Multiunit Bld - 100 years Old - Diligence Required

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Multiunit Bld - 100 years Old - Diligence Required

Tushar Shah
Chicago, IL · Member since 2017 · 96 posts · 12 votes

Hello BP Members, 

I am under a contract for a 8 unit building came on MLS few days back and was hoping to get your opinion on few technical/diligence things given the communities vast experience in investing in multifamily space.

  1. 1) The building currently has one common boiler and furnace that supports 6 units. There is then another boiler and furnace that supports the other 2 other units. As such, Owner pays for electric and gas along with water/sewage. Is it common to have fewer boilers/furnace supporting entire building or one always prefers to have a separate boiler and furnace for each unit?
    1. From maintenance/investor perspective – Isn’t it better to have fewer boilers and furnaces – less maintenance expense? Main question I have is what are the disadvantages of having common boiler and furnace. 
    2. The two boilers and furnaces are old ( 8 years old) but functional – How does one go about inspecting the estimated useful lives for these? The normal inspection we do only takes serial number and tell us when it was manufactured. It does not go into any additional checks/inspection. Do investors recommend getting a boiler company and HVAC guy do a thorough/detailed inspection in addition to the normal inspection?
  1. 2) How does one typically get comfortable with plumbing and electric for building which is 100 years old? The inspection again will just do a high level inspection and nothing too detailed. This building is 100 year old and don’t think any upgrades are done on plumbing and electric. However, at the same time everything is functional, very less maintenance expense and tenants are happy staying in the building.
  1. 3) The listing says the building has 1) new roof, 2) new rear staircase, 3) new vinyl windows and 4) new glass block windows. Are there any other major capital expenditure items I should worry about for multi families? 
  2. The main issues I see with this building is old boiler and furnace – but am curious to see if there are other items that may concern you.

Always looking forward to educate myself and learning from the community. 

Thanks in advance for the responses. 

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Kathy Henley
Rental Property Investor · St. Louis, MO · Member since 2014 · 741 posts · 424 votes
5y

@Tushar Shah Your general inspection report is that, 'general'. Additional inspectors dedicated to the boiler and HVAC will give you valuable information. Your inspection phase is to understand the health of the building and help you estimate the reserves that you will need in the near future. Ignore NOTHING in an old building, cash flow can be non-existent with constant repair requests from your tenants. Drains and water supply lines are costly to replace (and hard to replace when a unit is occupied.) Sewer lines, power drop, electric control panels ($$$). Any item that your general inspector says that more info is needed, hire a contractor with expertise in that topic (like a roofer or electrician). Remaining service life can be estimated by expert. Pay for their expertise. We ignored the warning of a failing window that ended up costing over $30K to repair because the entire wall was in danger of failing due to water intrusion. 

Then ask, is there anything that you can expect from your geographic area to expect in future expenses - like wet basements, recent building code upgrades, or upcoming community infrastructure repairs that will be paid for through property tax assessments?

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  • Kathy Henley
    Rental Property Investor · St. Louis, MO · Member since 2014 · 741 posts · 424 votes
    5y

    @Tushar Shah Your general inspection report is that, 'general'. Additional inspectors dedicated to the boiler and HVAC will give you valuable information. Your inspection phase is to understand the health of the building and help you estimate the reserves that you will need in the near future. Ignore NOTHING in an old building, cash flow can be non-existent with constant repair requests from your tenants. Drains and water supply lines are costly to replace (and hard to replace when a unit is occupied.) Sewer lines, power drop, electric control panels ($$$). Any item that your general inspector says that more info is needed, hire a contractor with expertise in that topic (like a roofer or electrician). Remaining service life can be estimated by expert. Pay for their expertise. We ignored the warning of a failing window that ended up costing over $30K to repair because the entire wall was in danger of failing due to water intrusion. 

    Then ask, is there anything that you can expect from your geographic area to expect in future expenses - like wet basements, recent building code upgrades, or upcoming community infrastructure repairs that will be paid for through property tax assessments?

    2Reply
  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    5y
    Originally posted by @Kathy Henley:

    @Tushar Shah Your general inspection report is that, 'general'. Additional inspectors dedicated to the boiler and HVAC will give you valuable information. Your inspection phase is to understand the health of the building and help you estimate the reserves that you will need in the near future. Ignore NOTHING in an old building, cash flow can be non-existent with constant repair requests from your tenants. Drains and water supply lines are costly to replace (and hard to replace when a unit is occupied.) Sewer lines, power drop, electric control panels ($$$). Any item that your general inspector says that more info is needed, hire a contractor with expertise in that topic (like a roofer or electrician). Remaining service life can be estimated by expert. Pay for their expertise. We ignored the warning of a failing window that ended up costing over $30K to repair because the entire wall was in danger of failing due to water intrusion. 

    Then ask, is there anything that you can expect from your geographic area to expect in future expenses - like wet basements, recent building code upgrades, or upcoming community infrastructure repairs that will be paid for through property tax assessments?

     Fantastic advice throughout this post. I would be sure to get that sewer scoped to see how much life it has left. An unexpected sewer main repair can be a huge bill.

    1Reply
  • Russell W.
    Rental Property Investor · IL · Member since 2015 · 165 posts · 107 votes
    5y

    There may be some confusion on your end as to what the systems are. You say there is one common boiler and furnace (one set for 6, another set for 2). When I see "boiler" I read that as radiant heat, whether that be hot water or steam. Did you mean there is one hot water heater and one furnace? Or are there actually two different heating systems in the building (radiant heat and forced air)? If the latter, that complicates things. To try to answer your questions:

    1a. Yes, there is less maintenance by having one common system. The disadvantage of course is that you're paying for the utilities, and tenants are unable to individually control temperature in their unit.

    1b. An 8 year old boiler is not old by any means. A good boiler can last 25-30 years or more (when properly maintained). Still advisable to have a HVAC tech (who is familiar with hot water/steam systems) to do an inspection. 

    2. I also have buildings 100+ years old and can speak from experience. Find a way to look behind the walls, or from the basement, to determine the type/condition of the plumbing. Unless it has been retrofitted recently you certainly have galvanized plumbing. At some time in the future plan on replacing the galvanized with copper or PEX piping, as galvanized is notorious for corroding/leaking/plugging up. If it's a steam boiler then you likely have cast iron pipes, which also corrode over time. Just things to keep in mind.

    3. Looks like they took care of the major ones with the roof and windows. If the building is brick, inspect the condition of the mortar joints. Tuckpointing is another major capital expenditure. 

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  • Tushar Shah
    OP
    Chicago, IL · Member since 2017 · 96 posts · 12 votes
    5y
    Originally posted by @Kathy Henley:

    @Tushar Shah Your general inspection report is that, 'general'. Additional inspectors dedicated to the boiler and HVAC will give you valuable information. Your inspection phase is to understand the health of the building and help you estimate the reserves that you will need in the near future. Ignore NOTHING in an old building, cash flow can be non-existent with constant repair requests from your tenants. Drains and water supply lines are costly to replace (and hard to replace when a unit is occupied.) Sewer lines, power drop, electric control panels ($$$). Any item that your general inspector says that more info is needed, hire a contractor with expertise in that topic (like a roofer or electrician). Remaining service life can be estimated by expert. Pay for their expertise. We ignored the warning of a failing window that ended up costing over $30K to repair because the entire wall was in danger of failing due to water intrusion. 

    Then ask, is there anything that you can expect from your geographic area to expect in future expenses - like wet basements, recent building code upgrades, or upcoming community infrastructure repairs that will be paid for through property tax assessments? 



    Thanks Kathy, this information is very helpful. I plan on performing a thorough inspection in addition to the general inspection. Based on my past experience, a general inspection report in almost every inspection item suggest to perform a detailed inspection by a qualified contractor/professional to safe guard themselves. So sometimes its difficult to get comfortable with few items.


    You mention that "Drains and water supply lines are costly to replace" - How does one inspect this? Would you suggest hiring a plumber in addition to general inspector? . Same question for Sewer lines - based on my experience, a general inspection report is typically silent on anything related to sewers and though Sewer lines are responsibility of the city (perhaps not). Who does one hire for this inspection? Other items such as power drop/electrical control panels will be inspected by electrical. Would be helpful to know how you get comfortable with these items in your purchases (especially for older houses). 


    The house does have gutters and didn't see any foundation issues, but will inquire more about the wet basements. Good point on recent building codes - have posted that question to my agent. You mention - "upcoming community infrastructure repairs that will be paid for through property tax assessments" - Again how does one inquire this? I asked my agent and he has no idea. 

    Thanks once again for detailed information. Really appreciate it. 



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  • Tushar Shah
    OP
    Chicago, IL · Member since 2017 · 96 posts · 12 votes
    5y

    @Taylor L. Hello Taylor, Thank you for the response. Should be provide more light on how does one scope to see how much life is left in the sewer? You suggest hiring a professional sewer company for this?

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    5y
    Originally posted by @Tushar Shah:

    @Taylor L. Hello Taylor, Thank you for the response. Should be provide more light on how does one scope to see how much life is left in the sewer? You suggest hiring a professional sewer company for this?

    Yes, this is something you'd hire out. 

    0Reply
  • Tushar Shah
    OP
    Chicago, IL · Member since 2017 · 96 posts · 12 votes
    5y

    @Russell W. Thanks Russell for detailed response. Yes, by boiler I meant hot water heater. So one hot water heater and one furnace for the 6 units. Electric for each unit is separate with 8 separate meters. Few additional questions related to this:

    1) Does one run into issues related to capacity of hot water by having a common hot water heater- where one resident uses more hot water than other and another resident running out of hot water? Not sure if this is something you have experienced in your multi family buildings?

    2) What is the protocol for maintenance for these items - maintenance done twice a year, once a year or one in two years? Online research recommends performing maintenance atleast twice a year for a hot water heater. Not sure what maintenance expectation i should be looking for these older houses. 

    3) Good to get your opinion on galvanized plumbing. Wouldn't it be an extremely expensive affair to replace entire building's plumbing with copper and/or PEX piping? If one finds out the building had galvanized plumbing - would you negotiate the price to factor in the expense related to replacing copper/PEX piping? 

    4) Also, i am not sure if the building has steam hot water heaters - I will find out more and keep in mind your point regarding the cast iron pipes. 

    5) Excellent point on mortar joints. The building i am looking at is a brick building. Who does the inspection for Mortar joints - is it the general inspector or does one need to hire a professional for this?

    Thanks once again for detailed information. Very very helpful. 

    0Reply
  • Russell W.
    Rental Property Investor · IL · Member since 2015 · 165 posts · 107 votes
    5y

    @Tushar Shah I didn't realize that you were from Chicago when I initially read your post; I'm sure you run into a lot of the same issues many investors do here as well. I will say it is a quite unusual that there is one common furnace for 6 units. This exacerbates the problem mentioned before regarding individual unit control, as well as raises an issue of where the return air is ducted from (i.e. if there is a smoker or otherwise unpleasant smell, that will get circulated through all units).

    1. I don't have experience with common hot water, so I could only provide a guess. I suggest finding out the capacity in gallons and the heat output measured in BTU's, and do some research to find out if it's sufficient. You could even ask tenants of their experience to get a undoubtedly honest review.

    2. There isn't much in the way of maintenance for a hot water heater, other than two things: 1. making sure the thermostat is set at the middle heat setting (usually noted by A, B and C, with C being the hottest). Perpetually leaving a HWH at the highest temperature setting shortens the life span. The other maintenance item would be to drain the tank once a year to remove any sediment that gathers at the bottom. Both of these are things anyone can do without the help of a professional.

    3. Yes it would definitely be extremely expensive to retrofit a building that size with new plumbing, even more so here in Chicago because code does not allow PEX, only copper. I would definitely use it as a negotiating tool if found during inspection. Happy to refer a plumber that changed out my old galvanized for copper in one of my buildings, just PM me.

    4. The cast iron pipes are a non-issue, those would only be relevant if you had radiant heat boilers, which you already mentioned is not the case. 

    5. Typical general inspector should be knowledgeable enough to provide insight into the condition of the tuckpointing. In my opinion you don't need to hire a specialist for this. If the inspector says there are some issues it may be worthwhile to have a mason provide you a quote to further leverage your negotiation.

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