Apartment Inspections: A Tip to Protect Your A$$et

Anyone can become an apartment owner. I have a building that you can buy today! Poof! You’re an apartment owner! What you don’t know is that it has a cracked foundation, a infestation of “recreational pharmacists” and generations of bedbugs.

As the multifamily market becomes more competitive, it is more important than ever to NOT overpay and buy RIGHT. Just as adding a small amount of value to each unit can create large positive changes, overpaying by even $10,000 can add up to an unhappy number. Having a thorough due diligence process is KEY to making an offer that makes sense.

In this post, I want to give you an example of how missing small items on diligence can be costly.

Here’s the tragic tale: Let’s call this investor John. John does a lot of the diligence prior to coming to the property, engages a property management team and enlists tradespeople to walk the units with him upon his site inspection. He dismisses the idea of scoping the sewer lines with a camera because he thinks it’s not worth the cost, the plumbing seems to be working fine.

John saves $1,000 by not scoping the lines. In his repositioning effort, one of the first things he does is repave the eyesore of a driveway. He puts in plantings and improves lighting to improve the current tenants outdoor space as well as show prospective tenants that the new owner cares about improving the property.

Then he gets the call. The sewer line has collapsed due to roots that have been slowly penetrating the underground pipe – where is this pipe?

You know. Under the new driveway. Costs to dig up, replace piping and restore the concrete/pavement will likely fall between 10 and 20 thousand dollars.

Scoping the lines may take several thousand dollars depending on the location, size and age of the property. I’m not saying it’s NOT an investment, but I will say that it’s a smart one. If John had invested in the pipe-scoping process, he could have gone back to the previous owner and perhaps even have gotten a retrade (a discount) on the purchase price. Now he’s out the cost of the driveway, the plumbing work, and his time table for other projects on the property are immediately impacted.

We have multiple examples of clients of ours that have paid for the line scope, saved the pictures, and with that evidence successfully received a credit at closing for future repairs. It is tough for a seller to argue when you have those images and a certified professional indicated that the work is needed. This is a closing cost that we will never allow our clients to skip over.

A gruesome example, I know. But this is what can happen if you don’t have a tried and true diligence plan in place. One of the things that we provide for our private clients is to act as a backstop. We want to mitigate your risk, from both the purchase and investor perspective.