upfront capital issues

[Josh Jacobson]

Hi Everyone,

I am curious if I can seek some advice from the community. I've been under contract 4-5 times on multi-family buildings ranging from 6-8 units in Chicago and 1 18 unit building in St. Louis and every time the inspector finds a large scale project that doesn't fit in my numbers. I think I underwrite pretty conservatively, I do $500 per unit or 5% of revenue (whichever is more) for general repairs and do 5% of revenue or 5,000 per year in capital repairs held (whichever is more) for capital repair items. I also try to underwrite to the best of my ability the things that I can notice, like a water heater or a/c being 20 years old I'll make sure I have that in my upfront capital number. Typically I'll identify around $25k maybe I need to do 3 new water heaters and then update a kitchen and bathroom, and then I'll always tack on something to be safe so I have a reserve account so I usually double that $25k to be $50k in available cash for upfront capital. For the 5th deal in a row, the contractor found projects that need to be done well in excess of my $50k reserves and way past my cash flow reserve for capital where I'm uncomfortable buying. 

How do people handle this? Am I being too conservative or getting unlucky? Appreciate the help everyone!

Josh

[Brie Schmidt]

@Josh Jacobson - can you give examples of things he found?  Your agent should be able to spot 95% of things before you even write an offer.  I can't remember the last time a client was blind-sighted by the inspection.  Maybe 1 out of 30 inspections comes up with something that would be a deal killer