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.
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 foundation. I’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
First is the fact that you may not be able to find that particular kind of siding anymore without having it specially milled.
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.
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.
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 inspection. You 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.
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 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.
SDAR is hosting it so there is no cost (sdar charged $45 for this class when I taught in their offices last year) but I will be up-selling ginzu knives and snuggies
What do you get the dad who has everything for Christmas? A superman Snuggie
at the end of the presentation. Nothing like having snuggies for the whole family as long as yours is of Superman!
Just kidding. Any of you who have been to these courses know I don’t sell anything except……. the fact I am a buyer and that providing you with tools I have learned and used you’ll consider calling Gabhart Investments when you have a great property for sale.
Ok here is theÂ sch-peel
In this class you will learn if the highly lucrative, highly competitive business of commercial real estate brokerage is right for you. This business niche is not for everyone, so attend this class and find out if you are up to the challenge.
Commercial Real Estate Course topics
What is commercial real estate?
How long will it be before I make money?
What are the risks?
Do I need experience in commercial real estate?
How to leverage your existing client base to turbo charge your success
Choosing the right company to work for
Additional resources to get more information on commercial real estate
Here is what we are not covering
How to analyze a property (I will talk about what you may want to know/learn and where to get that information)
This is a good intro if you are thinking about making a time or money investment into the commercial side of things.
It’s not for everyone so don’t expect a bunch of ra ra sis boom ba that anyone can get rich doing it. I will give you a no nonsense run down of the business as I have experienced it.
I will say that if there is a way to get into Real Estate with little or no money (not little or no time) then commercial real estate may be a great avenue. This is what allowed me to transition from doing Real Estate as a hobby to a career that has been very rewarding (and challenging – NO GET RICH QUICK GRASS HOPPAH)
I will say
Real Estate gives me flexible hours (not short hours but time availability to do things like see my kids plays at school during the day etc.)
And work from my H2Office while not in my physical office. Check out this awesome set up.
Real Estate gives you the flexibility to work from anywhere! My second home office...
Below is an outline of the event I will be putting on tomorrow at the Double Tree in San Diego at hotel circle. Through cliff notes, youtube, wikipedia and staying the night at a holiday inn express really helped me out
For those of you who can’t make it or are unsure what it is about I am pasting the outline here. The lines are fill ins we will discuss and I plan on it being pretty interactive. May even throw in a cold call to a property owner to see if they will sale. Hope they don’t yell at me!
All of my hard work over the last couple weeks has really been paying off. I am getting calls each day from Realtors or Wholesalers who understand what I do to present with opportunities because they know if they bring me a deal I not only will buy through them I will sell through them. I have also been helping some agents who are new to working with investors to show them how to find deals that can be flipped in this ultra competitive market.
As a former Commercial Realtor who now focuses on Syndicating partnerships I am using the same marketing techniques that createdÂ a successful business for me in that field by tweaking the business model towards building relationships with Agents or people looking to passively invest through our firm and making them my customers instead of buyers and sellers.
I know that the best deals usually come through agents and most times if it is a great deal they call a client who they can represent and I want to be that person. My business model involves buying as a principal through anyone who brings me the deal and selling it through them on the exit.
The skills I learned being a Commercial Realtor has been in large part the key to my success. As an agent who works with investors I was exposed to the business models that worked for buying properties. I donâ€™t believe there is anyone who is better than an agent at finding deals because thatâ€™s all you do throughout your career. You are exposed to the best business models and can leverage that knowledge to become very wealthy.You look at deals and you represent buyers and sellers and you see what works and what doesnâ€™t.
As a matter of fact I am using that marketing right now to let Realtors know I am a buyer and am looking for Real Estate.
I am continually being asked about â€œWhat is the best way to become an investor in real estate?â€ and my answer
Phase 1 – save up enough money for 6-12 months living expenses, go out and get your Real Estate license
Phase 2 – Work under a successful Realtor whoâ€™s focus is on the niche you are interested in owning one day.
Phase 3 â€“ Work you ass off and find as many investors to find deals for and pay attention to the successful ones.
Phase 4 â€“ Start finding investors that will allow you to put in some or all of your commission on the deals you find and ask to participate as much as possible even if you arenâ€™t getting paid for that portion. This is an investment in yourself and like all good investments you will be rewarded heavily in the future.
Phase 5 â€“ Build relationships with clients and earn there trust. These clients and your friends and family will most likely be your money source for your future deals.
Phase 6Â – Work your but off to learn the business by working for successful investors finding them deals.
Phase 7 â€“ Transition out of the brokerage business to focus full time on your investments if this is what you enjoy doing. This is the phase I am in but you may find out that being an investor is not always fun and may decide that you like being a Realtor instead.
If you work with investors
So if you are a Realtor or wholesaler give me a call if you find a great deal.
Here are a few reason why you may want to consider working together.
â€¢Â Â Â I need to buy 3 properties by June 1st
â€¢Â Â Â I make quick decisions and know what I want – Anything in San Diego $300,000 or less that we can re sell for a profit. I also understand 99% of the deals donâ€™t work but I also know I am successfully finding ones that do work through realtors like yourself who know a particular market and a good deal when it hits the market.
â€¢Â Â Â I value your advice and feedback but I am not going to blame you if the numbers don’t work out the way you thought on the back end. I am a big boy and if I make a decision to buy it is because I believe in the numbers also. It doesn’t mean I don’t make mistakes it means that I have done enough of these deals that I know mistakes happen and its part of the business.
â€¢Â Â Â I have access to the MLS and the Sentry system. That means you never have to drive me around or do a bunch of homework for me. I am capable of doing it myself, the best use of your time is to find deals we can work on together and then find more.
â€¢Â Â Â Quick decisions, no financing contingencies, I can close as quick as needed. As an example to make a deal work this week I offered a 4 day escrow and waived my physical inspection upon acceptance.
â€¢Â Â Â My company has a general contractorâ€™s license so we understand whatâ€™s needed and are capable of just about anything.
â€¢Â Â Â If I buy through you I sell through you
â€¢Â Â Â I am open to other possibilities but can’t make as quick of decisions if it is something new to me. On the other hand this is a fast changing market and I need to be open to other opportunities.
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