How account for building code risk on old apartment

[Dave Clauson]

My partner and I are looking at a 100 year old apartment building. It's in a great location and under market rents. We are a lot of potential to update apartments and raise rents to market. The buildings have a good amount of deferred maintenance which we can estimate. Before we make an offer I'm trying to figure out how to size a risk. If we ever have to pull a permit for rehab we will need to bring the property up to code. That scares us on a 100 year old building as that could be huge dollars. How have you accounted for that risk? Thanks for any advice.

[Jeff B.]

RISK per se is not entered into accounting books (just for clarity here).  I think your fears are well founded however and touching anything would bring down the dogs of the City Codes.

I'm chicken when it comes to hedging bets, so I would pre-plan for a complete rehab of every system to see what the all-in cost would be.  If the numbers don't make sense then let someone else learn from the school of hard knocks.