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How $400 saved $600,000 worth of heartache

I’ve said it before and I’ll say it again – if you’re serious about buying residential property regardless of whether you’re an investor or owner-occupier, make sure you get an independent pre-purchase property inspection done before you sign on the dotted line.

Why? Because a property that looks good on the outside might be hiding serious existing or future problems not obvious to the untrained eye. And these problems, depending on their severity, can be expensive to fix.

And so it was that some friends of ours shared my view and wisely arranged for a combined structural and pest inspection to be carried out on three separate properties they liked the look of and were considering buying as their new home.

And thank goodness they made what was in hindsight, a modest investment (of around $400 for each inspection) given the scale of the problems they uncovered, which is summarised below:

Even with my experience I found the estimated costs to repair each property’s defects mind-bogglingly breathtaking, especially for the first property.

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Imagine if you had unknowingly bought one of these properties and then got landed with the quantum of these repair bills?

I think it would pretty much destroy the average person, especially if they’d maxed themselves out financially when making their purchase.

So what was uncovered?

Well, without going into detail let’s start with their locations.

Also read: Property investors look to Brisbane

All three properties were in the same popular inner-Melbourne suburb which is close to things like the city, shops, cafés, nightlife and transport.

Basically a very popular location for downsizing working couples who like to socialise and have some fun.

However, this particular suburb also has a history of problems, especially with its older period properties, caused mainly by ongoing water and drainage issues.

These problems caused damage like wood rot, warping and consequent major structural defects.

And because these period properties were the most sort after their market values remained strong regardless of their state of repair which, in the present market, meant there wasn’t much room for price negotiation.

In addition, compounding matters for the first property was that it was heritage listed meaning it had to be repaired and returned to its former state – hence the incredible repair costs.

Needless to say once our friends received and considered the reports and got repair estimates, they walked away.

Even though they’d spent around $1,200 in total inspection costs, it saved them considerable heartache and even financial ruin.

Importantly, the inspections had revealed issues they probably would not have picked up, even if they’d done a more thorough investigation themselves.

As an aside, another smart move my friends made was that once they realised the recurring problems in the area, they spoke with neighbours to learn if they had also faced similar issues, how often they occurred and how much it cost them to fix.

Also read: Will population growth impact property investors?

This provided valuable learnings and insights and also helped them become a little savvier when it came to choosing a street, assessing properties and whether to get an independent inspection done.

I think the benefits and lessons learned from this real life example of getting an independent property inspection are self-evident and a sober reminder to be cautious, especially when considering older properties or when buying in suburbs with a history of problems.

At the very least, they can provide peace of mind that you are making a major financial and emotional commitment with your eyes wide open.

In closing, let’s summarise the benefits of a pre-purchase inspection:

  1. They help you make better and more informed decisions when buying and choosing between alternative properties.

  2. They can reveal problems the average person may miss. In particular, the ensuing report can be used to either continue discussions, or walk away from a property.

  3. The costs of remedying defects can be used to negotiate the price down, or otherwise get more favourable terms.

  4. The inspection can reveal potential future problems that can be planned for, quantified and funded and if carried out appropriately can help prolong the life of buildings and other structures as well as help maintain their heritage, appeal and charm.

  5. A side benefit is that the report could be used to inform renovation or extension opportunities.

Finally, and this is a very important thought to remember. If you plan to buy under auction conditions, make sure you get your property inspection done before you bid, since auctions are unconditional and cannot be made subject to remedying subsequently discovered defects.

 

Peter Boehm is the Finance Editor of

onthehouse.com.au which offers a unique information source on virtually every property in Australia and provides data on a property’s sold and rental history as well as current property valuations. The onthehouse.com.au Investor Centre provides research on suburbs, market update reports and calculators to help investors make informed property decisions.