I have a 64 unit apartment complex under contract here in Colorado, and we are wrapping up our due diligence. In our unit walkthrough we determined that all the unit panels are Zinsco's, probably original to the property (built in 1968). These panels are outdated and will likely affect our ability to get insurance, and thus a loan, on the property. We are planning to replace them either way (estimated cost of $50k total), but I'm wondering if we should go back to the seller and ask for a credit?
A bit of background, this property is under contract for $7.55 million, and has good bones with new roofs and a new pool system. The interiors of most units will need to be rehabbed, and we anticipated initial rehab costs in the $300,000 range. I don't want to retrade the deal, but this is also a life safety concern that probably will need to be dealt with whether we close or not.
What are your thoughts?
I think if you have an insurance company advise that it needs to be changed in order to insure it you have better negotiation stand point. I have seen re-negotiations work, and not work. In Denver I would imagine that would be tough considering how hot the market is...depending on how educated the Seller is. I would probably try for the funds, but be prepared to close with out the help.
@Sam Rust your insurance cost will be higher given those panels. I run into this about once a month with clients.
This is usually how it goes,
I tell the client it will cost $20k for the property if it was updated, but $30k-$35k with those panels.
Buyer goes back to the seller and states they need to renegotiate.
Seller doesn't believe and says "talk to my insurance company as they are charging less than that"
Buyer calls sellers insurance agent and the agent states "yeah, this is a grandfathered policy and we if have to issue a new policy for a new owner, it will be about $35k"
Seller then either cancels deal or negotiates down.
As @Matt Popilek states, if the seller has multiple options, it will be more challenging to get them to adjust down.
Good luck with it.
@Jason Bott , we plan to replace the panels wholesale once we own the complex. Is it possible to obtain a policy that will rachet down once we complete the work, or provide a short term exemption if we escrow the funds to replace the panels immediately?
@Sam Rust yes, there is a way to do it. I'm actually doing that right now with properties in OH and NE.
I'll PM you the process.