rusted on the inside, reduce water pressure, which upsets your tenants, and again that's quite costly to replace that.
Phil Tarrant: Okay, it's just two more. I think we're doing pretty well for these ten – probably need to look at what's up top. So, ceiling and then roof, roof covering, inside the roof with maybe bats obviously, but there's been some pretty poor insulation in the properties, and this brings a lot of problems.
Andrew Mackie-Smith: Yes, with respect to insulation, I crawl up inside a few roofs, and there's some insulation I don't mind getting on to, polyester bats, and some are terrible to walk through, but especially for the investor, you really need to be aware that the foil top insulation unfortunately, quite tragically, quite a few installers lost their lives by putting staples through the foil directly into live wires and electrocuted themselves, which is pretty tragic. It just shows it's a high risk. The recommendation these days is to have that material removed. It's also problematic to go up in the inspecting because you don't know where to put your feet, because you can't put your foot onto a ceiling joist or, say, a trust cord. But definitely foil insulation inside, but you have to ask your inspector to check for that and tell you the type of insulation in the roof. You won't be able to see that readily at the open inspection. So, does count as 7? What about 8? The roof?
Phil Tarrant: That's 9, actually, so we're at number 10. So, let's talk the ceiling.
Andrew Mackie-Smith: The ceiling?
Phil Tarrant: Yeah, let's talk about what the roof is made out of, but then also because you're a Brizzy native, a lot of people buy these filled in properties, so it's a high set property, and someone's put the walls up and turned the bottom of it into a second bedroom or a bathroom, and the ceiling height often, in all of these Brisbane based properties, do not meet the code in terms of height. They actually deem it warranted to actually be in other bedroom or bedrooms.
Andrew Mackie-Smith: Yeah, well, that's a very good point. It's a really common occurrence. The ceiling height minimum for habitable room, and habitable is defined as a room occupied for extended periods of time, and that would be a bedroom, living room or such, 2.4 metres is measured from the slab. So that's not from the capital tiles, it's actually measured from the slab to the underside of the ceiling. So commonly that would be reduced by people putting in a floating timber floor, or tiles, so if you can take the tape and measure from the slab and it's 2.4, that's compliant. If you're looking to buy those buildings where the ground floor doesn't comply, I'd suggest you talk to your insurer with regard to insurability of it. And also just realise that it could affect your resale value as well. And perhaps make some inquiries with your solicitor – just the legalities of that.
Phil Tarrant: Yeah, because a lot of time, the market is a 3 bedrooms, 2 bathroom with a lot of storage underneath it. As the investor, a lot of people, you can't rent it out as a 6 bedroom property, but often tenants will use it for that purpose. So it's been a tricky one, and it seems to be quite common up in Brisbane, these properties which high set with filled in bottom, and there are maybe 20 or 30 centimetres of being height, or millimetres of the correct height, so it's a tough one.
Andrew Mackie-Smith: It is. They do derive good rents. I think where some people got into trouble is where they've tried to rent them out separately to two different families, I'd advise against doing that. That's a really risky strategy. But when it comes to that height, you can just put a tape measure on it and check it for yourself. But...
Phil Tarrant: And you said, height up, is it up to, say, you've got beams above it. So is that to the floor boards that sit on the beam for the next level, or is that to the actual plasterboard ceiling height?
Andrew Mackie-Smith: You take it from the plasterboard, but you can have, it's a good question, you can have projections below the ceiling line. So if you've got beams that project below that reasonably so, and they're not at height where you'd be smacking your head into those beams, that is acceptable to have some projections below the ceiling line. I have had some inventive people pull the ceiling out and paint the underside of the flooring and the floor joist black or white, and be able to claim that they've attained the height by grabbing an extra 100 millimetres, which arguably that could be saying is compliant, so...
Phil Tarrant: Yeah. I don't know where to begin, it's beyond my pay grade to work out whether or not it's complaint or not, but it's a good question. So you mentioned earlier on that in certain states, there's no licencing of building inspectors. How do you go about choosing a building inspector look after your assessment or your property? Is there any checklist you should go through?
Andrew Mackie-Smith: For sure. I think, thanks to social media, we've not got ways of checking reviews on restaurants and other things. There's also inspectors, generally the better or more established ones will have reviews you can check. That's a start. That's a more reliable way than perhaps looking at the testimonials on their website. Another thing is to ask around friends and work colleagues for recommendations to inspectors they've been satisfied with. But I would also look for someone with a considerable amount of experience in inspecting. Saying you've been a chippy for 10 years is one thing, but it's a different skill set to inspect and report, and be able to communicate the findings. So someone who has perhaps been inspector for a considerable period of time. I thought I knew it when I started and I'm still learning 15 years of running my own business, and 30 years as an inspector. So there's always a bit to be learned. I'd get someone with at least five years inspecting experience, someone who's got a background as a builder or architect would be preferable, and someone, if the state requires it, who is licenced. And always get someone who is insured. I wouldn't be afraid to ask those questions. I wouldn't make assumptions, I would ask. And if you can see a sample report of what they've done, that's always helpful.
Phil Tarrant: Okay, interesting. And we spoke about those 10 points to run through, but is there any actual checks that a potential purchaser or investor should probably do themselves? Should you turn on all the taps, or should you try the stove, what are those handful of things that you should definitely do?
Andrew Mackie-Smith: Well, a lot of people don't know, Phil, that when you buy a property and you engage an inspector, I turned up to inspections and the client meets me there and say, "How long will this take?" And I would say, "Judging by this house, maybe an hour and a half, two hours." And they say, "Oh, great, we'll grab a coffee and come back." And I'll say to them, "Whoa, hold on. There's certain things I do, but there's certain things I don't cover." I don't cover, and no inspector's required to cover checking of appliances. So things like testing the air con works, testing the oven works, the cook top, the electric gate, all those electric appliances is well worth checking and testing. So I strongly recommend clients do that at the inspection for themselves. They can speak to the neighbours if they're around and, you know, standing by the fence and have a chat to them. Ask them about drainage and so forth. You can get a lot of that sort of information. So I think it's very important if people can attend the inspection and find out what the inspector's not covering, and then go around and check those things for yourself.
Phil Tarrant: And is it, you're obviously trying to promote to people that they should be there when you do an inspection, but I imagine a lot of property inspectors, they don't want to be annoyed, they're thinking, I don't want people looking over my shoulder and ask me too many questions. But that's what they should be doing?
Andrew Mackie-Smith: Look. I'm happy for people to be there. It makes my life easier if I can show a defect to someone and we're face to face, and we can look at this together and discuss it, and I can answer their questions there. It's easier than trying to describe it over the phone, or even with photographs in a written report. I get probably three quarters of my clients arrive at inspections, that's including within the state and overseas clients we service. I would definitely encourage people to attend. If they can't attend, perhaps get a trusted family member or friend to attend on their behalf. It's always, always worthwhile, I think.
Phil Tarrant: And when you receive a report from a building inspector, you typically have phone call, what sort of questions should an investor be asking or challenging the property inspector on?
Andrew Mackie-Smith: Well, I think don't start out with, "Would you buy it?" Because that's a common question, but it's a really difficult one for an inspector to answer because we're not actually there to give investment advice, and we don't know the value of the property, and there's a whole range of other factors. So don't ask the inspector whether he would buy it because they probably wouldn't. The point I'm making is they should be asking the inspector, "What are the major issues? What are the significant things that are going to cost me money?" And getting an understanding of those, and if they can, some inspectors will help you out with cost estimates on those issues, and I find it's sometimes helpful for some people who have difficulty understanding the technicality of a defect. But they can certainly understand money. And if they understand something's going to cost them $20 to fix or $2,000 to fix, it's more helpful advice. So certainly trying to get cost estimates where appropriate, and trying to understand what are the major defects, and certainly safety hazards. Because especially if the property is going to be tenanted, you want to make sure it's safe for your tenants.
Phil Tarrant: We have a duty, care, to make sure you're providing safe premises for someone to rent. So I get a building inspection. Okay, let's have a chat about what do I do with this now that I have it. I already spoke very briefly that you can use this as a negotiation tool, but how bad does an inspection need to be to say, "Don't buy this property." What are the massive alarm bells that you say, "I'm not touching this with a four foot barge pole?"
Andrew Mackie-Smith: Well, that's why I think it's critical for the person not to read the report and just assume that they've absorbed everything from the report. Because again, I've written reports myself, but I've also read plenty of other reports. And some reports I've read, it's difficult to ascertain the property because there's a lot of information in those reports, and there's a lot of disclaimers often, too. So they can be confusing. So speak to the inspector. Make sure you make the time to have a chat and understand it, and tell me, "Please explain to me overall the property, the condition, how does it compare to other properties, what are the main points, what are the major expenses I could expect going forward here?" You really need to have that chat, getting the inspection done is only half the service. Make sure you a) read it, actually read the report, and b) speak to the inspector to clarify any points from that. I think that's really key.
Phil Tarrant: And, say you find some termite problem. So for a lot of property investors, they think, "Termite, bad, walk away." Other investors will go, "Termites, great, I can get a discount here. And I know what it's going to cost me to fix that." So, one man's etc. etc.
Andrew Mackie-Smith: Sorry, I realise I didn't answer your question, Phil. You were asking me, what are the major defects that you would certainly walk away from. Well, for starters, when you mentioned termites, often termite damage is quite minor. The people get worried about nothing. Just quantify how much termite damage is there, what does it cost to rectify, if it's just a few hundred or a few thousand, in the scheme of things, it might still be a great deal and worth going ahead with the property purchase. The things I would definitely think about walking away from would be a property that had major structural damage. I'm very concerned when you have that because even when a property gets underpinned as a repair, I've gone to properties and people have said, "Yes, look, the agent's disclosed to me that this property-"
Phil Tarrant: Underpinning would be if something's sagging and you need to go and chuck some concrete under it. Is that underpinning? Quite technical term.
Andrew Mackie-Smith: Pretty much, yeah. So when a building is subsiding, so it's sinking into the ground and the building is cracking through the floor slab, or through the walls etc. When you're seeing major cracking, I'm not talking about a few millimetre wide cracks, I'm talking about large significant cracks and a lot of them, and the building is moving out of level, that can be the cause to require underpinning. Where concrete, as you said, you need to excavate under the edge of the building and install some new concrete footings to stabilise the building. That's a very costly process, can cost tens of thousands of dollars.
Phil Tarrant: Big red flag.
Andrew Mackie-Smith: Big red flag, but a lot of people say it's okay, it's been underpinned. The problem is, the underpinning will stabilise the building, but it won't fix all the cracks. So the brick work is still cracked. The ceiling and walls are still sagging, ceiling and walls are still out of level at a plum, openings can be skewy, floors can be seven millimetre out of level, etc. And so all those things would be impossible often to fix without demolishing and rebuilding. So I'd be very wary about buying a building that's been underpinned or that has significant subsidence issues. I'd probably walk away from those.
Buildings that are flood prone. If it's in a flood prone area, I would get an evaluation done and tell the valuer that it's a flood prone area. That's quite critical. And if there's a significant amount of building work that's been done, that's either very poorly done by an owner builder, or it has no approval, or both, you often find those two go hand in hand, I would seriously consider walking away from those as well.
Phil Tarrant: We've covered a lot of ground, and we're going to have to wind up. Just to finish up, Andrew, what's the future for property inspection? So you have a lot of drone technology now, guys flying drones over roof lines, capping on towered roofs. Is this going on?
Andrew Mackie-Smith: It is. Look, I'd looked into drones, but you can't have a drone within 30 metres of a person. And you got to watch out for power lines and trees and other things, so we haven't gone into the drone technology. There's certainly a move towards more videoing of defects and showing those at Skype meetings, those sorts of things are becoming more prevalent. Certainly, clients are becoming more sophisticated thanks to Google. They can Google just about any defect and become quite expert on it, so I would say the future of inspections is that embracing more technology, and using more technology to enable inspections in the reporting.
Phil Tarrant: Interesting. And just to finish up on this. We've touched very quickly about disclosure laws around work that's been undertaken, and other sorts of matters which can affect the impact of a property or its feasibly free investment. What's your view on disclosure laws? I know the ACT has done some good work on there in terms of what they're trying to do there, and you're very pro getting it set up across Australia.
Andrew Mackie-Smith: Yeah, thanks, Phil, my wife Trish Mackie-Smith and myself have been quite proactive in that area in campaigning, and Trish has started a petition with Queensland Parliament to try and support change in this area. We like what we see with the ACT and the way that works very, very well from talking to policy makers and agents and people who work under that system. They find it works incredibly well. I think that Australia will go that way eventually because of the example set by, say, London and California have already adopted quite strict laws around disclosure. What this disclosure simply means is that sellers, if they're aware of a problem, they have a responsibility to tell buyers about it. Let's face it. You're buying a property with, say, on average half a million in Australia. Isn't it fair to tell people it's flood -
Phil Tarrant: So if you know something which is detrimental about a property, you should tell the person who's going to buy it and say, "Hey, look, it's in a flood zone. Never flooded, but it's in a flood zone."
Andrew Mackie-Smith: Exactly. We think it's fair to disclose, and rather than, the current doctrine of buyer beware, we feel, is out-dated. That suited the nobility a few hundred years ago, but in today's age where people are investing a significant portion of their money, we think it's only fair that they disclose problems they're aware of. Sure, if an old grandma is not aware of termite damage in the roof, sure, she wouldn't be penalised. But if someone knows that the house was flooded a couple of times, they should be disclosing that. Whereas currently the law, they don't have to. And we think that could be fairer.
Phil Tarrant: That's good. So you've actually said, I'm actually going to conclude with buyer beware. It's incumbent on the property investor, the purchaser of the property to make sure that they are completely satisfied, that they know everything they possibly can about a property, and whether off not they've got the information they need to make the decision whether they want to buy it. So a building inspection or a pest inspection can go a long way for that piece of way, a long way to actually understanding or the ability to assess a property and whether or not you want to purchase it. So the investor's in control. It all comes down to finding good building inspectors who can do their job. I know whenever I get building inspections, and most of the reports disclaimers saying, "We've done our best we possibly can, but here's the information we know about." So what do you get as an investor with a building inspection? Is there any actual, other than piece of mind? Or a big tip that you've done pretty good deal on some of the properties? Any other assurances that you get from undertaking one?
Andrew Mackie-Smith: Yeah, well, under common law, the building inspector has a duty to act professionally and reasonably. There's a certain obligation on an inspector to act diligently, and they will be potentially out for compensating a buyer if there's a problem, if there's a significant issue that they have overlooked. So, yeah, there's a responsibility back towards their clients. And we're acutely aware of that, and that's why we go to the extent to what we do. Those disclaimers unfortunately, look, they do make reading a report a bit if a cure for insomnia. But they're quite necessary. So, buyers will understand the limits of what an inspection can and can't do. Because there's certain things that aren't covered like we've touched on before with, say, asbestos or flood zones or electrical wiring, and things like that. And that's why people need to be aware of what are the limits of the inspection, and to read the report and understand those, and to see where they might need to make their own further investigations. And that's why reading the report and talking to the inspector, and have a good inspector is all quite critical.
Phil Tarrant: Andrew, I really enjoyed that chat, mate. I think we've just covered the tip of the iceberg. There's so much more that we can go through. What it's just confirmed to me is that I'm not a builder, I don't have a lot of experience in building except for some renovations, and there's a lot which can influence the state of a property. And you need to get an expert to look after this sort of stuff for you. But what I'm going to do is, Andrew's been nice enough to give us some copies of the book here: Building Success: Why Property Investors Need Building Inspections. That's a good point, that's pretty much what we've just talked about. So what I am going to do, I've got three copies to give away, so please write me with a question, and I'm going to give it to whoever, the people who asked the best question about building inspections and why investors need them. You can send your questions to [email protected]
Andrew, what I’m going to do, we didn't really touch too much on pest inspection, so let's do a quick bonus episode for our listeners on that, particularly looking at the Queensland market because that's your specialisation, and you have your own particular bugs and nasties out there which can cause us trouble. We'll be putting something out in a couple days’ time post this podcast coming up. But, Andrew, mate, thank you, that was...
Andrew Mackie-Smith: Thank you.
Phil Tarrant: Yeah, no, since you sharing your insights and...
Andrew Mackie-Smith: Thanks for having me on the show. I enjoyed the chat. It was really good.
Phil Tarrant: Remember to check out smartpropertyinvestment.com.au, and all the social stuff. Please keep those reviews coming on iTunes for the podcast. We do appreciate them, and leave your marks here, but we do read them, and we're very thankful for them. We'll be back again soon, until then, we'll see you then. Bye-bye.