10-point checklist for investors looking for quality properties
investor-tips

10-point checklist for investors looking for quality properties

By Bianca Dabu
Checklist

While it is advisable to get pest and building inspectors as part of one’s team, property investors must also equip themselves with the necessary knowledge to be able to conduct a good preliminary property inspection before committing to an investment.

From the outside, one could tell the structural strength of a property by its location—Is it at the bottom or on top of the hill? Will you get a lot of water running towards it? Are there large trees and retaining walls surrounding the property?

According to BuildingPro founder Andrew Mackie-Smith: “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 [become] a money pit… You need to know what you're buying.”

The certified pest and building inspector list 10 things that an investor must check to know that he is getting a good quality property to add to his portfolio:

1. Look for gaps and cracks

Gaps between windows and doors often tell a lot about the frequency of building movement, said Andrew.

“I think most people know how to look for cracks but you need to have a look for gaps around window frames and doors… You can get gaps between windows and doors that can indicate significant movement,” he explained. “Anything than about, say, five millimetres, that can be a significant issue.”

2. Be wary of recently rendered houses

Renders can be a good way of covering cracks and this is a strategy often used in areas where significant movements regularly happen.

Andrew said: “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.”

While not every render job is a cover up, it will always do an investor well to double-check the structure of the property to ensure its quality.

3. Check out the property’s history of termite treatments

Before purchasing a property, open the electric meter box to see if there are any stickers of past termite treatments or look for drill holes that have been patched on the outside, which are often indications of termite barriers. Knowing that a property has gone through treatments is a good sign on one hand, but on the other, it could mean additional expenses for follow-up treatments.

“The house will need ongoing treatments, which you'll have to budget for, which could be 500 dollars a year that you've got to put away… Every eight years or so, you [have to] do another termite barrier—that's an additional expense,” Andrew said.

4. Have a close look at retaining walls

According to Andrew, tile decks are usually prone to problems as they are more likely to cause leaking.

“If you have a tiled, slab-type balcony, they're usually pretty solid and good. But… ceramic tiles—on waterproofing, on shading, on a timber frame, as a deck or a balcony—they're so prone to leaking,” he said. “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, [and] re-waterproof it. Quite costly depending on the size of the deck,” the builder added.

5. Try to avoid walls below ground level

Most house builders tend to stay away from having rooms below ground and, instead, prefer to set the retaining wall of the soil about a meter off the wall—and for good reason.

“If you've got any house or building with walls below ground level, the propensity or risk of leaking is very high,” Andrew explained. “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.”

6. Be more careful in purchasing houses renovated by owner builder

While the law in some states dictates that a seller must disclose on the contract if the renovation has been done by an owner builder and that the home warranty insurance now applies, it’s not always the case for all transactions. Many property owners tend to overestimate their own ability to renovate, which can sometimes lead to both structural and cosmetic issues for the investor.

“If those tiles are all lippy and not correctly glued down, there's no expansion joints, [or] if the painting's a poor paint job, you have to do it all again and it can be very costly, Andrew said.

Owner-builder work is something you got to watch out for and the worst culprits are tradespeople [who do] their own painting, tiling, and carpentry. That's very common.

“I think they think... ‘I'm a plasterer, therefore, I'm a carpenter and a painter,’ [or they] think, ‘I'm an electrician so I'm also a tiler and a painter’ and they just get carried away with their own ability.”

7. Get an electrical inspection

Building inspectors in Australia have to get a separate license to be able to do electrical inspections, but while it means having to spend a little bit more, property investors must see to it that they have a professional check on the wiring of the house to ensure its safety.

“If you're buying a property [that is] 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,” Andrew shared.

Old properties often have “more surprising” issues, based on the builder’s experiences of inspecting houses and buildings for over 15 years.

“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... Open that switchboard up, have a look in there if you've got the old ceramic fuse types switchboard—you're up for about $4,000 at least for new switchboards straight away, so check for that,” he said

.“If you see the old-fashioned fabric type covering on the wiring, that's got to be instantly replaced. That's very suspect. There is also some cheap Chinese wiring… that's being deemed unsafe as well. So, my top tips for electrical would be… 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.”

8. Remember that drainage is critical

According to Andrew, the building code is more performance-based nowadays, so while a minimum amount of drainage provided does not get into the house and can cause damage, it could still be deemed acceptable

He explained: “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.”

Property investors must be aware if the house backs onto an embankment, next to a park, or an open reserve, with retaining walls and a backyard.

“You're going to get a waterfall coming in when it rains and you need to have some pretty good drainage… There should be drains around the house, there should be a series of collection pits, [and then] 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, especially if the front and the backyard is higher than the house,” Andrew said.

He added: “You [also] got to watch out on older properties if you've got the old galvanised pipes because they can often be rusted on the inside and reduce water pressure, which upsets your tenants, and again, [it’s] quite costly to replace that.”

9. Be aware of the property’s insulation

Poor insulation in properties can bring a lot of problems, that’s why as a building inspector, Andrew doesn’t mind crawling up inside a few roofs to ensure high-quality insulation for property investors. However, he advises non-professionals to avoid going to that level of inspection for their safety.

“You really need to be aware of the foil top insulation—quite tragically, a few installers lost their lives by putting staples through the foil directly into live wires… It just shows it's a high risk. The recommendation these days is to have that material removed,” the builder shared, “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.”

10. Make sure that the property’s ceiling height adhere to the building code

Some investors with high-set properties often put the walls up and turn the bottom part to a second bedroom or bathroom, but quite often, the ceiling height of these extensions do not meet the standards of the building code.

“The ceiling height minimum for habitable room—a room occupied for extended periods of time—is 2.4 metres measured from the slab… to the underside of the ceiling. 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,” Andrew said.

“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 [the] insurability of it, and... just realise that it could affect your resale value as well… Perhaps make some inquiries with your solicitor [as well]—just the legalities of that,” he shared.

Moreover, while these type of properties have the potential to derive good rents, he advises against taking advantage of the spaces. “Some people got into trouble [when they try] to rent them out separately to two different families… That's a really risky strategy.”

Tune in to Andrew Mackie-Smith’s episode on The Smart Property Investment Show to know more about the science behind pest and building inspections.

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10-point checklist for investors looking for quality properties
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