Home Inspection Red Flags Every Real Estate Investor Must Know

Barry Saugen (00:00)
Yeah, so this year in California, landlords are required to do photo documentation and move-in, move-out situations. And what we’re doing is a third-party documentation service that we go in and document the house. Hey, it’s in great shape, it’s brand new, it’s been remodeled, or it’s in—there’s some moderate wear, or the landscaping’s good or bad. We comment on all kinds of different things. It’s different than a home inspection, but it’s a third-party documentation, and the landlord will have that inspection—excuse me, documentation that we have with pictures and we’ll do video if they so choose. And this gives them that non—they didn’t do it, so if there’s a problem down the road and they have to have any problems, they’ve got an initial start and then we do a follow-up one when the person or tenant moves out.

Cody Crabb (02:19)
Welcome back to the Real Estate Pros podcast by Investor Fuel. I’m your host, Cody Crabb, and today I’m talking to Barry Saugen. Barry runs a family-owned inspection company serving Sacramento and the Bay Area, helping buyers, investors, and landlords through residential and commercial inspections. Also, he is rolling out a new third-party move-in and move-out rental documentation service that’s becoming increasingly important under California’s ever-changing rental laws. Barry, thanks so much for joining me today. I appreciate it.

Barry Saugen (02:47)
Hey, thank you for having me. I’m happy to be here.

Cody Crabb (02:49)
So but before we get into the—the new rental documentation service, I’d love it if you could give everybody a little bit of an overview of your business today and how you ended up spending your career in this area specifically.

Barry Saugen (03:01)
So I—I got in the business due to a family member who was doing it a few years before, and I liked what I saw. It was fairly new to California, and it was—I started in 1999 working for a company and then did that for a few years, opened my company, and have been going with it ever since through the ups, downs, and every other adventure of this economy and how the real estate world works.

Cody Crabb (03:22)
Yeah. I—I th—I think, you know, we’ll—we’ll—we’ll circle back to the how the laws of ch—are changing and things, but you—you also mentioned you’ve worn kind of worn different hats throughout this process. How has that kind of informed your ability to do these inspections? Because you’re seeing these from multiple different perspectives at the same time.

Barry Saugen (03:40)
Yeah, I’ve not only flipped my own properties, had to deal with my own personal properties, I’m a real estate agent since the nineties, also. So I—I see all different aspects of how the system and how everything works and the changes have come on. Some good, some bad, but it gives me a really good, unique approach to how everything’s done. And with the inspection side, it’s nice because you’re calling directly what you see, and that’s what it is. It’s pretty simple in that context, but you know, the real estate side, there’s a whole ‘nother thing people don’t see. When you’re doing as an agent, you have to do a bunch of work to, you know, get the process started, then getting the contract, then taking it through the contract and close. And I understand as I too, having a family-run business and running the business myself and having my family help and support me over the years has been incredible. There’s a lot of interesting sides of the business, and—but my one thing I always love to tell people is I love it when it’s the first-time homebuyer and it—I call it the light going off. I can sort of see it in their head. I love to show them something as simple as where their shutoffs are and they go, “Wow, that’s important to know to if there’s an issue.” You know, it’s—you know, we’re not here to have everybody have—we’re not here to call out and destroy deals. We’re out to call what we see. And if hey, let’s just say there’s a really bad electrical problem and we can point it out. Well, sometimes those problems can be real dangerous, and it sort of is a lifesaving…

Cody Crabb (05:50)
Yeah, could be literal. Yeah, literally. Yeah.

Barry Saugen (05:52)
Yeah, no, it’s been a few times I’ve had some pretty scary ones.

Cody Crabb (05:56)
Yeah, I mean the—it obviously, you know, like you said, your job is not to kill a deal. It’s—sometimes it’s s—I would imagine it would be saving it in—in some—some circumstances. Yeah.

Barry Saugen (06:05)
Actually, you bring up a great point. My son just had one a couple weeks ago because he’s also an inspector, and he ended up saving the deal because the home was in an area where there’s a lot of settlement problems, and it’s pretty common. The houses aren’t falling over, but there’s settlement problems. And an out-of-area, out-of-state person was buying the property. He was able to talk to him and tell him, like, “Look, you go get any home within five miles of here, you’re gonna have this common problem.” And it was just part of the—the area, for lack of better words, and they were buying a newer home which had more engineering into it. It was actually a stronger point for that area. Can we guarantee they’re not gonna have problem? No. But you got a newer home, it’s stronger, it’s got more engineering built into it. Do you have a—a lot of positives? And he was able to actually save the deal for everybody involved.

Cody Crabb (06:51)
So your job isn’t really to tell people whether or not to buy the house, it’s give them enough information so they can make a—the proper decision based on what their roles are.

Barry Saugen (07:01)
Correct, yeah. It’s really—it’s actually against a lot of the associations and certain—I can’t say for every state ’cause I’m in California, but we’re not supposed to really tell you you can buy the house or not. We tell you what the condition is and let you guys, whoever the client is, make the decision for whatever it is. Even if it’s a maintenance inspection on a simple repair, we point out, it’s still their decision to do it or not.

Cody Crabb (07:20)
So I like that. I like this—that that kind of view on it. It—so as somebody that has evaluated a good amount of—of situations like this in the past, I would love to hear, like, someone that’s just getting into real estate investing, what are some things that they should kind of keep an eye out for that are just kind of immediate no-goes or like red flags that you may not know about as you’re first starting in the business?

Barry Saugen (07:45)
Well, I’m actually gonna be doing a com—a presentation about this on this one particular part I wanna caveat to a little bit with you is new home construction. So in California, they put in—I’m again, I’m speaking on my experience from California. They’re a lot of similarities throughout the states, but I just know California. A lot of builders will put restrictions on an investor goes to buy a house to rent it out, for example. And the builder will say, “Hey, you can’t go in the attic. You can’t go on the roof. You can’t do this. You can’t do that.” And yet people want to have the inspection. So when those challenges come up, because they actually own the property, I can’t tell who owns the property what they can and can’t do with it. Just like I can’t tell a buyer to buy it—buy it or not. Yeah. I can only report on what I’m allowed to do at that point. So we recommend that we come back at about a nine or ten-month cycle. They’ve been in the property, and the warranty is still the strongest it’s gonna be, and they can get the builder to address those issues. But that’s one of the things investors sort of get, you know—even homeowners, they really have a hard time with when that starts hitting them after they start buying a new home.

Cody Crabb (08:48)
So why did builders put those r—type of restrictions in place, exactly?

Barry Saugen (08:52)
My take is there’s been some bad apples in the industry. Every industry has good people, bad people, and they’ve done some silly things or made some mistakes or somebody got hurt, and they’ve had to protect themselves. That’s what I think it is. And looking at it from that side, I can’t blame them. But from the consumer point of view, I worry, you know, whether there’s gonna be an investor or—or just a person buying their own home, I worry on that side. So the only solution I’ve been able to work on and come up with a—through years is you just have the initial one, we try to catch what we can, and then we do the follow-up inspection. And it’s not really a business push, it’s an information thing because on the house I was speaking about example we don’t allow to get any attic. Well, that’s where the furnace was. So on the initial inspection, since I can’t see the furnace, I’m not gonna run it because what if there’s a small gas leak and the house catches fire? I turned it on, I’m responsible. So if—if they say that area is not accessible, it’s not inspected.

Cody Crabb (09:45)
Yeah. Mm-hmm.

Barry Saugen (09:50)
And then I go back and do the inspection, and we did find a couple of small things, and the builder was able to fix it. This house happened to be about two—two years ago on the initial, so it’s been about a year since we did the follow-up.

Cody Crabb (10:37)
So I’d love to hear—I mean, I’m sure you have some—some stories in this vein, but what is—what’s the—one of the most surprising things you found in one of these—one of these warranty inspections? Or like I—’cause I feel like you—you might—the—I—I can’t even imagine the types of stuff you would run across.

Barry Saugen (10:53)
It’s sort of something that run—it’s not actually an inspection, it was an experience. But there was a new home development about eight, nine years ago, and a friend of mine was buying the house, and I did an in-phase inspection for him through the process all the way up until moving. So he had about four inspections complete before he moved in. And while he’s having his housewarming party, I go to visit because it’s also a friend. And as I’m there, he got to know the superintendent of the job really well. And one of the neighbors comes in and is like—starts talking to the superintendent about problems. And the superintendent was like, “You know, we’re past,” because his house was a little older, my buddy bought in different phase. He was like, “Yeah, there’s nothing I can do.” And it’s just really interesting. And the guy didn’t get any inspection, so now he has to go back on the sliding glass door that he had a problem with, and he had to buy a whole new door, put it in, and it was a whole nightmare. And it—by having these inspections, and it’s—it sounds like a business push, but it’s an experience I’ve got. And I’ve seen where they—they pay off, you know. But the biggest thing also people have to remember is every one of these inspectors, whether it’s me or another guy in another state, we’re all human, you know, and we—we report on what we see.

Cody Crabb (12:01)
Yeah. Yeah, and I imagine—I imagine, too, that—I mean, I—I can’t imagine the amount of times that the—that money has been saved because you purchased—because you went with an—an—an extra inspection versus the opposite, because I just—I th—so much can go wrong with all these moving parts with any sort of building, really, that I mean, I just—it’s—it’s something that you can’t really avoid if you want to do it right, I obviously.

Barry Saugen (12:30)
Well, it’s—I—I approach a lot of my things in life, including my business and my personal life, as I’m gonna spend a nickel today so I can try and save a dollar tomorrow. So if I gotta spend a little extra, you’re spending half a million, a million, two million dollars on a house, and you gotta go out and get a, you know, $700 inspection, that’s a drop in the bucket. And that doesn’t—

Cody Crabb (12:42)
Yeah.

Barry Saugen (12:57)
Yes, it’s money, but if it comes up and you find out there’s big issues, you know, it’ll happen. And it’ll definitely pay for itself. I—we also do that when there’s in-phase work going on, and sometimes you’ll be amazed at stuff we see. And that’s just even on remodel jobs. It’s—it’s—I don’t understand some people’s thoughts when they’re doing the work, even though the contractor’s good, the employee may not be that good, but yeah, you see a lot of craziness. I’ve had a—a gas leak that was left open all weekend. You know, and I walk in the house, and I’m like, you know, luckily it was slow, but you walk in the house, there was no doubt what’s going on. Open the doors and try to get all the windows open to figure out where it’s at, and you know, and it’s—it’s—it’s thing people don’t realize is there is a danger to this job. There was a guy—

Cody Crabb (13:42)
Imagine based on what you just said. Holy cow.

Barry Saugen (13:44)
Well, there was a news story, I want to say a year ago—don’t hold me, but it wasn’t more than two years ago, I think. And I believe the guy was in Florida, and he was a home inspector, and he went and turned on a gas stove in a brand new home, and the place exploded. He walked out of there with some injuries and stuff, but he walked out, which was a miracle. But the house was—it looked like a Hollywood explosion from what the aftermath looked like.

Cody Crabb (14:03)
Yeah, well, and I—I think, I mean, like you mentioned, the new constructions, too, like there’s j—a ton of work that was just completed. Like, on an older home, obviously, their things have been repaired at different times and whatever, but this is like everything finished at the same time. So I imagine there’s a lot more that can go wrong with a newer home.

Barry Saugen (15:04)
Well, one more funny story on the original house I was telling you about, then. In the middle of my inspection, I’m walking around on the initial inspection, and these guys put a ladder up on it. And as they put a ladder up on it, they climb up and start walking—it’s a tile roof. Tile roofs, you have to step a certain way or you break the tile. These guys, you can hear them crunching every tile they step on. And I was okay, I was able to just sit there with camera, look out the window, click, click, click, click, take a few pictures, and said, “We didn’t do it. We weren’t up there, but before you move in, you want to get your roof fixed.” And these guys are doing some touch-up painting; they just destroyed that roof.

Cody Crabb (15:38)
Good thing you had—a good thing you got some pictures. That—I suppose that’s—that’s really—it sounds like that’s your kind of reflex at this point, because of—yeah. Yeah, it’s—it’s a lot can go wrong, I guess.

Barry Saugen (15:49)
Mm-hmm. Yeah. There’s—and there’s a lot people can’t see inside walls or hidden areas, but a home inspection can really save you a lot of headaches.

Cody Crabb (15:56)
Yeah. So I’d love to hear, like, if you were gonna t—teach someone about like the very, very first things to look for when they are looking for an investment property of their own, what are the first things that you would say, “Check this, because it’s gonna be a nightmare if you don’t,” like before the—even in the—the inspection even happens, like what are some things you can watch for that are—that are gonna be expensive if they don’t catch them right away?

Barry Saugen (16:20)
Well, one of my tells is when you walk into a home, and let’s just use an older home that they did a remodel on, because this will apply there a little more. You w—look around the bathroom and kitchens, and if you don’t see those little GFCI outlets that are in there, those little test/reset buttons you push and all that turns power on, off, my experience in California—again, this is California-based—it’s a good sign they didn’t pull permits.

Cody Crabb (16:42)
Hm. Yeah. Such an easy thing to skip, you mean?

Barry Saugen (16:43)
Like it’s fully remodeled, the—yeah. And if the permits aren’t there, who checked—what checked it in phase by the city? Is the city gonna or county gonna come back after you down the road? You know, those things do happen.

Cody Crabb (16:55)
See, that’s—that’s exactly the kind of stuff I love hearing, because it’s one of those like, “Huh, maybe I should…” It—it just gives you a lead to check on, like something that’s—maybe something I should check out. So this is—I think this has been really great. So now let’s pivot a little bit. I want—I want to hear more about this new kind of service that you’re offering, the move-in and move-out documentation. Can you tell me a little more about that?

Barry Saugen (17:14)
Yeah, so this year in California, landlords are required to do photo documentation and move-in, move-out situations. And what we’re doing is a third-party documentation service that we go in and document the house. Hey, it’s in great shape, it’s brand new, it’s been remodeled, or it’s in—there’s some moderate wear, or the landscaping’s good or bad. We comment on all kinds of different things. It’s different than a home inspection, but it’s a third-party documentation, and the landlord will have that inspection—excuse me, documentation that we have with pictures and we’ll do video if they so choose. And this gives them that non—they didn’t do it, so if there’s a problem down the road and they have to have any problems, they’ve got an initial start and then we do a follow-up one when the person or tenant moves out. And now you’ve got the secondary report. So you have something to put together and compare apples to oranges, and you know if there’s like regular wear, a little dirt, or they trash the place, put holes and stuff, if you know, something’s gone, the electrical’s messed up, those kind of things. And then they can have that, again, third-party documentation, if there’s a confrontation with the tenant, they have something in court hopefully to stand up on.

Cody Crabb (18:26)
Yeah. Well, and I also like the idea that a lot of landlords don’t want to be landlords specifically for the, “Hey, you didn’t do this here. I charge—I’m gonna charge you this security deposit,” and stuff like that. Whereas if you have this third party, you’re like, “I—I don’t make the rules.” You know, you get to just be this—you’re the bad guy instead of them.

Barry Saugen (18:44)
And yeah, we’re just reporting on the condition. That’s what makes it nice, too. So literally, since we’re in a spot where I can’t show you much, but if you had a great-looking piece of drywall on the wall and now there’s a gaping hole in it, well, obviously somebody did something silly, and it’s just an easy thing to show and they can take it to court. And if they want to hire us to go into court and on it, too, we can.

Cody Crabb (19:05)
So what do you—what would you see as the difference between, you know—is this—is this something that—like, what are the—what are the—this is the best—this is a probably a better way to ask this: What do the laws actually require now? Because, and I think a lot of people have learned this, when California starts to do something, a lot of times that starts to spread. So if I—I’d love for people to hear kind of what this law entails so they can kind of maybe mentally prepare a little bit.

Barry Saugen (19:30)
So where I’m approaching that as a non-lawyer, I don’t—I’m not a law—involved with the law and stuff. I’m looking at it as a—just a—on the documentation side, yeah, and as a landlord myself. What’s nice is they’re required to have these videos or pictures, and they have to maintain it before they go in and out. And then when they move out, they have to have it. It takes the pressure off the landlord, whether it’s a property manager, owner, whoever, and it fulfills the point that is documented, and that’s the—far as far as we take it. If there’s anything else that’s gonna be on the paperwork side, that’s what they’re gonna handle. But that’s as far as I’m taking on a third-party documentation.

Cody Crabb (20:12)
Hmm. So is it just the video that’s required? Like, I’m curious, like what is it that you actually have to turn over?

Barry Saugen (20:17)
So what we’re doing is we’re giving a report that—let’s just say the kitchen, and the kitchen was remodeled, everything’s beautiful, and move-in and then move-out, there’s cabinet doors ripped off, as a simple example. Well, we’ll take the pictures and show the damage. So on the original report, everything looks nice and good and clean and everything else. Now you move—they’re moving out and the doors are ripped off. You have a picture showing that it—it’s missing, and it’s documented. Then they can take and go to the person, say, “Hey,” let’s just say—just say it’s $2,000 for a number, then that—they can try to get it out of the deposit, and if there’s an argument and it goes to court, well, they can take that on in. That’s what’s gonna help—help them, because the landlord, property manager didn’t show anything; they’re just taking two reports and saying, “Apples, oranges, here’s what we got.”

Cody Crabb (21:04)
Yeah. Yeah, it makes it pretty cut and dry, which there’s—there’s never—no one’s gonna complain about having no ambiguity in a situation like that. So I—I think a lot of people listening have maybe gotten a better appreciation about how a good inspection can save them, whether that’s buying or these—managing these rentals, too. But for—for people that are interested in—in this kind of service, tell me kind of the area that you—that you operate in, and if someone’s interested, you know, how can they get in touch with you?

Barry Saugen (21:31)
Okay, so for the move-in and move-out stuff, the third-party documentation, we’re focusing on the Sacramento region right now on that. And that is something that we’re gonna work on. We do cover the—the Bay Area, also. We can expand on there once it grows a little more. But we’re doing the home inspections and commercial down there in the Bay Area and also in Sacramento. The way to reach us, you can get a hold of our main office line, which is (408) 348-2262 by call or by text. And our email is [email protected], which is C-A-L-I-N-S-P-E-C-T-O-R dot com.

Cody Crabb (22:15)
Awesome. Well, thank you so much. I think this has been a really good episode. I think people have—like I said, I think people have gotten some—some appreciation for why this could be super important. Thank you so much for sharing all this with us. I appreciate it. And thank you, listeners, for giving us some time as well. And we’ll catch you on the next episode. Barry, once again, thank you so much, and have a good one.

Barry Saugen (22:33)
Thank you very much. If I can help out, let me know. All right, I appreciate it. Thank you.

Cody Crabb (22:36)
Sure.