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

Henry Washington (0:00)

You can analyze a property on paper, but let me tell you, I've bought over 100 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. 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 it cost you one of your own.

What's going on, everybody? I'm Henry Washington, I'm the co-host of the BiggerPockets Podcast. 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. 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 or 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. So the first item on the Big Five that we're going to cover is the roof.

Roofs are pretty standard. There's a few different types of roofs.

Mostly what you're going to 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. 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. The major differences in these styles of roofs 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. 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 warped decking is causing the roof to look warped. And that should let you know that you need to replace that roof and replace the decking, which can be more expensive.