Confidence that there are no major capex "Gotchas" when buying a MF?

[Stephen Anthony]

Hi all. I am currently looking to purchase my first multifamily property (locally), preferably in the 8-20 unit range. I negotiated on a 16-plex about this time last year, but the owner wasn't willing to budge much. I've been researching this for a good year and a half now, it's time to get in the game.

I'm confident in my ability to perform a thorough analysis of the numbers, including viewing the sellers numbers with a great deal of skepticism, conservatively estimating more accurate expenses, and evaluating potential rents for the area.

What I'm finding is making me hesitant each time I walk through a property is the potential replacements/fixes/rehabs that might need to be done that I'm not seeing - the capital expenditure "gotchas" if you will. I've learned one-offs here and there to watch out for - i.e., have a camera run on the sewer line, that's a $10k-$30k repair if bad.

But there's so many potential pitfalls... So my question really is, where do you get the confidence that you're covered for the vast majority of potential issues? If the inspector doesn't find anything before closing you're fine? Have a general contractor evaluate the property top to bottom and give any estimates? Go through a comprehensive checklist of everything to look for and potential costs? (e.g. check the age on each furnace, and expect to replace them for $XX dollars when they are 15 years old?)

[Victoria Winters]

Hi Stephen,

All real property comes with unknown potential problems, even after you've check for the obvious ones.  Every one is 100% certain that repairs and maintenance will be required on every property.  Check the best you can, set aside a reasonable amount of money in reserve for maintenance and go forward with your plans.

Start with a property that makes you comfortable.  There is no rule about what to buy, that is up to you.  Undoubtedly you will encounter situations along the way and that is all a part of the process.  It truly is wonderful becoming an investor.

[Joe Fairless]

@Stephen Anthony Yes, it's about having a detailed due diligence checklist and, in addition to that, it is knowing the type of property you're investing in and what is typical cap ex for it. 

So, I would use your detailed list and then, prior to closing, speak to local investors and mgmt companies about the expenses that they've come across with similar properties. Also, speak to a former mgmt company of the property and ask them about expenses on the property. 

Lastly, have an insurance contact come to property and review. They find stuff others don't - from cheap stuff like painting depth on pool to expensive stuff like bringing up circuit boards to standards.

Between those four approaches, you should mitigate most surprises although there will always be something.