Joe Downs explains why skipping a third-party commercial inspector costs money. A buyer once missed a rotted roof and lost $40,000. A $5,000 inspection can uncover $50,000+ in repairs, giving you leverage to renegotiate or walk away from deal-killers like structural failure or severe drainage problems.
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Okay, day 43, Storage 100. I'm Joe Downs, and today we're talking, uh, or tackling a topic that separates the amateurs from the pros. It's not gonna feel like it, but trust me, it is. Knowing when to hire a third-party inspector. I know an owner in the business that learned this lesson the hard way early on. When he walked the property, the roof looked fine from the ground, nice and black, no obvious, uh, pooling or anything. He thought, great, one less thing to worry about. And he eventually closed on the deal. And then 2 months later, a massive rainstorm hit and water was pouring into 3 units. Turns out the membrane underneath was completely rotten and, and a thin layer of fresh coating had applied on top to mask it. So that mistake cost him $40,000. He could have negotiated upfront. And that's why we don't rely on our, our own eyes and a quick look. We rely on experts. We're going to talk about how to avoid the exact mistake or that, that exact mistake and many others right now and turn an inspection Into a massive advantage. So sometimes the biggest mistake amateurs make is what I call the DIY trap. It's actually hard to say. I don't know why. Ever heard the expression pennywise dollar foolish? You think you can save a couple thousand dollars by doing the inspection yourself. You know those people. Are you are you one of them? You walk the property, you see fresh paint, you see doors opening smoothly, and you think yeah, you're good to go. But you're only seeing the surface level. You're missing the expensive hidden killers. You're missing the foundation settlement that'll cost you eighty thousand dollars to fix. You could be missing the overloaded electrical panel that's a fire hazard. And a $15,000 replacement. These are things that kill deals and destroy your returns. The do-it-yourself approach is being cheap, not being smart. Smart investors know where to spend money and save a fortune. So what exactly are the third-party experts looking for that we miss? Well, they aren't just looking for a clean office. They focus on the big 4 systems first that hold the highest risk and the highest cost. So first, they're going to check the roof system. They're going to get up there, And they're gonna look at the membrane's condition, the flashing, the age. They look for standing water issues that lead to leaks. And then they're gonna check the structure. They're gonna look for the foundation cracks, moisture intrusion, and the integrity of steel framing. And then third, they're gonna look at the mechanical, electrical, and plumbing system, or the MEPs as we call it. This includes the HVAC units for climate control, the electrical panels, the fire suppression system if there's one. And then finally, they're gonna check the site and drainage. They look at the asphalt, if there is any, the concrete, the gravel, how stormwater is handled, the way things are pitched. It's a comprehensive look that protects your investment. All right. But what's the real math behind this cost? Because the math is— here's actually a no-brainer. This is the simplest return on investment you're ever going to see in real estate. Let's say the inspection costs you $5,000. That's a real cost. I'm not saying that's nothing. It's a line item in your budget and you should be planning for it. But compare that to the potential savings. If the inspector finds a bad roof or a failing HVAC unit or a foundation issue, I mean, you're looking at $50,000 or more in necessary repairs. That $5,000 investment just returned 1,000-plus percent perhaps. And it's not an expense actually. It's an insurance policy with a massive upside. You're paying a smaller fee to uncover a huge liability. And once you uncover the liability, You have the ultimate tool in your hands. The inspection report. It's not just a checklist of problems. It's your ultimate negotiation tool. This is how you can turn a problem into cash in your pocket. You don't just ask the seller for a discount. You prove why you deserve it. Step 1, the inspector identifies the problem, like a roof failure. This is an objective fact, not an opinion. Step 2, you go get 2 or 3 quotes, quotes from local reputable contractors to fix that specific problem. Let's say those quotes come in at $45,000. Well, step 3, you go back to the seller and you ask for $45,000 credit at closing. Sellers can argue with your opinion all day long, but they can't argue with 3 legitimate contractor quotes and an inspector who says there's an issue here. This process is how you, how you buy down your purchase price and increase your immediate equity and remove lurking problems for soon after you take over. All right. Now that we know the value of the report, let's talk about finding the right person to write it. I'm giving you another quick story about a roof. I was walking a property one day and the roof looked great from the ground as well. It was a nice flat rubber roof. But when the inspector got up there, he found the entire decking underneath was rotting out. The seller had just slapped a new membrane on top of the disaster, just like the, the guy I mentioned earlier. That's why you don't hire a home inspector for a commercial property. A home inspector checks outlets and drywall. No disrespect to them, but they're not they're not versed in commercial systems. They're used to seeing houses, not twenty to fifty thousand square foot of commercial roof. You need a commercial inspector. They follow the ASTM E 2018 standard. This is critical because they give you a five-year capital expenditure table. That table tells you exactly when the HVAC units and the roof is going to need replacing, and you can start. Saving for that or preparing for that now or negotiating it upfront. And you can find these specialists through the CCIM directory. This is the only way to get the real numbers you need for your underwriting. All right, let's talk about the findings that you should make, or sorry, that should make you run, not walk. These are deal killer findings, the things you should never try to fix yourself and you shouldn't just overlook as, oh, it's a value add. No, no, no, no, no. First is structural failure. If this— if the foundation's settling more than an inch or the walls are bowing, the cost to fix it is going to eat up all the equity you had planned for, maybe and then some. It's un— if it's, it's unfixable for a reasonable price. Second, watch out for environmental issues. If there are leaking underground tanks or soil contamination, you become liable for the cleanup that the moment you close, and that liability can be unlimited. Third, major drainage problems. If the facility sits in a bowl with no way for water to escape, you'll have to— you'll have constant water intrusion that kills occupancy and is often uninsurable. Don't try to be a hero on these 3 items. Just walk away. Knowing when to walk away is just as important as knowing when to buy. But you only have a short window to figure this out. You might only have a 30-day clock, and you can't waste a single minute. Clock starts ticking the second you sign the purchase and sale agreement. By day 5, you better have ordered your inspector inspections. The inspectors are busy, and you need to get on their schedule immediately. Around day 15, you and your inspector should have done that site walkthrough, and this is where you're going to get boots on the ground and see the issues firsthand. By day 25, you need the report back in your hands, so make sure that whatever inspector you choose can get there and get you the report back in time. This will give you, in this case, only 5 days to review the findings, get quotes for repairs, and make a decision. The critical mistake I see people make is getting super excited they got a deal under contract, going on vacation, taking a break, high-fiving their neighbor, and then waiting till day 20 to call the inspector. If you do that, you're going to miss your deadline and either lose your earnest money deposit or be forced to bail from the deal. You must be proactive and respect this timeline. All right. So we covered the entire inspection process, at least the, the, the pitfalls of it, from finding the right expert to knowing when to walk away. This information is gold, folks. It could save you tens of thousands to hundreds of thousands of dollars. So if you found this helpful, please like it for me. You know, a little something for the effort. And of course, subscribe so you don't miss the daily video drops and live special guests coming up. And of course, share this video with a friend who thinks they can inspect a roof from the ground. Trust me, they're going to thank you later.
