Would you make an offer on this property or pass?

Question

So I am looking at buying a 10 unit apartment building built in the 1970s about 6500sf. Each unit has one bathroom. There appear to be 4 stacks in the roof. I was informed it has cast iron plumbing throughout and to main line. There are bellies in the main line but no leaks. The seller disclosed this info so I have not had a chance to confirm this as I am not sure I want to go through with it or not and waste money on inspections to find out it will cost more than I think the building is worth.

Also, the units have artex ceilings which I heard likely will have asbestos in them. The building is at a reasonable price and cash flows and has a decent cap rate for the area at the moment not including the repairs.

Could anyone who had to replumb main line and replace unit plumbing give me a very rough estimate of the cost what potential issues we may encounter.

Also, what would you do with the artex ceilings. Would you leave them alone? Remove and if so about what would that cost? Can you modernize w/o removing?

If it is somewhat priced lower would you still go in much lower? Would you just not move forward? Thanks!

Bruce Woodruff · Answer

You generally will not have to replace ALL cast iron, the vertical lines and vent pipes do not get the same wear as horizontal and underground. So just get a bid on replacing the main line from edge of building to City line in street. And as @Frank Pyle said, just encapsulate the ceiling.

That should help your numbers quite a bit...but if you decide to (or have to) go the full replacement route, then I'm with @Patricia Steiner.....run like hell....!

Bill B. · Answer

If this isn’t a deal only you know about, keep in mind that people who have more experience and know more about dealing with it have passed. Ask them/yourself why.

I’d pass mostly because of the unit size, the age along with iron and asbestos are just kickers.  You should put your location in your profile so local experts can chime in. (If the property isn’t in your home location put that in your post as well.). People will need to know if the exterior is brick, if the roof is flat, what the parking looks like, if there’s any vacant land included, what the windows/insulation situation is like if the area gets cold, etc etc.

Frank Pyle · Answer

I would not pass yet but I would price it like you are going to replace the main line and a chunk of the cast iron so you do not get surprised later. On a 10 unit from the 70s with bellies in the main you are probably looking at 20k to 40k for a new main depending on access and depth, and if you end up repiping units over time that can run 5k to 10k per unit if walls are open and finishes are basic. If the deal only cash flows because you are ignoring that, it is not really cash flowing. Quick check, if the cap rate looks good today but you have to drop 100k over the next few years, what does that do to your return and reserves and are you still above a 1.2 DSCR after realistic maintenance. On the artex ceilings, if they are not damaged I usually leave them alone and encapsulate with paint since full asbestos abatement can get expensive fast and usually does not push rents much in older workforce housing.

If you want, send me the price, rents, and your repair assumptions and I can run a quick stress test on it. That is exactly the kind of underwriting we help with at Investors Edge Concierge before you spend money on inspections.

Drew Sygit · Answer

Nake an offer you're embarrassed to present!

Romina Gonzalez · Answer

Really helpful thread! It sounds like the plumbing and ceiling costs alone could swing the numbers significantly. Has anyone looked at what rents could realistically look like after all the work is done?

Patricia Steiner · Answer

Pass...the pipes are bulging and the building has asbestos?  The locusts are circling.  This:

"Repiping a 10-unit apartment building with cast iron pipes is a major project likely costing between $150,000 and $400,000+, roughly estimated at $15,000–$40,000+ per unit, depending on accessibility, wall destruction, and replacement material (PVC or PEX). Total costs often reach $125–$200 per linear foot for cast iron replacement due to high labor for dismantling old pipes." (Source: All Plumbing Company).

That doesn't include wall, ceiling, floor repair.  And, guess what else:  the tenants can't stay during it.  So great expense - no income, fun, huh?

Then asbestos removal: that's quoted at up to $160k (google this if you're not shocked and awed already).  And, like the piping, it cannot be tenant occupied - and it does not include the reinstall cost of a new ceiling.

If you have ever experienced a bursting cast iron plumbing pipe, you know that it provides even more fun for all.

A good deal isn't a good deal when the bones are good.  I not only hope you pass on the deal but BOLT.  You can't make this a cheap date.

Would you make an offer on this property or pass?

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