Unit Inspection question

23 Replies

Ok guys (and gals), I need some help.  I'm purchasing (2) 16-unit, identical properties in Oklahoma, and I'm trying to schedule inspections.  One was built in 2008 and the other in 2011.  I know that every unit needs to be inspected by someone, whether it's me, my partners, a contractor, etc.?  Is it common practice among investors or investment groups, however, to pay a licensed inspector to check each and every unit, or just a few in each building?  Thanks.

I would have a licensed inspector inspect the entire complex.  I'm assuming you are not getting financing?

Actually, Dylan, I am financing 80% through a lender.  Will they require all units be inspected?  This is my first multifamily purchase, so we haven’t made it to that stage yet. 

If I was in your situation I will definitely go in person with a contractor that I trust only after calculating and making sure all the numbers make sense, you probably already know that the value on the mutli is calculated by it's operating income. 

Yeah Cesar, we’ve  already analyzed all the numbers thoroughly, which is why we offered and are now under contract.  We’re making a site visit next Friday (2/16), and I’m trying to coordinate the inspector.  We’re just trying to determine how many units we’re going to have him evaluate.  My partners and I are checking all 32 of them, though.

Im not absolutely sure if it is required per say, however we have always got the entire property inspected.  Granted I have never purchased anything above a 4 plex, so maybe someone will chime in here that has purchased larger multi-families.  However I would recommend that you get a 3rd parties documentation of the condition, livability, soundness, and structural integrity of the units.  This can be used as a bargaining chip if there is anything wrong with some of the units. 

Where are these units at in Oklahoma?  Will you be using a property manager?

Oh I see William,  If you already made an offer and you are under contract now, then probably you already know how the property was managed in the pass which means that you already know how the property was taken care off so you have have an idea of what needs to be done in the units, so If I'm hiring an inspector I don't think I would waste my money going one by one, instead I will only go to the units that are vacant to figure out why are they vacant and what needs to be done to have them rent, and will also pick a few random units occupied where the tenants had been living there the longest usually these ones are the the ones that need more updates and fixes, what you definitely wanna use the inspector for is to check the exterior if there is any structural problems, exterior repaira, pipes, potential hazards that might need to be corrected, etc. You described that the buildings are relative new so you probably wont have these kind of problems but I will just do it to be sure you never know if you will find a flaw in the design.

These are just my opinions, I haven't purchased a multi unit yet, but it's one of my goals to purchase one in the future, all the advices that I gave you are based on previous podcast of landlords that have multi and books that I have read.

I had done some work under a few of big multy family companies here in Oklahoma and I advice you to create a good property management team, most of them in Oklahoma are terrible.

Good luck with your new project and let us know how it goes.

Hello @William Goolsby . I managed a 4 unit dwelling in Detroit, MI. As soon as we took over management, my partners and I looked over each unit, basement, backyard and garage. We also took pictures of the front steps which needed to be repaired. 

I think its very important for someone to inspect each unit of your dwelling. It doesn't matter who it is. The inspections shouldn't take any longer than 20 minutes. You can also talk to the tenants about issues they may be having.  

@William Goolsby

On our first deal, we hired a property inspector to go through every unit.

We have followed the same model in all of our purchases, and we pay a per unit cost for the report. As we have grown, we now bring our managers and cap ex team along with other contractors to the inspection.  

You want pics of every single problem, so you can go back and ask for a repair credit.  A picture is worth a thousand words.

Gino

Thanks @Dylan B. , I appreciate your opinion. The properties are in Lawton, close to Cameron University.  And yes, I already have a good PM team lined up.

@Cesar Egas , thank you for your insight.

@Joseph Abbott , thank you, and I agree with you that it’s very important to check out all units by someone.  And hopefully, some of the tenants will be there when we visit to meet them and discuss any issues (and ask about their lease and security deposit). 

Hey @Gino Barbaro , thank you for responding.  OK, since you believe all units need to be evaluated by a licensed inspector, what would you or could I expect to pay per unit to do this?  The guy I’m talking to in Lawton wants $250/unit, and he says it will take about 2 hours to check each unit.  He must be very thorough, but it seems high to me, since each unit is only around 1,000 sq. ft.  What do you guys pay?

@William Goolsby

He's not the guy for you. He should take 4-5 hours for total inspection.  Shop for more guys.

The average home inspection is 500 so how is he charging 250 per unit?

I promise you, negotiate and get other prices. We got the same crap on our first deal.  We found our current inspector from searching during our first deal

Thanks, @Gino Barbaro .  I'll definitely check around more.  What he told me is that when he has inspected apartment units previously, he has checked all of the electrical, including all the outlets, pulls the breaker box, checks every aspect of plumbing, heating, air conditioning, attics, roof, foundation, ventilation, shelves, cabinets, appliances, etc.; basically, everything for your typical home inspection.  So you believe to check 32 units (16 in each building, one block away from each other- total of 33,000 sq. ft.) should only take 4-5 hours total?  Do you have your guy(s) check all of that in each unit, or do you have them just check a few key thingsWhat do you think the ballpark range should be for the 32 units?  Sorry for all of the questions, but I appreciate you.

@William Goolsby

Hi William

He may take 6-8 hours on site with the inspection and then a few hours compiling a report with pics.  Our guy checks everything in the units and the exteriors.

It depends on your market as far as cost, but 8,000 seems pretty steep to me.  Interview other inspectors in your market and ask them how long it would take and what they would charge

We rarely use home inspectors but inspect all units with our plumber and electrician.  If necessary we pay additionally for a structural engineer to have a look.  

Thank you, @Deborah Burian , I appreciate your input and advice.  What do you typically pay your plumber and electrician to provide that service?  We have 32 units to inspect.

We pay them by the hour.  We did a 10 unit a few years ago and it took each of them a couple of hours.  Nothing too tragic.

Inspectors always frustrate me.  If you read their disclaimer, it states that they can only visually observe what is.  So if there is a drippy faucet, they note, "drippy faucet, have professional inspect".  REALLY?

How much would your plumber charge once you own the building to go unit to unit to inspect and repair any drips?

There is tremendous value in having a trained eye go through the property, but I think for my future purchases I will take my experienced property manager who is a pro at turning units with a good plumber, electrician, HVAC & roofing contractor to walk the property with me.  These are the professionals who can assess my cap x needs.  Cap x are the numbers that will ruin your cash flow.  Your buildings are fairly new, so plumbing & electrical should be in good shape.  

Good luck.

Thank you, @Darrin Gross , I appreciate your thoughts on this.  You make some good points, and it gives me more to consider as I make my determination for this Friday.

Who do you have for PM? We use P&B in Lawton for SFH and 4-plex. Love them, but larger units isn't their specialty. Curious where your units are in Lawton. All of our stuff is on the east side...best of luck

Hey @John Plumstead , thanks for chiming in.  I sent you a PM as well.  The PM Co. I’ll be using is a group out of OKC called Real Property Management Enterprises.  They seem to be very knowledgeable and experienced, and I’m looking forward to the relationship with them.  They also manage another 72-Unit property there in Lawton.

Just to give u a price point on inspection quotes - we got a quote of ~$3500 on 106-unit inspection in Dallas. Inspection company was going to use 8-inspectors to get all units inspection done on the same day.

We always get all units inspected to know the repairs/re-model costs. This also gives another chance to negotiate with Sellers

There are pro's and con's to using licensed inspectors vs contractors to walk and "inspect" units. Either way all units should be accessed during due diligence. On a small transaction say <40 units it may make sense to have a licensed inspector inspect units and also the exteriors/roofing/plumbing/electrical/foundation/etc. The con's of using licensed inspectors are that they are not going to give you cost estimates which is why I prefer using contractors. On larger deals 60+ unit I have never used a licensed inspector - only contractors that will walk all the units with me and the synidation mgmt team. Contractors I know may charge say $50 per unit and spend 5-10 min in each unit looking at over 100 different items inside each unit. In my experience to do a SF style inspection is not required for walking units. 

Hello @Vic Reddy , and Wow!  That's an incredible quote for 106 units!  It's only $33 per unit.  I definitely haven't found that, but I certainly need to call them when I get a Dallas area property under contract.  I agree that it's vital to inspect all units to know what needs to be repaired and/or what capital expenses may need to be budgeted.  Thank you for your information and input.

Hey @Brad Sumrok , I appreciate you giving your breakdown of what may be needed for inspection and giving a general cost of doing it.  I believe going forward, there's a good chance I will get contractors involved vs. inspectors, for the very reason you mentioned of getting cost estimates for repairs or changes.  Thanks again.  

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