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

Commercial Real Estate Internship Update #1 – Blake Imperl

Commercial Real Estate Internship Update #1 – Blake Imperl

How My Views on Commercial Real Estate Are Changing

By: Blake Imperl

As I am approaching the end of my first month as an intern at Gabhart Investments, I’d like to reflect on what I’ve learned, and what has changed thus far.

What I’ve Been Doing

Over the past few weeks, I have been spending a lot of time reading the material Curtis has provided me on Property Valuation & Investment Analysis. Although it is mainly an overview of the subject, it has proved to be some highly valuable content. This material essentially picked up where I left off in my Real Estate Investment Analysis class that I took last semester at San Diego State. I have been brushing up on subjects like tax benefits, 1031 exchanges, expenses, leverage, returns, evaluating cash flow, and much more. I still have a great deal of learning to do on these subjects, but it is exciting to see how what I’ve learned in the classroom correlates to real world applications. It is my intention to continue to read up on these subjects and ask as many questions as I can.

I’ve also been observing how Curtis and his team assemble marketing packages for commercial properties they are listing. I was doing things similar to this at my last internship at Realty National, so I’ve enjoyed seeing how this translates in the commercial arena

Commercial Real Estate Blog Posts

Another task I have taken on is the editing of Curtis’s blog posts. My first edit was a post on property walkthroughs. One tremendous benefit of doing this has been the information I’m learning is sticking much deeper than if I just glanced over it. It’s proved to be a great learning tool for me and I’ve even taken on the task of researching some of the topics I was curious about. Writing has always been a passion of mine, so getting the opportunity to revise and write some stuff has been great. I’m excited that I will get to continue to edit blog posts during my time here.

Property Walkthroughs

This past week I had a great learning opportunity with Curtis to do a walkthrough of a 13-unit apartment building in Fallbrook. I was able to learn about some of the things you should be looking for in a property, both on the interior and exterior. This was a neat real life application after reading Curtis’s article on property walkthroughs. This is certainly the kind of stuff you’d never learn in a class room.

13-Unit Apartment Building In Fallbrook

La Jolla Multi-Family Building

Another property we looked at was a 5 unit multi-family building in La Jolla. This was a very intriguing property because it had great bones, was less than a block to the beach and offered several routes for renovation. When walking the property, we looked at things like the condition of the floors, the bathrooms, kitchens, balconies, electrical, etc… It was far from move-in-ready, however, at the right price this could prove to be a great deal.

Curtis and Abe inspecting the condition of the upstairs balcony

the interior of the detached studio

Co-Star Lunch & Learns

In addition to the property walkthrough, I’ve also attended two Co-Star lunch and learns with Curtis and his assistant Dianne. The one that stood out to me was on the housing forecast over the next few years in San Diego County. I enjoyed this meeting because this is a real problem we will be tasked with fixing over the next decade. This past semester in my investment analysis class I did a great deal of research on this subject, so it was neat to hear the industry take on the issue.

Other Opportunities

Lastly, I have very much enjoyed the opportunity to pick Curtis’s brain. He’s always offering me valuable tips and knowledge about real estate and just life in general. Whether it be tips on client relations, listing properties, or even just financial management, I’ve been trying to act like a sponge of knowledge. He’s always honest about things and I respect that.

My views on real estate are growing stronger than ever and I’m excited all the learning opportunities that lie ahead. I am finding that the San Diego Commercial Real Estate Market contains more possibilities than I ever could have expected. Stay posted for my final update in August!

In a bit,

Blake Imperl

Intern, Gabhart Investments

Wine Salesman, Turned Real Estate Student, Turned House Flipping Intern

Wine Salesman, Turned Real Estate Student, Turned House Flipping Intern

!!!!!From This!!!!!

To This

So a little bit about me; hmmmm where to start? Well first let me make it known I have no, prior real estate experience. Prior to moving down to San Diego, I studied International Business at Pepperdine University and then went into wine sales. I was involved in a small family winery in the heart of the very beautiful wine country of Paso Robles, CA. I decided I had drunk enough wine and moved down to San Diego with my best friend to start my MBA studies at USD (University of San Diego). However, that path quickly changed, and I found myself of a path of real estate. I added an additional year to my MBA studies by enrolling in a Real Estate Master’s Program (MSRE) at USD. It was at the beginning of the program in which I took and interview for the only non-paid internship position offered (all other internships were paid). That was on 9/22/10

1. Why did you choose to intern with Gabhart Investments?
It was very simple for me to choose to intern with Gabhart Investments (GI) as this internship was more encompassing than the others which I interviewed. I liked that Curtis’s business model allowed for a hands on approach involving every stage of flipping a property. I knew I wanted to learn several aspects about how flipping properties, from how to acquire to how to sell. Other internships however were more focused and would have been for too narrow in what could be absorbed and learned. Finally it was the reading of Curtis’s and Nick’s blogs and bios which sold me on joining Curtis’s team. I felt I would be a good fit after getting to know both Curtis and Nick a little better.



2. How did you hear about the internship?

The internship was an opportunity presented to us through our program director for the MSRE program at USD. She simply emailed the description and contact information. I then reviewed the web site, made an appointment for an interview, and the rest is history.

3. Why would you work for free?
The fact that this internship was unpaid wasn’t really an issue for me. I figured going in that any internship would be unpaid. If I landed an internship with pay, then it would have been an added bonus. However this dilemma did present itself. GI was the only internship not offering any sort of compensation. My dilemma was to take an internship with Pacifica Company, which was paid, or interning with GII.

I chose GII because I figured the value of what I could offer, and receive, was greater with GI without compensation, than that of Pacifica Company. What could be taken away from working and learning from Curtis seemed much more practical and something which could be readily applied.

4. What are you trying to accomplish?
I am trying to accomplish several things while interning with GI. First and foremost is to learn as much as possible about how Curtis does business. By working side by side and going to the different properties and being involved at all the different stages, I will be able to determine if this is a field of real estate which I will pursue. If this is something I find I want to pursue further beyond this internship, then I will also need to land a position either here with GI or with similar firm here in San Diego.

5. What were your views and perceptions before you started? Are they different today from 30 days ago?
In as little as just 30 days my views have changed dramatically. Prior to starting with GI, my perceptions were that flipping houses was relatively easy and that raising the capital would be the only thing holding me back from being able to do this on my own. I figured it couldn’t be that hard to by a property, hire a general contractor to fix it up, and then sell it. I wish I still believed it is all just that easy.

All ready through working with Curtis, I have a new respect for being able to be successful through flipping houses.

6. What tasks have you worked on so far?
As mentioned in the previous answer, I addressed just how my perceptions have changed in the first 30 days. So far I have only worked on the beginning of the process, acquiring the properties. Primarily I have worked on comps for the most part. This is searching MLS and other websites to find similar properties and estimate what the property would sell for once rehabbed. We find the comps in order to run our proformas to determine whether a given deal would produce the necessary returns for our investors.

7. What have you learned? Is there anything in particular that stands out?
SO far I have learned how to run comps and proformas. I look forward to the coming months as more properties are acquired and learning how to rehab the properties.

What stands out so far is how to run comps when there aren’t many similar properties in a close area to the subject property. This means how to use properties that may not be identical and how to adjust the value of such. For example if I am running a 3/2, I could use a 3/3 comp and figure that extra bath adds about $15,000 to the comp, or I need to subtract that amount from this comp to be comparable to my subject property. This could be a bath, bedroom, garage, etc.

I am also starting to learn how to deal with realtors and how to get them on our team so that they can bring us deals to buy. Curtis is great at this, because he develops a sort of loyalty with each individual agent. When an agent brings us deal, say they are representing a seller of a distressed property, Curtis will have them represent us as buyers and Curtis also promises to re-list the property with the same agent when it is time to sell. This is a great incentive for realtors to bring us deals, as they make commissions on several ends of the deal. Usually at least 2-3 times during the process, which means 2 -3 times they receive commissions.

8. What is the most important thing you have learned so far and why?
BY far the most important thing I have learned so far is hat speed is critical in this business. Curtis takes a red-light/green-light approach. Basically this means trying to find out quickly why a deal won’t work. This is a crucial skill to have and to be able to determine if a deal is worth pursuing very quickly.

Perfect example is the property we picked up on Coronado. Curtis received and email from another individual who flips houses in North County and had a property in OB on Coronado. We received the info about 10:00am. We quickly got onto MLS and searched any comps to come up with a value for what we could offer for the property. It is important to look at comps on MLS because from the comps we can roughly estimate what the property would sell for once rehabbed. If we can determine that the sell price wouldn’t return the IRR for the property we can just cross it off now, before wasting time driving the property

We quickly determined that the property, based on the comps and given rehab estimates would work for us. It was now time to drive the property and comps. Once we get to a property we can get a better feel for what rehab will be needed and more importantly, how much money is needed for rehab costs. While we were at the Coronado property we talked to the neighbor who informed us that other flippers were looking at the property just a few hours before us. We quickly drove the comps, returned to the office and were running proformas and coming up with the best strategy to acquire this property. Our first negotiations began around 2:30. Not sure what time the deal was agreed upon, by the next day when I arrived Curtis already had an agreement to purchase the property.

Because how lucrative these deals can be, speed is crucial. Had we not moved so fast on Coronado, another flipper would have picked it up. On Coronado, the property was purchased for $320,000 and with-in two days we may have it sold for $400,000 (net to us) with no work needed. $80,000 for moving quickly isn’t a bad pay day for a few hours worth of work.

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