How pest and building inspection ensures a good property purchase

Phil and his financial team were able to secure the four-bedroom property in Queensland for the under market value of $290,000 because it was cosmetically challenged.

While many property investors would look the other way when faced with an “ugly duckling” property, they gladly added the asset to their portfolio after coming to the conclusion that they don’t actually need to do a big renovation immediately to make it liveable and attractive for tenants.

“I quite like cosmetically challenged property, because with a lot experience that I had doing renovations... I can look at a property and say, ‘Yes, that looks a bit crap, but I know it's not going to be that much expensive to fix it,’” Phil shared.

“Go and check out the photos of it, you'll see that it needs a bit of love, it needs a bit of work, it needs a bit of attention. We're fortunate that should we choose to take that renovation and do it immediately, we can … but it's just really getting this emergency maintenance done.”

His buyer’s agent Steve Waters explained further: “Yes, we've got a leaking shower there, a leaking pipe or whatever it may be, which is a quick fix… [There’s no pressure] to enhance its value and get your money back. I'm not really sure that perhaps spending the money on [renovation] now is going to warrant the cash flow return either.”

Being able to differentiate a property with simple cosmetic issues from one with serious structural faults takes a simple but often overlooked prepurchase step—pest and building inspection. 

Many property investors who can’t be bothered to personally look at the property they want to purchase tend to rely on photos from vendors or their agents, failing to bear in mind that it could not be reflective of the actual state of the property. On the other hand, those who find time to visit the property could still miss those small but still quite relevant issues.

Steve advised property investors: “A lot of these [simple cosmetic issues] you would not see even if you were to visit the property, hence the reason for having your pest and building inspectors turn it inside out and upside down… never shortcut that part of the process.”

Aside from making sure that an investor is purchasing a good quality property, the results of the pest and building inspection could also give him a leverage in negotiation, according to Phil.

“The pest and building reports come back to you as a purchaser,” Steve said.

“We always recommend that, when you read the report, you speak to the inspector[;] quite often, what they put on paper is full of disclaimers—it's worst-case scenario.

“By speaking to the inspector, you're actually getting it straight from the horse's mouth. The common sense approach or report, so to speak.”

The buyer’s agent added: “Once I've read the report and I've made my own notes, we [go] back to the vendor via the real estate agent to hit them from that side, [and] also from the solicitor side.

“I solicited a solicitor to ask for a reduction to contribute towards repairs and maintenance. The end result was we got $10,000… [which will] go a long way towards taking care of any of those emergency repairs that we need.”

At the end of the day, whether an investor is at the early or later stage of his property investment journey, it is always wise to remember the fundamental guidelines in determining a good asset to succeed in the business of creating wealth.

Tune in to The Smart Property Investment Show’s episode on Phil Tarrant’s portfolio to know more about the team's top tips for finding the right marketplace for investment and identifying growth opportunities within their portfolio to increase its value.