The Good Stewards

What Your Due Diligence Should Be

Episode Summary

Don’t fudge together your deals. Pre-offer and post-contract due diligence is critical to knowing the properties potential forward and backward. Put together a list for those phases and stick to it, don’t leave anything up for assumption, unless you write out those assumptions.

Episode Notes

Pre offer Due Diligence:

1:52: The pre-offer phase of due diligence is all about determining what you should you base your offer on? This should be a systematized approach where, say, you scale to reviewing 150-200 offers a month, you can’t spend all day on this.

4:00: Andrew has a 26 line item review for pre-offer rehab costs and adds a 20% contingency on top. Don’t talk yourself into doing the deal by making allowances to make it work. Plan for the worst and hope for the best.

7:04: Pull your comparable properties, or comps, on the MLS, Redfin, Trulia, Zillow, PropStream to determine your actual retail value (ARV).

8:23: Ryan plans that he’s buying an eviction. At least get copies of rent ledgers and if you can get copies of lease agreements, the better. 

If you’re in a Subject To loan agreement:

12:41: Confirm the terms of the loan. Check the rent ledger, ask questions. “Have you had any sewer/electrical/flooding/roof issues?” Knowing these questions upfront may aid you when it comes to negotiation.

15:50: Since Stewardship Properties wanted to get back out of a flipping strategy into a more buy and hold, the midwest and southeast markets had stronger cashflow than it would on the coasts. And so we (Andrew & his brother Philip) just decided to you know, pack up and start a branch out here.

Post-Contract Due Diligence:

16:05: Post-Offer Due Diligence is all just simply verifying everything you did previously and then go deeper.

20:32: Our offers also have a 30-day contingency that it’s based on an inspection. We recommend going with the inspector when you’re starting out so that you become more and more familiar with what to look out for when you’re touring the property in the pre-offer phase.

25:39: Get a contractor bid as well. Andrew uses a 150 line item sheet when he reviews the rehab costs, largely inspired by The Book On Estimating Rehab Costs by Jay Scott. But sometimes, you may miss something, and that’s okay, it’s always worth trying to get out of a property.

28:00: The $50,000 foundation/mold/asbestos repairs have come around to us before.

BOOKS MENTIONED:

4:11: Jay Scott’s, The Book On Estimating Rehab Costs

Connect with the Good Stewards:

Episode Transcription

Bill: Most of us don't come into this business as expert contractor-types. Maybe a few do, but most of us don't. So that knowledge is very valuable in going forward and becoming as, as it dept as you can to spot the kinds of things that a, your due diligence should point you towards.

[00:00:22] INTRO: Welcome to the good steward podcast, the only podcast dedicated to seasoned real estate investors who want to maximize the cashflow potential in their business. We are buy and hold investors with a thousand plus properties and markets across the U S. who bring an insider's view into the nitty gritty details of real estate investing. If you're looking to develop the mindset teams and systems that can dramatically build your real estate business and net worth, you're in the right place.

[00:00:56] Ryan: Welcome to this episode of the good stewards podcast. I'm Ryan Dossey.

[00:01:00] Amanda: I am Amanda Perkins.

[00:01:01] Bill: I'm Bill Syrios

[00:01:02] Andrew: and I'm Andrew Syrios. And again, we are the good stewards and you can find more of at www.Thegoodstewards.com. Today we're going to be talking about due diligence, not the sexiest of topics, but one of the most important when it comes to real estate and also one of the most neglected. This is where. Uh, we basically make sure what we think we're buying is actually what we're buying. And it comes in several stages. We, we'll focus predominantly on houses today. We'll have another podcast sometime later on, apartments, commercial buildings and the like. But houses are, well, it's what most real estate investors are trying to buy. And that is what, uh, that's. What most real estate investors screw up when buying as well. And so we split it up and kind of the pre offer due diligence, which is basically the analysis stage. And then the post offer due diligence, uh, which is once you have it under co, actually the post contract's due diligence once you have it under contract and before you've purchased the property.

[00:01:52] So the first one is to figure out what you're looking at, figure out what you're trying to, uh, what, what you should be basing your offer off of. And the next one is to make sure that what you based your offer off of is actually correct. And so the main point I would make with regards to the pre offer due diligence, the first part of it when you're looking at properties upfront is you don't want to spend all day on this.

[00:02:15] This is something that can easily just go on and on and on. But eventually you've, you've, I mean, Ryan, what would you say is the percentage of offers you make that actually get accepted.

[00:02:26] Ryan: Um, 10% is our goal.

[00:02:30] Andrew: 10%,

[00:02:31] Ryan: nine out of 10 don't pan out after a lot of work. Um, I find that it's really kind of just quick and dirty. You want to verify comps, verify kind of what you would like to be at. Based off of a repair cost estimate. And that's kind of what we make our offer off of. And then once we're under contract, during our inspection window, we really dive down into those numbers to make sure that they're accurate. And that includes, you know, walking contractors or subs through, or hiring an inspector if you're going to go that route. Um, I think a lot of new people make the mistake of like meeting a contractor at a REIA and being like, Oh, this guy's going to do all my stuff for me. And that guy walks through and he's like, yeah, this would be like eight grand, and then he doesn't want to do the work.

[00:03:15] Andrew: Right?

[00:03:16] Ryan: So, um, if you're going to do the whole, like walk through with a contractor, make sure it's one that's competent that you're actually going to use, who's going to stand behind that bid. Um, so really getting that firmed up on the front end, I think saves you a lot of heartache and change orders on the back end.

[00:03:32] Andrew: Yeah, absolutely. And on, on the F, like before you've actually even made the offer, I think the key point there is most of the offers you make are not going to go through. So spending like going through and creating a line item, but bid, uh, with, you know, 150 line items and then bidding them all out for an offer you haven't even gotten accepted. Doesn't really make a lot of sense.

[00:03:52] Ryan: Or like the really detailed cash flow analysis forms of like, okay, the tax is here, the insurance here, the vacancy, like it's really looking at houses.

[00:04:03] I mean, there's online calculators

[00:04:06] Andrew: calculators are just fine, but I mean, it's like, yeah, you wanna, you wanna do want to.

[00:04:11] Well, you know parse out your talent. You want to be diligent, but you want to also be reasonable. And so like the way we do it is we, I have one page sheet and it's just got, it's based off of a very good book. I highly recommend by Jay Scott called the book on estimating rehab costs and it just breaks out.

[00:04:27] I have 26 different categories and so it's like how much do I think this is going to cost? Basically, how much do I think the interior paints is going to cost? How much should I think the exterior paint is going to cost? Does it need to be even done in the first place? And just giving estimates there.

[00:04:39] And then I always add in something for the holding costs, you know, how long are we going to hold that are we, you know, are like, what are you planning to do? You should know what your plan is going in. Do you plan on, uh, putting a loan on the property? Do you plan on it? The, the, you know, that's gonna increase your holding cost quite a bit.

[00:04:53] So that's important to know. And then I always put a contingency in there, uh, for unseen. And we put in about 20% because you're always going to, you know, when you're opening up old houses, there's always going to be some surprises for you. And then also I put in some PunchOut items, the little knickknacks, you know, the outlet covers, the blinds, the light bulbs, you know, these things add up the PunchOut items.

[00:05:17] And so that,

[00:05:18] Bill: let's say, you know, there's a sea of optimism that's going to be surrounding you that you need to be careful about. There's going to be a possibly a real estate agent who's going to want you to buy it. There's going to be a seller who is going to want you to buy it. There's going to be a contractor is one kind of want you to employ him and you really need to protect your own confirmation bias as well because, uh.

[00:05:40] Everybody is kind of conspiring to say there's really not much work to be done here. I mean, geez, just a, just a coat of paint and a little carpet and we're good to go. And that's usually not at all the case. Uh,

[00:05:53] Andrew: that's definitely true. And I'd say even with your own mind, there's the, especially once you've gotten a certain way down the line of the property, you're kind of, you're sort of married to it.

[00:06:03] Ryan: It's like sunk costs.

[00:06:05] Andrew: Yeah. Yeah. And there's this like, I want this to be a good deal

[00:06:08] Amanda: So you try to talk yourself into it and make allowances. I can do this and this and this, and so you just, you won't make those allowances what you'll do, go over budget.

[00:06:17] Andrew: That's why auctioneers start low. They want you to get invested in it. No one's going to buy at that price, but they want you to get invested in that at that lower price before moving it up on you.

[00:06:27] Bill: I think I can keep the carpet. I think I can keep the vinyl. I think I can keep the countertops. I think I didn't keep the vanity, nah, I'm probably not.

[00:06:34] Ryan: There's only a unit of blood in the carpet. It's fine.

[00:06:38] Andrew: Usually, usually when it's on the edge, it's, uh, you should just assume it's, it's over the edge

[00:06:44] Amanda: You should be careful about trying to talk yourself into it or, Oh, you know, I really think there. You know, if you're buying it to hold, I think they're rental markets 1500, but maybe I could get 1750 and then it would be a better deal this way. So be realistic and plan for the worst and hope for the best, but make, you know, worst case scenario. Plan that.

[00:07:04] Andrew: Yeah. And then, um, so we, we use, once we have that, uh, that rehab budget, which is just an our preliminary estimate. Uh, then I, you know, we also get our preliminary ARV, which we do by comping the property, and that the best thing you can get is the MLS, but if you don't have access to that, is Zillow, Trulia other sites like this,

[00:07:25] Ryan: Propstream

[00:07:25] Andrew: and remember what this, you're just trying to take it, we'll, we'll do a deeper dive on, on analyzing the value of a property, but you're trying to find comps that are similar as possible and then make them the same as yours.

[00:07:37] So if it's a bit better than your house, you reduce its price. Um, because it's, it's, you've got to make that house a little bit worse to make it the same as yours. So if has a second bath, well, you don't even want to compare a one bath to a two bath. Let's say it's a, it's got an extra a hundred square feet. Maybe you take $5,000 off its price, something like that. Find the most similar comps as possible, that's your ARV. And then you have your rehab analysis that your rehab price, and that's pretty much most of what you need. Uh, the only other thing you need is if the property is already rented. And then, uh, we generally.

[00:08:12] Generally like properties that are not rented. I prefer our experiences with inherited residents is pretty poor a, was that the same with you guys? I'd assume?

[00:08:21] Ryan: Yeah.

[00:08:22] Andrew: Yeah.

[00:08:23] Ryan: We pretty much just plan on like I'm buying an eviction,

[00:08:26] Andrew: like yeah, it might be a little harsh, but generally our experiences, they don't pay on time or they don't pay at all. They generally rougher on the property sometimes and generally, even if they're good and we have had some good ones, they're under rented. And so we generally don't like that, but if they are rented to begin with, we want to get, we want to know that there. Uh, so I would at least want to get the rent ledger, like, are they paying on time now?

[00:08:49] I'm going to do more to confirm that afterwards generally. Um, but I do wanna at least know that they're paying on time. Sometimes I'm not hugely, that's not hugely important to me because it's kind of like what Ryan said. I'm basically buying an eviction. I don't, or, or this person is gonna be moving out very soon, don't I?

[00:09:05] I'm not even that interested whether they're paying or not, because if they are paying, that just means they've got to wait until their lease renewal date

[00:09:12] Amanda: Add that to your budget. Yeah. Add those extra costs of having possibly somebody that's going to take you a little bit of time to get out and possible damages on the way out.

[00:09:21] So it's just something to plan for. Um, we usually request, um, it's not always possible, but that, you know, we try to do lease terminations or something like that, especially if it's really under rented. We don't want to be the bad guy who comes in and says, get out. But it's not always possible.

[00:09:40] Bill: Just today we, uh, entered into the first phase of cleanup on a hoarder house and they lady was really nice and a difficult situation. We did a short sale on the house, helped her to get out, and she claimed that she would clean the whole thing up. Well, she did one dumpster, one 20 cubic foot dumpster, but it's going to need at least two more to clean this stuff out. So, you know, we had to factor in that probably it was going to be us that was going to clean the house, and there's an immense amount of stuff still there. And sadly, our crews now are pulling up carpet, throwing away all kinds of stuff in the garage that wasn't taken out in the backyard and the side yard and on and on and on. So it just, you kind of think you've got to be prepared.

[00:10:27] Ryan: I would also say, um, get copies of leases and read through them. Um, we had a couple of properties we bought from one particular seller that had like really, really weird terms in their lease. Like properties, a rent's not even late until the 20th. Can't post notice to evict till like the first of the following month, which is way longer than we normally give people in way longer than we would give them without late fees.

[00:10:52] Amanda: Sounds like one of his residents wrote the lease for him.

[00:10:56] Ryan: I mean, it was pretty favorable for the resident, let's be honest, like if for instance, on the first, but there's no late fees to the 20th or it's not really due till the 20th.

[00:11:06] Right. Um, so you also want to just make sure anytime you're buying something that's already occupied, you are committing to the terms of that agreement. So what are they, you know, just knowing, well, they pay $750 a month and they pay on time, um, is one thing, but you get into it and find out. You know, there, there can be some really weird stuff in there. So just always make sure you go through their leases and kind of, um, ask questions on anything or budget for. Okay. We're probably gonna need to get this person out, especially if it's something pretty goofy.

[00:11:39] Bill: Yeah. We've had a sister renting from a brother before that had a longterm lease. And, uh, that was helpful to be aware of because it was very underrented and always a lease controls the sale. So whatever is in the whatever lease you have going into it, you have to assume that that's what you're going to have to abide by, no matter how under rented the property is. And no matter how long that lease goes for. So,

[00:12:04] Ryan: yeah, I know we were just looking at a, uh, subject to this week and one of the big determining factors for not moving forward with that deal was the fact that they had literally just signed a two year lease at a couple hundred dollars under fair market rent. So instead of cash flowing, it would be breaking even or neutral, which we all know with repairs ends up being negative.

[00:12:26] Bill: So, and what's the subject to Ryan?

[00:12:28] Ryan: Uh, subject to is a, you're basically taking over the mortgage for the seller. Not something we really do a ton of, but once in a blue moon, they kind of fall into our lap where it just makes sense.

[00:12:41] Andrew: And if you are doing one of those, part of due diligence is confirming the, uh, the terms of the loan.

[00:12:47] But, uh, I would say with regards to, um, with regards to, I do think it's very helpful to split a pre offer and post contract or pre-contract and post contract due diligence. I don't need to see the lease until we have it under contract generally. Um, I do want to know what's in it, like ask them basic terms. Um, I want to see the rent ledger, um, and see that they're paying on time. I want to, you know, I'm going to ask a lot of questions of the seller too. I'm going to ask like, you know, have you had any sewer backups? Have you had any electrical issues? Have you had any, um, have you had any flooding issues when it rains? You know, I have the, has the roof fail that all, um, these kinds of things. Has, it has the re, you know, have. W whatever you can think of, uh, with a, particularly with regard to the, the buildings, uh, uh, you know, repairs or where its condition or the resident have the, you know, have you had any issues with the resident that they can plan a lot of things like that?

[00:13:36] Bill: You can say, none of these are deal killers necessarily they're just opportunities potentially for negotiate further negotiation.

[00:13:43] Andrew: Yeah, sure. Yeah. And one of the things I like to make, I especially make this in our, when we make an apartment offer, but it's, it's, it's, I usually will say something like it, you know, we are making the offer based on these assumptions.

[00:13:56] Like when I make an offer on a large apartment, I explicitly note what those assumptions are. On a house, not, not, not as much. We'll make, you know, we'll make a, you know, I'm assuming that this, I'll usually tell them like, I think this is going to be about this amount of in rehab or something like that, um, that we're going to be doing these things.

[00:14:14] And then, that way, at least they have some impression of what you believe about the property and when you find something that doesn't comport with that, that's an opportunity to retrade or in some cases, if it's too much, maybe just back out entirely. And so what Ryan was talking about with getting the leases, you definitely want to do that with any of the financial stuff you want to get.

[00:14:34] Like with apartments, you want to get their entire financial, you know, the finances of the property, the profit and loss statements, the, uh, preferably the expense statements. You want to confirm, uh, all those expenses and whatnot with, with, um, w if it's just a house, if there's just one resident, probably the only thing I need confirmation wise that I would like to get are copies of the deposit slips.

[00:14:58] A bank deposits this to prove that the. Resident is actually paying and that they're not just putting in the ledger that the residents paying. Cause we've had a situation, we have had situations like that before. Uh, we had an apartment complex where we bought, we're, um, back in 2010 where we had people that we think the, uh, owner just shoved in there at a high rent price that we were never, never able to get after that.

[00:15:22] Um, and just said they were paying and then all of a sudden they stopped paying. So presumably. Yeah, they were just being written down in a ledger, a, I've never were able to confirm that, but that is certainly what we think was going on. So I like to get the bank deposit slips. It's not really that necessary with a house if you are okay with the person leaving.

[00:15:42] And we generally are. So I, I, it kinda depends like how much due diligence you'd want to do. Depends on that. But if you want the residents to stay there, if it's important to you that they're, they're actually paying, I would ask that some sort of like copies of the bank deposits.

[00:15:57] Ryan: I would say kind of the name of the game with this is trust, but verify.

[00:16:01] Andrew: Yeah, or don't trust and then verify the lack.

[00:16:05] Ryan: Yeah. You can't, you can't necessarily, this is, I would say your pre due diligence comes down to asking these questions. Your post due diligence comes down to verifying them independently. Right? Cause you ask them, Hey, does the roof leak? And chances are they're not going to be like, Oh yeah, this thing's those things.

[00:16:24] Amanda: Like a sieve

[00:16:26] Ryan: They're going to be like, Oh no, it's fine. It needs nothing. I find that as specially to be the case with things like flooding in the basement. Um, things like the roof leaking. Or things like electrical problems, things that are kind of like the big scary ones. They tend to try to like, Oh no, everything's fine. And it's like, well, you can't flick on the light in the bathroom without the entire house going dark. So obviously not.

[00:16:50] Bill: Generally, I don't try to be negative though with the owner. I don't want to, there is a school of thought that you should kind of go in, how about this? How about that? And just pile up a bunch of negatives, but I want to anchor the owner in reality at some point, so I'm going to float some numbers out that are pretty going to be pretty drastic.

[00:17:10] Uh, and probably likely realistic. Where an owner, does not have a realistic view of how much is going to cost to rehab and renovate this house into a very nice livable rental property. I'm going to want to anchor that person during this due diligence time to a number that I'm comfortable with, and I know it's likely much higher than what. He or she thinks it should be, but I'm not gonna, I'm not gonna down, you know, talk down to about the property all the way through the, you know,

[00:17:41] Andrew: the other school of thought is to completely destroy their self esteem. And it's not a school of thought, don't do that. Don't do that. That's bad. Um, yeah, and I, to reiterate what Ryan was saying about like, um, kind of going for forward with this, um, on the, um. The financial side of the due diligence, the lease. Uh, those are some weird terms, but you're also terms we've seen in the past where like the resident gets a discount if they do their own maintenance and stuff like that, which you never want to ever have happened because, uh, if, if a resident's doing their own maintenance, that maintenance will be terrible.

[00:18:18] That is a universal truth. There are no exceptions. Um, you know, things like, do they have a pet? Do you want to verify that? Do they have. Pet rent, pet deposit. Um, if there is a deposit, was there a maintenance fee? Cause sometimes there's a maintenance fee that is just immediately given to the owner.

[00:18:35] Um, and then there's the deposit. So you might not be getting the whole deposit transfer to you. So you want to verify these things and then if there's anything note noteworthy about it or that's a problem, you want to either ask for a discount from the owner. Or back out if they're not wanting to give you one, or if it's not that big a thing, just like, okay, I can accept that.

[00:18:54] Amanda: Oftentimes our offers are based on an inspection contingency, and our inspections are usually something that we do. Andrew, would you recommend that people do like a full blown, Hire a home inspector type situation or what are your thoughts on that

[00:19:10] Andrew: if you're just starting absolutely. I would recommend that. I don't think it's necessary. If you have a lot of experience in the properties in pretty good condition and you have a solid contingency in there, sometimes it's very difficult like you can have, you're buying a property that's owned by HUD or Fanny, all the utilities are off. You can't, it's hard to get them back on.

[00:19:30] Amanda: You usually can't.

[00:19:32] Andrew: The inspector really can't tell you very, yeah. Usually you can't, the instructor can't tell you that much about the electrical or whatnot if they aren't on. So there's only so much you can you can do.

[00:19:41] Amanda: That's one of those cases where we just put budget that we expect we have to replace all of it.

[00:19:45] Andrew: Contingencies expect you're going to have to pay more. But I expect I'd recommend for any new investor to get, uh, an inspector.

[00:19:53] Bill: What do you think about a sewer scope?

[00:19:55] Andrew: I would always recommend getting sewer scopes on older properties. If it's older than 1980 maybe even 19 yeah, I would get a sewer inspection. Um, we have definitely, this is probably the most common discount we get, is scoping the sewer, finding the sewers shot, and then asking for a discount.

[00:20:11] Now that doesn't work if it's HUD or Fannie or Freddie, but or, or, but most banks will, if it's a community bank, they'll give you a discount. If it's an individual, they'll give you a discount kind of thing. So most of the time that does work. If you find it or if it's just a, if they're not willing to give you a discount and you think that's just, that blows your budget is no longer a deal, you can just back out.

[00:20:32] You do always want to have in your contract that inspection contingency at a normal real estate contract, it's about 30 days. If you want to give yourself 15 days, it will at least 10 would usually 15 days to get your earnest money back. The a thousand or 1% or whatever you put down to get the property under contract.

[00:20:52] If you find something and it doesn't come and you can't come to terms on any sort of discount. But yeah, I'd always get the sewer line scope because they, especially the clay tile sewer lines, they have a very, a, a tendency to collapse roots get in 'em all the time. Um, I would always go with the sewer line, uh, the guy who scoping the sewer lines, cause he's. plumbers often will say like, Oh yeah, it definitely needs to be replaced. But if all you see are some roots here and there that you can just snake it out, you don't need to actually replace the sewer line. Um, so I would always go with them cause they're also going to talk it up. Like they have sort of the opposite incentive of the real estate agents trying to get you to buy it no matter what. The plumber will be trying to either replace the sewer line no matter what. If there are major offsets roots. Everywhere. Okay. Yeah. I mean, it probably needs to be replaced if it's collapsing needs to be replaced. If there's some roots here and there, you can just make it up. But yeah, I would get that.

[00:21:41] And then I would get, um, you might need a, if you see any signs of pests or like dry rot. Uh, an inspector will tell you this, you might need to get an additional inspection for pest and dry rot. Um, which would mean termites or carpenter ants. Um, but these are the things you can look for yourself and learn. And as you get more experience, you can, um, kinda start to spot those things as well. And. And it gets, so at this point, I generally don't get inspections. Um, uh, unless it's in a large apartment complex, we might get a, an inspector to come in and look at some things I'm on the fence about, or I might get a, a roofer to come look at this roof that I'm on the fence about, or a foundation expert. To come look at this foundation that's kind of on the fence or something like that. Um, we have like look at particular items, but early on I'd always, I'd always recommend anyone get an inspector to take a look at it .

[00:22:32] Bill: And go with inspector, because this is a learning process for all of us to, most of us don't come into this business as expert contractor types. Maybe a few do, but most of us don't. So that knowledge is very valuable in going forward and becoming as, as it dept as you can to spot the kinds of things that, uh, your due diligence should point you towards.

[00:22:59] Andrew: Yes, absolutely. And I would say the same thing about learning rehab costs. Um, like the best way I found to do it is it's unfortunately not something that you can immediately start with, but whenever you get a bid, you know, ask for from a contractor, asked for an itemized bid. And there are differences from one contracts with the next, but they generally are pretty close. And so you start learning what are these items cost? Um, you always want to get a line item bid from any contractor regardless, because, uh, if there, if you get a block bid and just like, this is everything, there's two problems that are gonna happen. One, they can easily kind of inflate it a bit. And the second is oftentimes things get missed and they will finish the job, quote unquote. But there's often a lot of items that like, wait, I want to do to do these three things. 

[00:23:43] Ryan: You wanted doors?

[00:23:47] Andrew: Yeah. Things will, things along those lines.

[00:23:49] Ryan: One of the key points there too, with getting the itemized bid, especially when you're just starting out, or even those of us that have done this a long time, it pretty much always costs more than we think. Like it's, you know, we know roughly what stuff costs, but once you look at the actuals, it tends to be a little bit higher, which is why Andrew talked about throwing in kind of that 20% contingency. I think, especially for new investors, that's the real danger of like, you know, you get a bid back from a GC that a buddy recommended to ya and it's $20,000 and by the time you're done, it's 27 grand. And for a lot of investors, they may not have that cash sitting there. It may not be super easily accessible to them, unfortunately, so I'm always asked for the itemized bid to make sure stuff's included and build in some contingency should they miss their numbers as well, because let's face it.

[00:24:41] They're human. We're human. People make mistakes.

[00:24:45] Andrew: Yes, absolutely. And then I would, uh, you might, there are some other things that I just mentioned briefly. Um, like sometimes if there's a, you might want to consider in certain instances if there's property line issue, like a, we had one where we considered.

[00:25:04] We, there was a house and a smaller house and it was a legal nonconforming, which means it was, you couldn't rebuild it if it burnt down, but it was kind of, it looked like it was close to the property line. So there are things like, okay, it looked like it was barely over the property line from what, what, what a Zillow showed.

[00:25:23] So we considered getting a survey on it, but surveys are quite expensive. So this is another due diligence item you could do on very expensive properties. It's probably worth doing that if you have questions about where the property lines are or something like that, or easements. Um, but surveys are quite expensive.

[00:25:39] They usually cost a couple thousands, so we shows like, we'll roll the dice on this. Um, it's probably, it's been there for a long time. If it's a very expensive property, you might want to get one, something like that. Um. For bigger properties, apartments and stuff like that, usually you will get a phase one and environmental. This is not necessary for houses. Generally with regards to the houses, the only things you need in special is just a basic inspection, maybe a pest and dry rot, and then perhaps specific, um, inspectors to look at specific items. So. And other than that, it's just I go through and I basically take, I had that one page sheet. Now I have a much larger sheet. I go item by item, I put them all down and I bid it out that way and I try to make sure that they're very close. I mean, if there was, there's a major discrepancy than I probably screwed something up the first time and that's a little bit more embarrassing to come back and to retrade with.

[00:26:30] But still, it's like if it, you know, this is, houses are big investments and you want to be right, even if it's kind of, even if you made a mistake up front. It's still worth getting out of it, even if it's kind of embarrassing. You know what, just go through with it because you want to save your own ego.

[00:26:44] Is there any, uh, anything, any of you guys would add to that and any other tips or ideas that you'd want to throw in there as well?

[00:26:51] Ryan: I think a real estate investors, particularly with social media and stuff, it can be pretty easy for people to feel like they've done a deal. Before it's even closed, right? Like, Oh, it's under contract. So I'm, you know, I'm an investor now. And then there's kind of this like need to protect the ego that comes with that of like, well, actually you blew your ARV and you have to go pull out of this deal and you're outside of your inspection windows. You're going to forfeit your EMD.

[00:27:22] You don't really see that kind of like, well, I went in excited, I was totally wrong and I lost $1,000. Right. Um,

[00:27:31] Amanda: you gotta be careful in dollars then to lose $50,000 or, I mean, that's probably an exaggeration, but I mean, it's.

[00:27:39] Ryan: I think it's kind of like the, uh, like people who get their tax returns and before the checks, even in the mailbox it's been spent, cause they know what it's going towards. I think it's kind of that principle. And then, um, I think my, my other one, um, would really probably just be when you're going direct to seller in particular, you don't really have that like real estate agent to buffer these conversations for you so you can't, like, you can go to your agent and be like, Hey, this is unacceptable, the sewers caving in on itself, I expect them to pay for it, and the agent gets to then turn around and have that conversation. If you're going direct to the seller. You have to have a lot more tact in how you have these conversations of, Hey, some things came up that I wasn't aware of and neither were you.

[00:28:26] Um, here's our options. Um, we had one of these early on in Indianapolis that, uh, during our inspection, we found that the foundation needed like $13,000 worth of bracing, um, stuff put in. And it was one of those deals, like I've never had to eat more Crow. It was a, you know, Oh, I'm, I'm not one of those guys who's going to go under contract and then retrade and you know, gets you way down if we settle on a price, you know, as long as it checks out. Yeah, this is a, this is a done deal. I'm really not worried about it. We get down into the crawl space and it's like, Oh my gosh. Right? So I come back and I'm like, Hey man, I'm a, you know how I told you I wasn't gonna ask for a price discount? And you told me you wouldn't sell for a penny less.

[00:29:08] I need you to come down 14 grand. Um, and, uh, I was just like, look, this wasn't my intention. I mean, he was pissed and I was just like, look, it is what it is. I didn't know you had this issue. I think you knew you had the issue, you just weren't really ready to face it. So whether I buy it or not, you have $15,000 worth of work that you need to do here.

[00:29:28] I can buy it and you can be done with this or you can keep the property and no, you're going to have to deal with it at some point. And the guy was like, well, dang it and we'll just, fine. and it was like, okay, cool. Um, so you know, you are. You're going to have some kind of human emotions, some interactions that you have to kind of tactfully tiptoe through.

[00:29:52] Bill: these really are opportunities. I think you should see them that way. I mean, we've had 50,000 and a hundred thousand dollar foundation fixes that were necessary. And I can remember a couple of examples. When banks get that kind of a, a bid, uh, they're, they're willing to really flex with the price cause they don't want to face that.

[00:30:14] And there's mold issues and asbestos issues and permitting issues that. That, uh, are scary. And that's, that's an opportunity I think for, uh, you know, getting, getting the kind of price you need to move forward on it. Nobody wants to face those issues. Once they're uncovered, the seller has the ethical.

[00:30:34] And legal obligation. I'm not altogether sure how legal it is. If there's a real estate agent involved, that probably is a legal obligation to divulge that to a subsequent buyers. So it's a no win situation. Once the sewer that's fallen apart becomes part of the, uh, price of the, of the property for the seller.

[00:30:58] So it's an opportunity for the buyer.

[00:31:00] Andrew: Absolutely. Absolutely. Um, I think, I think we're just about ready to wrap up here, unless there's any last tips or points anyone would like to make. All right. I guess the main point I'd make is, is, you know, have a very simple system. Make sure you do it all up front. When you're making offers. Something that you can quickly come to an ARV quickly, come to a rehab estimate. Make sure to put in contingencies in that and then get really detailed, be a little bit of a pain. Make sure you go through everything you can once you have in our contract. Um, don't, yeah. Uh, especially early on, make sure to get inspections and, uh, and again, make sure to add those contingencies cause rehabs always costs more than you think and you want to get that. You want to capture that part of the expense when you're actually making your offer instead of just eating it on the back end.

[00:31:51] But again, we are the good stewards. Um, please join us, uh, for our next podcast and you can find more of our content that thegoodstewards.com. Thank you very much for joining us and have a great day.