I have a 4 unit under contract in Elgin, IL that just got inspected. I have some questions regarding the report as I would like additional opinions on how serious these issues may be and if it is worth proceeding with the deal:
1). There was seepage and required tuckpointing repairs noted in the basement (the basement is unfinished and used for storage / laundry / mechanical purposes) - is this something I should be seriously concerned when thinking long term and what might these issues point to?
2). Windows throughout building were drafty. There are at least 35 wood single pane windows which all appear to be in average condition, however there is evidence of caulking - How long do you typically budget a window to last before repairing? This concerns me due to the future cost to replace these windows.
3). 100k (estimated) BTU Boiler is 21 years old - said to be in good condition but I understand that this is fairly old for a boiler. Should I expect to have to replace it soon?
4). The heating system is not zoned, but there is evidence (one for each unit) that it was once zoned in each of the 4 units as there are 4 separate pipes and old thermostats in the units that are inaccessible. I don't understand why an owner would unzone the heat and I'm wondering how costly it would be to re-implement the zoning system.
*DISCLAIMER* - this is my first deal under contract and I am the least bit handy; therefore, I am expecting a lot of the inspection results to sound scary (and they do), but I also don't want to walk into a bad deal. Any help/advice is greatly appreciated. The listing is below.
Why would the boiler be $100k? Try like less than $10k.
Originally posted by @Russell Brazil :
Why would the boiler be $100k? Try like less than $10k.
Sorry for any confusion. The boiler is around 100,000 BTU.
let me see if I can help. These are just my opinions on what I would do. Seepage - is it coming from the walls or from the ground? If from the walls that’s a different issue and would need you would need to get that tuckpointing done on the outside and inside. If coming from the ground. You may need to see if the water is draining into a sump pump. From the photos I can see it looks pretty clean. Windows - I would only worry about them if they are bad. Drafty you will always come across. I would look to repair or replace them if they are a hazard. From looking at the photos it is vacant. So this would be a good time to just go around and reseal if necessary. Boiler - if in fact it is that old. I would get quotes to replace if necessary. Look to try and see about condensing units that are more efficient. Either one or many depending on how you want to manage the heating. Remember these are rentals. You want to make things easy for yourself. So you don’t have to make frequent visits to maintain it outside of the normal visits. But you already know that as you are a PM. Let me know if that helps.
I agree with what Manuel mentioned above. In addition, it looks like you have a drain in the floor of the basement. I doubt that you have a sump pump. If you do, then there were probably big water issues in the past and that was the solution at the time. It looks like all of your downspouts from your gutters drain right next to your foundation. Try to direct the water as far away from the building as possible.
The building is an old building (96 years), it appears that none of the windows will be a standard size. I wouldn't replace unless you have to. If this is in a historical district in Elgin, you will have a bigger problem replacing windows. In Elgin, I have seen people replace the windows with shorter windows and block out the gap with plywood. Not very good looking, but functional I guess.
You also don't have coin-op laundry. I'm sure the tenants have their friends over to do their laundry for free (at your expense). Plus, you can charge extra for garage space, weather it is to your tenant or not.
Lastly, you don't mention it in your post, but check the breaker box. If it has Federal Pacific Stab-Lok breakers, your insurance company will require that you replace everything ($$$). They are a fire hazard (don't ask me how I know this). There are/were a lot of these breakers in Elgin.
Brian, good addins for looking at other ways that water comes in.
The building looks good from the photos.
Not sure I like the price, but I guess it is what the market dictates.
Good luck and congrats.
Hope this adds value:
I don't think the seepage is a problem. Old buildings such as that bound to have vertical cracks in the basement and those are easy fix if that this the problem. As far as tuckpointing goes, ask your agent or someone that knows tuck pointing if that something that you need to be concern about.
Windows are tricky - is it really bad that you need to change it? if its not that bad then just leave it.
Boiler can last for a long time as long as you maintain it.
You have to account that if you unzone the heating unit that you are buying 4 separate units not to mention the cost to do it and will increase your capex. The easiest way is to add the heat cost to the rent.
I understand buying your first deal is scary and there's a lot of unknown but hopefully you have a good agent that knows what they're doing and trust them. It doesn't matter if the building is a new rehab. The inspector will still find something that you might have a concern about.
I wouldn't worry too much about the seepage especially if the inspector is just recommending tuckpointing. The inspector puts that in there to protect himself. They also need to find something wrong with the property.
The building looks like a beautiful first deal to have under contract. The rents look good and if they are under market value(I am not familiar with Elgin) the vacant units should be easy to start your leases with the market rent you should be getting.
Windows - I wouldn't replace until you need to.
Boiler - just get it serviced and you would be surprised how long they can last
I am with you, not very handy. I can paint a room if I wanted to but I generally find it best to outsource maintenance and repairs especially if you find the right contractors. If you are working with a good agent I am sure he/she would have contacts for you.
Congrats on your first deal! Welcome to the club!
Hi @Lee Stephens , Congratulations on getting the first deal under contract, that’s awesome! From the looks of the pictures and price to rent ratio, it sounds like a great deal for the area. That should very conservatively exceed the 1% rule, which can be difficult to even meet in the Chicago suburbs.
No deal is 100% perfect, and everything sounds scary on the first one. I just completed my first purchase about 6 months ago in Berwyn. I ended up purchasing ‘as is’ so as you can imagine I was pretty nervous getting into closing and I had not really done a lot of work on houses before I moved in. You’ll find a lot of things are surprisingly easy with youtube, helpful folks at the hardware store, and BP.
- 1- For seepage- leaks are not uncommon but I would rely on those more experienced around you, especially if you went to see the property with someone else, get their perspective if you are unsure
- 2- Drafty windows are not uncommon in the area either, especially with older houses. Replacing that many windows can add up but from the pictures they look to be in pretty good condition so I think you would be able to leave them alone. Other options may be to restore/refinish the windows which I have a friend doing now and it works surprisingly well for old windows or there are also simple draft stoppers and shrink film that can be purchased relatively cheap from your local hardware store.
- 3- Boiler is a bit old but if it functions properly you may have a few more years left in it. Knowing the age of the boiler means you can budget for it going in and it won’t really be a surprise later.
- 4- Really interesting that it would have been unzoned…You could either calculate the heating into your numbers initially as one of the costs you pay as a landlord or you may be able to divide costs evenly over the tenants as long as you are clear with them that this is the case. I am not sure what the costs would be to separate everything back out but as you get into the house you could get a few estimates on what that would cost, and you may find that there is a good potential ROI there.
I looked at a lot of deals before I bought and I can say overall it looks great for the area. The first deal is mainly about learning, I can tell you that I have learned so much over the last few months and guarantee you will too. Super lucky that you found a 4-flat that beats the 1% rule in that area!
You said this is your first deal. I can tell you that this property is in WAY better condition than the condition of my first property. Every property has problems and things that can be fixed or improved. This property looks clean and nothing you mentioned was a deal breaker to me. From the pictures it seems that you can rent it out tomorrow (although maybe not at the top of the market). I think you need to ask yourself some questions.
How many 4 unit properties are currently on the market with a new boiler, all new windows, and a perma-sealed basement for $400k?
How much cash are you risking to gain control of this asset and it's $4,000 monthly revenue stream?
How much do you REALL NEED to spend to make this asset perform?
Where else are you going to put your cash to generate a return or hedge against inflation?
If this first deal of yours is the all popular, FHA, 4-unit house hack, I would advise you to jump in. You can't make a better decision on a first property purchase than that. I myself bought a 3-unit, on an FHA loan, 3.5% down, house hacked, and it was a game changer for me. Taking control of your first real estate asset will most likely be game changing for you too.
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