Evaluating a Midterm Keeper's Potential in Real Estate Investing

In real estate investing, you generally want to look for properties to put money behind that will profit over a significant amount of time. These are commonly known as midterm keepers.

When you evaluate a midterm keeper's potential, you must inspect many elements of the property, both physically and on paper. Normally, a licensed building inspector handles the physical inspection. You can do the paper inspection yourself.

Physical inspections of real estate are always important; however, most beginning investors are not qualified to perform these inspections effectively. A professional inspection firm can render a lengthy opinion on everything from a building's foundation to the type of paint on the walls. (Buying a building covered in lead paint can be a nightmare.) Don't try to be your own inspector unless you have extensive experience in property inspections and construction methods.

When you look for a building to keep for several years, you want to answer many questions before you buy. For example, how long can you expect the existing roof to last? How old are the heating and cooling systems? Will plumbing need to be replaced in large quantities during ownership? What are the odds that you will have to repair the parking areas? A professional inspector gives you a long, detailed report on all aspects of a building's physical characteristics. Get this information before you make a final commitment to purchase. You can use a contingency clause in your contract to lock up the property at agreed upon terms and provide a way out of the deal if the building fails its physical inspection.

Most investors can perform their own paper inspections. In many ways, the paper inspection is more time consuming and difficult than the physical inspection. What are you looking for? As much information as you can find by researching the subject property, neighboring properties, and the surrounding area.

First, dig through all available records on the building you are thinking of buying. For example, if you are evaluating an apartment building, check the property taxes. This information, available at the tax assessor's office, is open for public inspection. What are the current and past rents? What is the cost of landlord utilities? The listing broker or the seller should be able to provide answers to these questions. How much money has been spent on maintenance and repairs in the last ten years? Again, the listing broker or seller should be able to document these costs. What vacancy rate has the building experienced in the last ten years? For this information, review the financial records on the building that the seller provides. Find out all you can and about the subject property, then move on to other investigations.