Multi-Family Quick Tips When Doing An Exterior Inspection

Multi-Family Quick Tips When Doing An Exterior Inspection

By: Curtis Gabhart, CCIM

Here is a quick recap of some things I look for when doing a quick inspection of an apartment building or even a single family home and common issues I come across.

I like to do a quick review to the outside condition of the property in order to gain insight as to whether it warrants further consideration for purchase or investment.

Now, before getting into the details, let me summarize the most important factors regarding the physical condition of a property.

Some of the important visible considerations are:

  • Reviewing the foundation and cement
  • Checking the siding
  • Reviewing the sprinkler systems
  • Analyzing the quality of the landscaping
  • Looking at the windows
  • Looking at the roof
  • Inspecting at the front door
  • Looking at the gas meters
  • Looking at the train gutters
  • Reviewing the quality of the paint
  • Looking at the overall neighborhood

When buying a property, whether it’s an apartment building or single-family house that you may plan on flipping, some of the concepts are going to be very similar, if not identical. With many investment properties, you will find an inside inspection is subject to an accepted offer. This means you will need to make some assumptions about the property before you submit your offer. This can prove difficult, especially when you’re not able to view the inside.

Starting Out 

I’ll look from the ground up – I’ll start by looking at the ground and taking an overall look at the condition of the property to see what level of care has been maintained. As a general rule, if it’s a piece of shit on the outside, it’s probably a piece of shit on the inside. There have been a few exceptions where I’ve been pleasantly surprised when I got inside a property, but that’s exactly what they are – exceptions. I’d use this analogy as a general rule of thumb – if you see a car that looks junky on the outside, it probably just as junky on the inside.

Foundation – I’ll look at the foundation, all the cement on the ground near the foundation, and all landscaping near the foundationI’m looking for things like sprinklers spraying on the building. I’ll then check if there is stucco peeling off the building, which can sometimes indicate moisture intrusion into the building. I’ll also check if the ground is sloping towards or away from the building; it should be sloping away from the building. If it’s sloping towards the building, it may indicate that a possibility of having a foundation or other problem that relates to water. If there’s cement, I’ll look for big cracks in the cement, which sometimes can indicate unstable soil or cracks in the foundation.

This could indicate further foundation issues

Landscaping – what is it going to cost me to improve the landscaping, what do I need to do to it, are there sprinkler systems, and are they automatic or non-automatic?

Building – what kind of siding is there? Is it stucco, brick, vinyl, wood? I pay close attention to the condition that it is in. If it’s wood, I will check for visible water or termite damage.

Eaves – Does the wood going into the eaves have damage? If there’s a lot of damage in the eaves, it very well could go into the attic rafters, which could be a lot more expensive. If it’s on the siding, what kind of siding is it? If it’s an old building, a lot of times replacing siding can get very expensive for two reasons:

the eaves is the part of the roof that meets or overhangs the walls of the building

  1. First is the fact that you may not be able to find that particular kind of siding anymore without having it specially milled.
  2. Second is anytime you pull something off an old building, you’re very likely to find unforeseen surprises. Because you can’t be certain of the magnitude of these surprises, it is safe to assume everything is going to cost you a little more than you think. Whatever you think the price is, assume it probably cost more than you originally estimated. 

 

Windows- Are they new or old? If it’s an old building, are they wood sash or aluminum windows? Is that something that’s going to need to be replaced? Typically, the double-wood-hung windows that you see in houses or old apartment buildings are not in very good condition. With aluminum windows, I essentially just look at them and decide if I’m going to replace them or not.  What you need to be aware of is in many areas where you replace these windows, there may be architecture review committees that require you to replace them with historical windows. This could prove to be very costly, especially if they are wood sash.

wood sash window

Building Corners – Does everything appear straight? If there’s siding, are the lines of the siding vertical or are they all straight? On the corners of the building, what does the wood look like? Is there stucco coming off?

Roof – Does the roof have something called a drip edge?  This is a little metal edge that goes into the lip of the shingle roof. Are there rain gutters? If there are no rain gutters, water may not have been running away from the building. Because of this, I will spend more time thoroughly inspecting the foundation.

I look at the shingles of the roof; if there are many noticeable curved edges, it is likely on its last leg. Then, if I think I may need to replace the roof, I will look at how many layers of roofing there are. Typically, you don’t want to go past two or three layers of roofing. What that means is that if you replace a roof that has two or three layers, you need to put in your budget funds to tear off that existing roof before replacing it. You also will need reserves for unexpected issues when you pull of the old roof because you may need to repair the plywood underneath. Depending on how much work you do around the roof, you may have to re-sheet it.

re-sheeting a roof

Fence  Do I need to replace or paint it? Is the fence wood? Is it leaning, does it look like it’s on my property line, does it look I could add private yards for apartment units? Many times, you will find large open areas in the back of apartments that are shared. What we can do is put up a fence around the units and now each unit has their own backyard – a very inexpensive fix that not only can help you get higher rent but can reduce costs because you may not have as much landscaping to maintain

Paint (for older buildings) – If it’s pre-1978 and you have peeling paint, you’re probably going to want to get a lead-based paint test conducted. That’s going to tell you whether you’re going to need to do any kind of abatement or work on the property. If work is needed, you may need to use lead-based paint best practices, which can prove very costly. I usually recommend getting a test. Paint used in older buildings in San Diego is less likely to have lead in it compared to the east coast, where the weather is harsh and requires more durable paint.  Most of the properties I have tested did not contain lead, but it is still important to get it tested.

If it is tested and comes back negative you do not need to follow lead based paint best practices. If you have a pre-1978 property and decide not get it tested, you still must work on it like it contains lead based paint – which is a good reason to get it tested in the first place.

peeling lead-based paint

Click here for information on lead-based paint best practices

Front Doors – Aesthetically, are they looking good? Are there any gaps? If I look at top of door, I will look for a little pie-shaped gap at the top. If this is present, it indicates there may be some settling in the property.

Meter Boxes

Meters  Is it gas or electric? Are there gas meters for all units? If the property runs on gas and there is one water heater, there should be gas meters for each unit and also for the building.If it’s a multi-unit building, I count how many individual meters there are. There should be as many individual meters as there are units, plus one additional one, which would be for the common area. If you’re missing a meter, you may have something called a bootleg property, which means one of the units may have been put in unpermitted (just something to look at).  These are important things to note because in San Diego the tax assessor will charge for all the units, and state on the public website that it is X units, but that does not necessarily mean they are legal units.

Electrical – As far as electric meters go, I’m looking at what kind of panel it is. If it’s old, it could be something called knob and tube, which could indicate that I’m going to have to put a lot of money into upgrading the electrical. This will likely increase the interior costs as well. I then look at the circuit panel – is it updated? Then, I’m looking at how many amps each unit has. Ideally, you want 100 amps, but for many apartments, you’ll have between 30-50. Newer apartments should have 100.

Knob & Tube Wiring

I’m also looking at the type of panel; Murray Lampert typically have problems, so I want to check what kind of panel there is. Are there circuits in the units? Is there any room to add additional circuits if you want to add appliances or anything else inside the property? Is the inside of the panel painted? If so, it could indicate that the previous people who worked on the property weren’t doing things the proper way. This would lead me to believe other things were not done the proper way.

This is quite the mess!

I’m looking for bunches of electrical or cable lines running all over the place. We’ve bought properties where it looks like spaghetti running all over the building, and we’ve ended up having to rip it all off and start from scratch simply because it’s easier to do instead of trying to sort it all out.

 

 

Staircases – When I walk on the stairs, I make sure to walk very heavy. I’m looking to see if it seems squishy. Is termite damage visible, are the railings stable? In compliance with code, railing spacing should be about three and a half inches. For me, if I can make a fist or place my hand through the pickets of the railing, it is most likely not up to code and I’ll have to replace it depending on my insurance company and how bad it is. I look at the stairs to see if the tread rise and depth are consistent. It should be around 7” of rise and 11” of depth. If they are not to code they may need to be replaced.

Inconsistent stair depth

After An Inspection  Once the inspector gets into the property and finds things that I may not have found, do I decide not to buy the property? No, not at all. It just helps me to figure out what it’s going to cost to fix or if I even want to fix it, and what exactly I’m getting myself into. That’s what is critical about the inspectionYou can make a well-informed decision on the property rather than going in blindly and being surprised later.

It is naïve to think you can figure out how to hit a certain number or certain profit, or how to stay within a tight budget, without being informed of all the problems. This is valuable while I’m negotiating in the beginning. If I’m coming in lower than the initial offer, I can right away talk to them about some of these problems, which, most likely, the owners already know about but haven’t disclosed yet or many times they had no idea there were these problems which make it easier to negotiate.

Final Remarks

Keep in mind, none of this is 100%. These are just good rules of thumb when looking at a property. They have served me well to establish if an investment property warrants further investigating and analysis, and if so, what kind of offer to submit. This obviously isn’t everything. I depend on inspection in most cases. I will be posting an interior walk through an article in the weeks that follow. I’m interested to hear your story and what else you may look at when walking a property. Please share your take in the comments below.

**Disclaimer** – make sure you are walking the property with the consent of the current owner. Please keep in mind we are in the San Diego market and practices in your area may be different.  I highly reccommend you get a building inspector to look at the property unless you are highly confident in your ability. 

Curtis Gabhart, CCIM President Gabhart Investments, Inc.

Edited By Blake Imperl, our newest intern at Gabhart Investments. Check out his Linkedin page by clicking here.


Gabhart InvestmentsGabhart Investments, INC. (GII) is a privately held real-estate investment firm based in San Diego, California. We operate in a rapid paced project driven environment.  The employees at Gabhart Investments, INC. (GII) are close-knit, highly qualified professionals, possessing the necessary competence to meet our clients’ goals. GII promotes ethical balance for continuous training, leadership, and teamwork. Since 2000, GII has acquired and converted multi-family properties into condominiums throughout San Diego County. The new real-estate market has presented us with many opportunities to take advantage of. Along with our equity partners, Gabhart began to grow its portfolio in, arguably, the strongest housing market in the country. Thus, we consistently generate superb risk-adjusted rates of return for our investors. In 2005, Gabhart’s private investment portfolio had transactions in excess of 40 million dollars.  We intend to accelerate our business model by maintaining our focus within the purchasing and rehabilitation of bank owned real-estate property. Our additional services include consulting, brokerage, venture funding, development, construction management as well as property and asset management.

Check out our other blog posts here

JOBS Act…Plan for it

For those of you who haven’t been following the JOBS Act, it is a bill that will make it easier for startups and small businesses to raise funds, especially through online crowdfunding, is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.

 

The JOBS act was designed to help small businesses by:

 

1. Removing general solicitation and advertising restrictions for certain private offerings

 

  • Rule 506 – If all purchasers are accredited investors
  • Rule 144A – If issuer reasonably believed all purchasers are qualified institutional buyers

2. Creating a new $1M crowdfunding exemption, allowing non-accredited investors to participate in the funding rounds

  • Up to $1M of securities in a 12-month period
  • Investor’s net worth <$100k they can purchase greater of $2k or 5% of annual income or net worth
  • Investor’s net worth $100k+ they can purchase 10% of annual income or net worth up to $100k

Complete article

The SEC will have a 270 days to implement additional regulations from signing of the bill.

If you are a real estate investor who may be looking to raise private capital through this vehicle you may want to start planning in the meantime.

Planning is the foundation to your success, Execution is the material that creates the business. Execution without planning is like wanting to drive to Fargo without a map. You may end up getting there but a little planning could have saved you a lot of time.

  • Check out my previous blog post where I lay out business planning and goal setting:

http://gabhartinvestments.com/article/in-the-office-today-working-on-my-2010-real-estate-business-plan/

  • Get all the documents in place. Including your business plan, incorporation documents , financial analysis & forecasts and a full executive team bio.
  • Do market research. Get all the facts in place in order to have a strong argument as to why people should fund your project.
  • Start putting together a list of contacts and potential investors.
  • The concept of crowd funding involves work from the user seeking funds as they need to leverage their networks and ask their networks to lend a hand. We found that the initial 30-40% of activity actually comes from the users’ network.
  • Make a video
  • Start to craft your pitch in the best possible way. If someone asks what you do can you explain it in 30 seconds or less? Do you know what your most common questions are and the answers to those questions?
  • Start building your social network presence. Remember crowd sourcing is based on smaller amounts of money from multiple people. Start building your network and credibility

Time will tell exactly how much impact the JOBS Act will have on the job market and raising money for Real Estate

Some reasons it may not make sense:

IF the SEC:

  • Makes it to costly to set up
  • Makes it to complicated to create
  • Has to be sold through securities brokers

OR

  • It may be to cumbersome to have a lot of little investors on deals.
  • More red tape and reporting requirements

I am not sure yet whether this is a good thing or not. It really depends on the SEC final terms which I will report on when the grace period is over.

 

For the most updated information & news on real estate & Gabhart Investments go to our Facebook & twitter pages

 

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planning for the FUTURE of your business

planning for the FUTURE of your business

Our workshop series covers the 5 F’s of Residential Redevelopment: Finding, Feasibility, Funding, Fixing, and Flipping. None of which would be possible without the “6th F” (we had to use an “F”): planning for the FUTURE of your business. Having a successful real estate business starts with knowing what you want to accomplish and then creating a plan you can execute.

With the new year upon us, it’s a great time to step back and evaluate your Real Estate business and set some measurable goals for 2012. In this workshop we’ll share with you our plans and goals for 2012 as well as the process we’ve used to develop our plan.

 

Some highlights include:

  • Developing a business plan for yourself and to give to investors and lenders.
  • Setting, tracking, and measuring goals.

Space is limited, so visit EVENTBRITE to sign up & reserve your spot!

 

Thank you Trilion Capital for sponsoring this event.

 

 

For the most updated information & news on real estate & Gabhart Investments go to our Facebook & twitter pages

 

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Esparta Fix and Flip workshop

Esparta Fix and Flip workshop

We invite you to join us for a free workshop at our newest completed project!

Saturday October 29th from 9am-11am at 9759 Esparta Ct.  Santee, CA 92071

Our workshop series covers the 5 F’s of Residential Redevelopment: Finding, Feasibility, Funding, Fixing, and Flipping.

In this workshop we will primarily focus on what many consider to be the most challenging: Fixing!

 

 

 

 

 

 

Some highlights include:

  • Our scope of work & budget and how it changed during the project.
  • Challenges we encountered during construction.
  • Permitting a garage and bedroom/bath additions with the city.

 Space is limited, so SIGN UP HERE to reserve your spot!

All those in attendence will recieve a copy of our initial walkthrough packet which can be used to estimate construction costs on your projects.

Light refreshments will be served.

 

For the most updated information & news on real estate & Gabhart Investments go to our facebook & twitter pages

ps. click here to like us on facebook

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Marketing our properties to sell quick style!

One of the largest profit eaters when it comes to investment properties is a drawn-out marketing period. Over many projects, we have streamlined the process of selling a property in order to single out the reason for an untimely sale down to price alone. We aim to have an offer in the first week and almost always close the sale within 45 days of listing. This is accomplished through a team effort and a marketing strategy with detailed responsibilities and deadlines.

We buy all of our deals as principals through agents (not auctions) so we show our appreciation for bringing us the deal we relist the renovated property with them and provide them with our marketing plan. Here’s a snapshot of what we do before and during the listing:

14 days out both we and the agent create a cma independent of one another and tour properties noting positive and negative characteristics to arrive at a listing price or range. We send the agent the marketing plan along with a commission scale that rewards them based on their work and on the profitability of the project.

7 days out agent visits the property and takes pictures and notes punch list items that need fixed before property is show-worthy. After the final construction clean we schedule staging (if appropriate) and professional photos/virtual tour the following day.

3 days out our agent prepares a marketing flyer using the new photos and calls/emails agents who work that area to inform them of the property and present an opportunity for a pre-mls showing with their buyers. We collaborate on the best pictures and wording for the flyer and mls listing.

1 day out Agent puts up a sign and sentrilock on the front door. We keep a separate combination lockbox for our contractors and maintenance personnel. Agent posts an ad on several media sites (craigslist, facebook, etc.) and we post to our company blog.

Listing day list the property on the mls the day prior to the area broker pitch/caravan. We attend the pitch session with flyers and promote the property and our company. The agent sets up the open house and caters breakfast or lunch. We offer a gift card to the agent who guesses closest to final sales price.

Agent keeps the sign stocked with flyers at all times and sets up www.homefeedback.com to collect agent feedback efficiently. Agents need to be very responsive and answer their phone at all times. We schedule periodic cleaning and lawn maintenance.

 

For the most updated information & news on real estate & Gabhart Investments go to our Facebook & twitter pages

 

Please click here to like us on Facebook

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San Diego market & strategy

The London Group are reputable economic advisors to the San Diego real estate community. Here are some hot points from their latest reports and interviews…along with what we’re doing about it.

Invest in assets with promise, or those that are stable. Employ a conservative approach and don’t go for the home run just yet. (we are specializing in many small residential projects with a quick turnaround while keeping our eye on the multifamily market for bigger opportunities)

Purchase in good metropolitan markets – those with diversified economies with limited potential for new supply, growing populations and good quality of life. (sounds like San Diego so we’re staying here!)

Forclosures have not surged yet in San Diego due to more short sales occurring before property becomes bank owned. They estimate San Diego foreclosures in 2010 to be 10,000, down from peak of 20,000 in 2008. (we are starting to see and pursue more short sale opportunities versus REO)

27% of all San Diego listings are distressed sales (this is still a large percentage but the key is building relationships with agents and banks to get the best deals before the competition)

San Diego has added 10,500 jobs so far in 2011, representing a 2% growth rate. (home values are still bouncing around at the bottom because we are not creating enough jobs to give buyers the confidence to come off the sidelines – as a result we are focusing on quality and pricing aggressively for a quick sale)

For more: http://londongroup.com/2011/06/08/dont-let-doom-gloom-cast-shadow-on-housing-market/

For the most updated information & news on real estate & Gabhart Investments go to our facebook & twitter pages

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