You’re good with your hands, you buy a small building for less than market value, make some renovations to bring it into the modern world and then sell it for greater than market value. A great way to make money, indeed – that is, until you hit snags because you forewent the commercial property inspection process.
If you’ve been thinking seriously about investing in single apartment buildings, or perhaps an entire group, the inspection process is mandatory to protect your financial interests. Make sure these areas appear somewhere on your checklist, not necessarily in this order:
#1: Spend Time at the Property
There is much to be experienced and found out by spending time in and around the building. You’ll discover what the tenants are like; how the parking works in terms of availabilities and peak hours; what the surrounding area looks like in terms of activity and people, at different times. It’s important to check the property out at different times of the day in order to get a better feel for how it operates; some examples of questions to keep in mind include:
- Is the HVAC running after normal business hours or on weekends when it’s not supposed to?
- Is the building locked after normal hours or is the security for the building adequate?
- Is the lighting for the parking structure and around the property adequate?
- If so, does it stay on 24/7 or does it operate at minimum standards after a certain hour?
- Do tenants have predetermined parking spaces, or should you expect to define them yourself?
If too much detail is necessary, selecting a professional building inspector may be a worthy investment. Although perhaps not as enthralling as choosing the stain for your refinished wood floors, it’s far more important.
#2: Inspect HVAC
Take time to discover any possible issues that could be occurring in and around the building such as: leakage from pipes, HVAC ducting, plumbing; cracks in the roofing, concrete, structure, glass; staining on carpeting, ceiling tiles, concrete; odors in and around common areas that could indicate the presence of mold, mildew; petroleum odor near the elevators, which could indicate leaking hydraulic fluid and any other peculiar smells that could indicate potential problems with the building.
If anything specific to HVAC is necessary, you can find many products online and offline – Lowe’s has commercial contractor supplies, WholesaleBolts.com has your nuts, bolts and self-tapping screws for concrete fastening, and companies that provide geothermal commercial units can be found online, too.
When temperatures drop to freezing, many people experience frozen pipes in their homes. Furthermore, a cracked pipe can lose up to 250 gallons of water each day causing several problems including flooding, structural damage and mold growth. Fortunately, there are many things you can do to prevent these disasters – the most important step towards intervention being a full HVAC inspection prior to purchasing the building.
#3: Study the building’s foot traffic
You may be surprised at the different foot traffic that goes through the building. If the building is located in a major metropolitan area, you may get some vagrants coming in the building when it first opens, using the restrooms to clean up. If located near a school, you may get kids cutting through the parking structure or garage looking for a car with valuables in it.
The point is that you want to be aware of what is going on in and around the building at different times of the day in case there is a potential problem that you might not have known about, had you not investigated.
#4: Investigate interior flooring
Because tenants may have young children at any given time, it is important to keep in mind the flooring of the building to make it safe for children who tend to fall all the time. Children run around apartments pretty frequently, and meet with several accidents due to frequent imbalance.
Some experts have questioned if carpet is dead in 2014; in my opinion, carpet is still the number one choice for flooring mediums in our country. When selected property, it can withstand tenant abuse, prevent running children from accidents and provide an easy cleaning when tenants leave. As well as being extremely comfortable and hard wearing, a well-chosen carpet should be considered if you have less than two units and plan on performing deep due diligence on tenants before they move in.
Besides the aforementioned issues discussed, there are other critical concerns that must be addressed in order to make sure there are no hidden “land mines” that will prevent a successful closure of escrow and title.
There may be outstanding violations on the building that have yet to be rectified that the current owners aren’t disclosing. It is necessary to go to the local municipal Building & Safety Department to gather any information about past or present violations.
Investing in commercial property should be an extensive process of inspection, questioning and local due diligence. Preventing the process from transpiring could be your first, and last, investment mistake.