The Practical Side Of Real Estate Investment — Checking Things Out

Say the word ‘empirical’ to my wife or kids and they’ll role their eyes. It comes from years of me insisting on proof. Empirical evidence is what acts as foundation to the credibility we all want when we’re tryin’ in vain to make a point.

We should be getting $1,395 a month for these units.

Oh really? Show me.

Is that really necessary? I’ve lived here for 235 years and ‘know’ that’s the market rent for that area, in that specific neighborhood, for those specific units.

Cool! You sound as if your as sure as I am the sun’s gonna set in the west tomorrow. Are you that sure?

Yep.

Great — then please include in our contract that all 17 units will be guaranteed by you for the first year.

What the %$&*^& are you trying to pull here?!

I’ll guarantee the sun will set in the west tomorrow. Why are you now balking on these rents? If you won’t or can’t find your way to guaranteeing the rents, we’ll take a different approach.

Give me an avalanche of empirical evidence. Let’s ensure we’re on the same page.

Empirical — 1. originating in or based on observation or experience 2. relying on experience or observation alone often without due regard for system and theory

A document showing:

A list of current verified rents of comparable properties nearby — with addresses

Rent in terms of dollars per square foot

‘For Rent’ ads on websites complete with urls

Rents in the subject property — at the projected rent amount

I’ve guaranteed rents more than once. I’ve had clients do it on rare occasion too. Without exception, there were extensive ‘boots on ground’ rental surveys done — many times by yours truly. A couple times under the radar cuz I wanted to see for myself — quietly. Actually, more than a couple times.

Documented, empirical, boots on the ground evidence.

Otherwise — yer just talkin’.

For the record — 10 pounds of documented empirical evidence still doesn’t guarantee you’ll get what the evidence says you should. The market couldn’t care less about your evidence. Things change — sometimes in real time, and faster than you can see it happen.

Nonetheless, empirical evidence is the the gold standard. Boots on the ground don’t lie. Just keep in mind — nothing is guaranteed.

What about physical inspections?

Obviously, you want someone loyal to you, the investor, checking out the property. It should go without saying.

Now that I’ve said it, I think most inspections on income property are in some ways misleading. One big problem can’t really be put onto the inspector — how (and why) they cover their collective hinies so much.

There’s no ground in the electrical outlet in bedroom #2. Blah blah blah. He knows, the investor knows, and the local government code says very plainly: it’s OK. It’s built to the code in force at the time of construction. If it had become unsafe, we would’ve already made them change it.

But nooooooo, the inspector to write paragraphs about…nothing. I would if I were him too — and we all know why.

It’s irritating. What you as an investor should be paying attention to is what the report says about real problems. Or about potential problems. What black widows might the inspector have missed? The report pretty much covers everything but the kitchen sink — oops.

How to handle questions raised by the report. Everyone has their own approach to this.

The first inclination is to simply put it into a repair request form of some kind, asking the seller to take care of it.

I have a different policy.

If the report talks about roof problems, we get a roofer out there. Same with foundation questions, plumbing, electrical, and whatever else comes up. We don’t do it every single time, but if you apply common sense, most decisions on these things make themselves. When in doubt, bring in ‘the guy’.

We’d rather rely on the specialist willing to back their words and their work. They charge little or nothing to give an honest opinion. Of course, these tradesmen must be vetted to your satisfaction. They shouldn’t be total strangers if you can avoid it for obvious reasons. You want someone who doesn’t make you feel there’s a need for constant cross examination.

The roof needs to be repaired or replaced or it doesn’t. Which is it? Then move on.

This policy has saved many a client from some pretty scary stuff. Property inspectors aren’t specialists. It’s my opinion they do the best job possible, often spending several hours at one property. When the smoke clears — they don’t know what they don’t know. You don’t know what they don’t know either. A specialist probably will know. Don’t treat the inspector as if they have knowledge they don’t possess. Sooner or later you’ll wish you hadn’t.

Frankly, I think it’s unfair to the inspector to put that much on them in the first place.

Finally, when the work is done, (by licensed tradesmen) have it re-inspected and signed off by the inspector. You definitely want a paper trail.

Next week, time permitting, let’s take a good look at foundation problems. They can be your second best friend — as long as your best friend is a foundation repair guy.

Boots on the ground tomorrow. Real field work. Clipboard stuff.

Cool.

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2. Real Estate Investors — The Little Things Count — Big Time
3. Here’s What Serious Agents Do When They Want To Go To The Dark Side
4. 3 Things You Must Understand
5. Real Estate Investment: Real Leverage is Using a Big Enough Stick