The Building – Part III: The Endless Inspection

In the seemingly never ending interim time between the beginning and the end of the commitment letter process, the owner of the building and I finally agreed that it was time for me to do my physical inspection. It would be swinging without a net a bit for me, since I had neither the financing lined up nor the due diligence finished, but based on both the seller’s motivation and what I had seen already in the documentation I was confident that we would ultimately put something together.

So we booked the inspection. The Friday before Memorial Day, so I could take the whole day off and focus. We were set.

Before I tell you about the actual inspection, I need to give you some background on my inspector. First – he’s the best and does all of my single family home inspections.

Second – the inspections take forever because he’s so detailed. That’s why he’s the best. To put it in perspective, an inspection on a typical 1000 square foot, 3 bedroom rental usually takes between 3 – 4 hours. Sometimes longer. The great thing is, though, that he does my single family inspections without me being there, then gives me a detailed written report and a CD filled with pictures. VERY cool.

And third – he’s reasonable bordering on cheap. (This inspection was under $1,000)

And no, I won’t tell you his name. At least not yet.

To refresh your memory about the building, it’s an all brick, 2 story garden apartment building with 24 units (see the video in a prior post below). Structurally it was built as six buildings attached together, each of which has four apartment units. Each building also has two separate basements, with each basement shared by two apartments. It has separate utilities for each unit, which means that each of the 12 basements has two furnaces, two electrical panels, and two water heaters.

So – for the inspection we needed to look at the exterior walls, the roof, the inside of each unit, and the 24 sets of mechanicals in 12 different basements.

Suffice it to say that I had planned for it to be a very long day. Especially since this was my first inspection on my first building. But I was way off on my estimate of 6-7 hours.

So we meet at the building at 9am on Friday. Me, my inspector, the selling broker, and the seller. I was surprised that the seller was there, because he had complained that he wanted to get going on his long weekend. But he was there nonetheless, and he gave me the impression that he was going to escort us through each of the units. And indeed he started to.

In terms of the interiors I would say that probably 19 or 20 of the 24 units were completely uneventful. Some minor plumbing leaks, some sticking windows, some faucets with the hot and cold reversed, and a couple of non-disclosed cats. Nothing material.

The rest were interesting. One had a bathroom with a very leaky toilet, to the extent that if we had walked to the middle of the bathroom floor I’m convinced that it would have collapsed from rot and we would have fallen through to the basement. It was THAT bad. This was a 1 bedroom that had a mom, dad, a toddler, and infant all squeezed into it.

The second interesting one was that of a smoker. It was odd because it had medium brown walls and all the rest of the units were painted off-white. It was odd until I looked behind a picture on the wall. The walls once WERE white – the brown was from all the smoking with the windows closed. I had never seen it that bad before. Oh and by the way, the seller says, the tenant died two weeks ago from emphysema (big surprise there) in the hospital (thank goodness not in the apartment) – BUT the relatives are still paying rent. At least he has his priorities straight!

In another apartment, the only furniture that was in the entire 1 bedroom apartment was a bed, a sofa, and a 60 inch top of the line HDTV. Out of curiosity I asked the seller if the folks were just moving in, and he said no – they had lived there for at least six months.

And there was one apartment  that we couldn’t even get into because the tenant changed the lock. Devilishly clever.

I give the seller credit – he hung with us for almost two hours then gave the keys to us and told the selling broker to supervise. Still, it took almost 7 hours to get through the 23 units that we could get into.

And that was just the inside.

We took a break for a late lunch/dinner, then my inspector hit the roof. Normally a fairly quick inspection, it turns out that the guys that did the roof, which was only three years old, would have made great lumberjacks. Lots and lots of mistakes, including every one of the 54 pot vents installed incorrectly.

We finished the roof then it was straight into the basements. Testing every furnace (8 out of 24 were bad), all the water heaters (1 bad unit) and all of the electrical panels (four bad ones).

All in all we finished at 10pm – it took 13 hours to get through this inspection. The selling broker said it was the longest inspection that he had ever seen on a building of this size.

But for $1.1. million dollars? I think it was just right.

And do you know what? I had a blast and can’t wait for the next one. This is a great business.

 

Stay tuned for the next installment of my Apartment Quest Series: Rates are Rising – We Either Renegotiate or Kill the Deal.