Alleged Meth lab, should we be overly concerned?

[Mike Montana]

We have been analyzing 30 to 150 unit opportunity in Indiana, Ohio and Kentucky for almost nine months. Made a few offers but the market is competitive. We found a 50 unit (4 building) property in a tertiary market of southern Indiana. We like the city as it has good population and job growth with a variety of employers. It really seems like a good property with solid cash flow out of the gate and good value add opportunities we have run the underwriting very conservatively and are comfortable with the ROI. This property has been on and off the market for a couple years and just as we were prepared to write up and LOI today we learn from a very trusted source that a couple years back there was a meth lab in the property. We are obviously working to validate this with local town officials and law enforcement but this brings me to the question. Can anyone advise us on how the remediation process works on a building that has been used in this manner? What types of things do we look for in due diligence to assure the remediation was done and done right? Is this somethings one should run from? After all we are in the as a value add investor we’re in the business of fixing problems. Any advise would be appreciated. Thanks in advance.

[William Hochstedler]

@Mike Montana

You can test for meth just like mold, lead, and radon.  Call around to home inspectors to find someone who will do this for you.  It may get expensive if you want to test every unit.

There may be state law regarding remediation and disclosure requirements.

The local health department should also have information.  Be careful when talking to officials (including the police) because there may be mandatory reporting requirements which would make everyone's life more difficult.

If the sellers haven't tested, I don't know how much help they'll be because you'd be asking them to speculate.  The facts are it either tests positive for meth or it doesn't.

Remediation for a single unit shouldn't cost that much.  It's typically a chemical process that will peel paint but, unlike mold, doesn't require removal of sheetrock.  We do single family houses out here in Utah for under $5K.

Good luck.