The “Big 5" Systems You Can’t Afford to Overlook When Buying a Rental

0:00Brandon Turner:You can analyze a property on paper, but let me tell you, I've bought over a hundred homes and these five things will make or break your next investment. Every property I buy, I check the big five. It's a simple list of the systems in a house that will cause you the most pain if you have to fix or replace them later. If all five check out, you could make thousands more over the life of a property. But if even one of these systems has a problem, it's time to ask for a serious discount or walk away. I'm going to show you which are red flags to run from, which you can fix, and how much it could cost.

0:33Brandon Turner:Also, I'll show you the hidden signs that a system is about to go, probably right after you bought the property. You can even do this if you're investing thousands of miles away. I'm just trying to save you tens of thousands of dollars in this episode, but it's up to you to learn from my mistakes or make a costly one of your own.

0:55Brandon Turner:What's going on, everybody? I'm Henry Washington. I'm the co-host of the BiggerPockets podcast. And in today's episode, we're doing part one of a two-part series about how to estimate rehab costs when you're purchasing a property. This is one of the most important calculations you make as an investor, and there are definitely some tricks to the trade that I've learned rehabbing more than 100 homes myself. Today, we're talking about the big five, and that is plumbing, electrical, roofs, foundations, and HVAC. These are parts of a house that can cost the most to repair and replace. On our next episode, we'll be talking about how to fix up kitchens, bathrooms, and other value-add opportunities.

1:33Brandon Turner:So as I mentioned in the intro, the big five are the roof, the foundation, the electrical systems, the plumbing systems, and the heating and cooling systems of the home. These are big-ticket items that will cost you the most to repair and replace. So you need to have a good understanding before you purchase the home of where these items are in their lifespan. What you're trying to do is to understand, is this expense coming up in the near future or in the distant future? Because the expense is coming no matter what. These things don't last forever. And if these expenses are coming up sooner than later, I want you to not be scared of the project, but be able to adjust what you're offering for the home to cover that expense so that you're not covering it out of your pocket down the road.

2:27Brandon Turner:So the first item on the big five that we're gonna cover is the roof. Roofs are pretty standard. There's a few different types of roofs. Mostly what you're gonna find in a roof in a home in America is a shingled roof. And that shingled roof is either going to be a three-tab shingled roof, which is just the shingle looks like a brick shape and the shingles are laid in a brick pattern. They are not overlapping. They're individually laid. This is an older style. Not a lot of people install new three-tab roofs. Most people install what's called an architectural shingle. That's what you're going to see most of in the United States.

3:09Brandon Turner:It is the same material as a three-tab roof. It's just structured a little differently. It's a smaller square. They're laid overlapping, creating layers, like a layering effect on the roof. And that is the standard. Most homes are going to have an architectural shingle, or when you put a new roof on the house, you're probably going to install an architectural shingle. Those are the main two styles. The third most popular style is a metal roof, and those are obviously more expensive because you're putting metal on, but they're a lot more durable. The shelf life of a metal roof is substantially longer than the shelf life of an architectural tab or a three-tab.

3:48The major differences in these styles of roofs

3:51Brandon Turner:come in two parts. The first part being the cost, three-tab being the least expensive, architectural shingle in the middle and metal roofs on the high end. But what you're paying for is lifespan. The three-tab shingle, the roof should last you anywhere between 15 to 20 years versus an architectural shingle can last you anywhere between 25 to 30 years and a metal roof can go from 40 to 70 years. So what you're paying for is longer lifespan, better protection before you have to make the investment to put a new roof on the property again. So how can you tell if a roof is bad? When you look at these shingles, it's almost like there's a sandy asphalt, gritty sandpaper texture to the shingles.

4:40Brandon Turner:And the older they are, and the more wear they have on them, that grittiness starts to wear away, and it looks a little smoother. So if you're looking up at the roof, and the texture of the roof seems like it's smoothed out in a lot of places, that means that that roof is probably older or has had a lot of wear and tear. Another thing I'm looking for is, is the roof line a line or is it wavy? I have looked at roofs sometimes that really look like there's got a lot of waviness and up and down in there. That lets me know that there's probably moisture issues and that the decking under the layer of shingles is probably warped and that warp decking is causing the roof to look warped.

5:26Brandon Turner:And that should let you know that you need to replace that roof and replace the decking, which can be more expensive. And then the third thing I'm looking for is can I spot missing shingles? This is the dead giveaway. You've all driven by a house and you probably will now that I've pointed it out and looked at roofs and you can see shingles completely missing where it looks like there's bare spots on the roof. that's typically because of wind damage through storms that have blown shingles away or the roof has worn down over time and then a windstorm has blown shingles away. If you've got several missing shingles, that is a clear sign that there needs to be a new roof in the very near future.

6:07Brandon Turner:And it's also a sign that when you go inside of that house, you need to start looking for spots inside the house where water may be leaking from the outside into the house because it doesn't have shingle protection on the entire coverage of the roof. So when should you look at repairing a roof versus replacing a roof? And this is a tough question because it's really gonna be based on what your plan is for that house. And so when I purchase a house to flip, I do not automatically replace the roof, even if that roof is 10 to 15 years old. My general theory is if the roof is roofing, we're gonna let it roof.

6:48Brandon Turner:If the outside's staying outside and the inside's staying inside, it may not look pretty, but the roof is doing its job. And I'm not gonna automatically replace it just because it may be an older roof. Now, if that roof is missing shingles and there's spots inside the home that might indicate water is leaking, then yes, I am going to go ahead and replace that roof. I have clear signs that the roof is not roofing anymore. If this property is going to be a rental, which means you are gonna be the one that has to replace that roof at some point, my general rule of thumb is, if it looks like it needs to be replaced in the next five years, well, then I'm going to account for that in my offer and get a discount on the property so that I can afford to replace the roof when I need to.

7:34Brandon Turner:I still may not replace it right away, but I know I have the budget to replace it because I offered low enough to cover that expense. In terms of what a roof is going to cost you to replace. Here's how I estimate that. A three-tab roof, which I don't recommend you put on, I always recommend you do architectural or better. People see three-tab even if it's brand new. If they have any type of home experience, they probably don't like it. So I wouldn't recommend it. But a three-tab roof will run you anywhere from$5 ,000 to$10 ,000 or$12 ,000 depending on the size of the roof. An architectural shingle roof is going to run you anywhere from, I say, on average 10 grand, but anywhere from eight grand to 16,$17 ,000, depending on the size of the roof.

8:20Brandon Turner:Whereas a metal roof, the most expensive option is probably going to run you anywhere from 12 to 25 or$30 ,000, depending on the size of the roof and the kind of metal roof that you get. All right, before we move on to the second item, I'm going to give you a number 1.5 because it is on the exterior of a home and you should evaluate it when you're evaluating the roof. And that item is windows. Windows are very expensive. And what I've learned as a house flipper over the last several years is that when you flip a house, people usually expect there to be updated windows. It's funny. They may not expect the roof to be brand new, but most people want new windows.

9:02Brandon Turner:And so eight times out of 10, I'm going to replace the windows if they're older single pane aluminum windows. Any single pane window, I'm going to replace it. And I'm going to replace it with a dual pane vinyl window. That is what most people expect. That is what most people see on homes. So the quick and dirty way to determine if your property needs new windows is just to go through and look at the window themselves. If the casing of the window is metal or aluminum, that's probably an older window. Windows are costly. The general rule of thumb that I use is somewhere between $300 and$400 per window installed.

9:46Brandon Turner:I would estimate more on the high side, somewhere closer to$400 per window installed. And keep in mind that I'm just assuming a standard shaped window here. All right, that covers roofs and an extra bonus for you on windows. I can't wait to jump into foundations. But before we do that, we're going to take a quick break. Do you ever notice how every passive investment somehow turns into a very active lifestyle? Active spreadsheets, active phone calls, active stress. Here's a better question. What if you could buy brand new construction homes, 10 % below market value in the best markets across the country without making real estate your second job?

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13:13Brandon Turner:All right, we are back on the BiggerPockets podcast and we are discussing how to evaluate the big five. These are the big ticket items that you need to make sure that you are budgeting for when making offers or purchasing new properties. We covered roofs in the first section and we covered windows. And now we're going to talk about the dreaded foundations. There is a lot of stigma around buying houses with foundation problems. And trust me, it is well earned. foundation problems can be a nightmare and they can be crazy expensive by far the most expensive item within the big five so it is not something to be taken lightly but do remember that it's just a number it's just a dollar amount typically to fix the problem there are some foundations that are beyond repair and that essentially renders the house to tear down but for the most part There's work that can be done to repair, stabilize, or even replace a foundation.

14:18Brandon Turner:So how do you know if there's foundation problems? That's your first job as an investor is to walk the house and try to determine, is there even a foundation problem? And so here are some of the things that I look for or that I'm on the lookout for when I'm walking a house and I'm trying to evaluate if there's a foundation issue. And first and foremost is what do you feel under your feet? Does it feel like you're walking up an incline when you're just in a flat room? Does it feel like you're walking down a hill when you're in a flat room? Does it feel like you're going over bumps in the flooring?

14:55Brandon Turner:Bumps in the flooring may be just because of the flooring, but it could be a sign that there's foundation issues. But if the house is sloping up or down, that is a big red flag to help you understand that you've got some foundation problems that you need to have evaluated. The next thing I'm looking for is, are there large cracks in the wall? Drywall is drywall. It's going to crack because houses move. Houses are just like anything else. They expand and they contract. When it's hot, it expands. When it cools, it contracts. And that can cause some cracks in drywall. But typically, those are small cracks.

15:36Brandon Turner:Foundation cracks, however, tend to be much bigger. Think of something that you can fit your finger into. If you have large cracks that you can put a finger in, maybe a big coin can go in there. Now we're talking about something that's caused by more than just your normal house breathing, expanding and contracting. All right. That's a sign that the foundation of the home is shifting, causing that drywall to crack substantially. So you're looking for the thickness of the crack. You're also looking for the length of the crack. If it is a long crack spanning from the floor to the ceiling and across the ceiling to the other wall, that's a massive crack.

16:18Brandon Turner:That doesn't just happen from expanding or contracting. that is actual house slippage or movement that's causing such a big or long crack. So if you're seeing wide cracks or long cracks, that's something to make a mental note of that you wanna get a foundation specialist in there to take a look at that property. The next thing I'm looking for is if I see some of the signs of cracks or I see some of the signs of flooring being sloped, the next thing I'm doing is I'm opening and closing all the doors. Because if the house is unlevel and it has shifted, sometimes the doors won't open all the way because maybe the floor is lifted up a little bit and the door doesn't have the clearance it would normally have.

17:01Brandon Turner:So if you're opening doors and they're sticking to the floor and you're having to pull on them and then drag them across the floor to get them to open, that could be a sign that there's a foundation issue. Same thing if they're sticking in the door frame, meaning that the frame of the house has maybe tilted or adjusted because the foundation is off, but the door hasn't shifted with it, then it can get jammed inside of the door frame. And it seems like maybe the door's just sticky. It may not just be sticky. It may be that it's not fitting properly and the foundation's causing it not to fit. So I open and close all the doors to see how smoothly it opens and closes.

17:37Brandon Turner:Is it dragging on the floor? Is it sticking in the frame? And then the next thing, I wish I didn't tell you to look out for this, but I've seen it with my own two wives in more than one house, is when you're opening and closing those doors, check the tops and the bottoms of the doors. I have literally seen where people have sawed off the top of the door because the foundation problems were so bad they couldn't get the doors to open and close, so they self-modified the doors. So just check the doors and make sure they haven't been handyman special and the owners of the property haven't cut off the tops or bottoms of the doors to make it seem like the foundation isn't a problem.

18:14Brandon Turner:So these are enough visual cues for you to be able to have a good idea if there's foundation issues. And so now I want to talk about how do you assess how much it's going to cost you. And here's my secret to assessing foundation issues. Secret number one is I don't. foundations are hard to estimate. I have tried and I have failed almost every time. When I thought it's only going to cost me$5 ,000 to fix a foundation, it's cost me$25 ,000. And when I thought it was going to cost me$25 ,000, it's cost me$5 ,000. I do not estimate this anymore. It is not my area of expertise. I don't understand it like an expert does.

18:57Brandon Turner:So when I'm walking a property to evaluate if it has foundation issues, I am going to bring in a foundation specialist. So really what you're looking for is, am I seeing cues of foundation problems? If I am, great. Let me bring in a foundation specialist to evaluate that property and give me a quote to fix that property. That is what you should trust. Do not try to estimate this on your own unless you're a contractor with experience in working with foundations. And two, get more than one quote. The work involved with fixing foundations can be very specialized. Some people have better tools and skill sets than others.

19:35Brandon Turner:And so I've had multiple bids where I've gotten a bid for$15 ,000 to fix a foundation. And then I've gotten a bid from another contractor for twice as much. So get multiple bids for the foundation repairs and then ask each contractor to explain the bid to you. A, so you are learning what's happening and learning how they're fixing the problem. And so B, so that you can get better at understanding what's involved with fixing foundations so that you can be more educated on the next property that you see. But I cannot stress enough. Don't estimate yourself. Get a professional to estimate it. Get multiple bids.

20:13Brandon Turner:Ask lots of questions. The next big ticket item, in my opinion, is one of the hardest ones to evaluate to be able to tell if you need to replace this and what it's going to cost, mostly because it's plumbing and all the plumbing lines are buried. So you can't see them with the naked eye. But if you look past this item and it comes back to bite you in the butt later, it can cost you thousands to tens of thousands of dollars, depending on the age of the home and depending on the kind of plumbing that was used for that property. So here's what to look for when you're walking a property and trying to make sure that there aren't major plumbing issues.

20:55Brandon Turner:When you're inside of the house, turn on the water. See what color the water is. Is it gross? Is it brown? If it's gross and brown, that means there's probably some sort of rust or sediment inside of the pipes that's causing the water to change colors. and trust me, that's going to show up on an inspection. People are going to notice they're not going to want to buy the house. So you're going to want to make sure that you're budgeting to get that repaired or replaced. Check the water pressure. If the water pressure seems super low and you've gone to the hot water heater and checked on the pressure and it looks like it should be higher than that, then that is a sign that there's something either blocking the water from coming through the pipes and typically that's some sort of like corrosion or some sort of mineral buildup.

21:46Brandon Turner:So if you've got old copper and cast iron pipes over time, just from daily use for years and years, there's just corrosion and things that start to build up and shrink the thickness of that pipe. And so the water stream that's coming through those pipes is so constricted that the pressure is no bueno. So check the water pressure when you turn the faucet on. The next thing you're looking for, look under the sinks. When you're looking under the sinks, what you're hoping to see is PVC and that's the white plastic pipes. That's newer plumbing connections. And that PVC is what's on the inside of the house, but that PVC connects to the actual plumbing of the house that's underground.

22:30Brandon Turner:And so you can start to see where the plumbing from under the ground comes up into the sink area and then where the plumbing that's in the house connects to that. So if you're checking that and you see all PVC and it looks clean and clear, that's a good sign that plumbing's been updated. If you're looking at that and you can see that the plumbing coming from the under the ground into the home looks like an older galvanized pipe, but the PVC connecting to it isn't, that's a sign that the plumbing inside the home's been replaced, but the plumbing under the home may be very old. So check on that.

23:03Brandon Turner:I always look for those things. And then under the sinks, I'm also looking for, does it stink under the sink? If it stinks under the sink, that could be a sign that there's leaking coming from the plumbing. It could also be a sign that that old plumbing pipe coming into the house is just old and gross and corroded with junk that's been put down the drain for years. I'm also looking at the decking under the sink. Are the boards wet? If they're not wet and they're dry, are they wavy? Are they showing signs that they have been wet before because then I'm going to ask the question, was there a leak that was fixed?

23:38Brandon Turner:Is it just an old dried up leak? But you're starting, you're looking for signs that water was leaking from pipes and sitting on that decking boards under the sink. And then I'm also looking for signs of mildew or mold. If there's mildew or mold, that's a clear sign that there's an active leak or there is water pooling somewhere. Mold or mildew doesn't live without moisture And if there's moisture, then you probably have yourself a leak. So I'm looking for signs of water under the sinks. I'm also looking for drains. So when you are testing the water pressure, close the drain so that the sink fills up and then open the drain and see if it drains in a normal time span.

24:21Brandon Turner:If it's a slow drain and it's just sitting there and nothing's draining like as fast as you think it is, that could be a sign that you've got some buildup or something going on inside of the pipes, a sign you need to replace that plumbing. You don't just need to check inside the house for plumbing issues. You also need to check outside of the home for plumbing issues. This is a whole lot harder to spot. The more you look at this, the better your eyes going to get. I'm still not great at this. These are things that are hard to see. But what you're looking for when you're outside of the home is you're feeling around for wet spots.

24:54Brandon Turner:So if you're walking around the outside of the home and it's not raining outside and you walk through a spot that seems damp or like it's been recently watered, that could be a sign that there's a pipe under the ground there that has a leak and it's saturating the ground. Another way to tell that there might be a leaking pipe outside of the house is, is the grass super green in like one patch in the backyard, right? Maybe it's greener than everywhere else, or maybe the grass is all dry, but there's a green spot. That's a sign that there may be water coming from a pipe under the ground there and that spot is getting saturated and is doing well from a fertilizer standpoint, but probably not doing well from a plumbing standpoint.

25:36Brandon Turner:And then other things like sinkholes, if there's a spot in the backyard or in the front yard that seems like it's dropped down, like it's sunken down a little bit, that could be a sign that there's a pipe causing a problem, maybe a pipe with a crack in it or something saturating the ground, causing the ground to sink. And then the last thing is look for cracks in the foundation or pooling water around the edges of the home. I recently had this at a property that I was selling and we had a hose bib that was on the side of the house and the hose bib, part of the hose bib that was under the house was leaking.