One of the issues that’s been popping up for me lately is how buyers handle the transition to owning once the deal is done.
When you buy the kind of buildings I favor, the ones with low-paying, rent-controlled tenants in them, there is inevitably deferred maintenance that needs to be addressed. The kinds of things that need doing are usually replacing the sewer line, repairing or replacing the roof, fixing / bolting the foundation, etc.
Because we do a thorough job during the diligence process, we have already budgeted for making these repairs and included the expenditure in our models. That’s the good news.
The bad news is that you can’t just snap your fingers on the day after closing, have all the problems disappear, and have the budgeted quantity of money vanish from your bank account.
Instead, someone has to organize the work. This means negotiating with the subcontractors (plumber, roofer, foundation specialist, etc.), making sure they have the relevant permits pulled, getting them access to the property on the days they’re scheduled to work, making sure they actually do the work, and then arranging for them to get paid.
As a buyer, you have two choices for dealing with the above:
- Do it yourself, in which case you’re going to spend a bunch of your time but also learn a ton; or
- Pay someone else (typically a general contractor) to oversee the work.
Either choice is fine. But you have to be aware the choice is coming right after closing.
Incidentally (and this has come up a few times recently): When my subs come out to inspections and give bids to a buyer I represent, I am in a position to hold them to their quotes, because I generate so much business for them. This has the effect of shielding my clients from some of the nonsense that typically goes along with overseeing your first renovation job.