Saturday, October 22, 2016

Sponsored Post: How to avoid buying a lemon

Moses Kagen

Over the past few weeks, we’ve written about how buying a small apartment building can be your first step to financial security and about how Adaptive Realty can help. Today, we’re focusing on what happens when you make an offer.

The contingency period

Even a brain-dead broker can help you make an offer and get it accepted. The hard part comes after you go into contract and before you commit irrevocably to buying. That 10-day period, called the contingency period, is what separates the brokers who know what they’re doing from the ones who don’t.

Physical inspections

The first step is to complete a thorough physical inspection. We like to bring in a general property inspector and also subcontractors who specialize in the key building systems most likely to cause you problems down the road (roof, foundation, plumbing, electrical, though the mix varies based on the individual property).

We never expect an inspection to be clean; few owners sell perfect buildings. Our goal during inspections is to identify the key problems, help our client estimate the cost of fixing them, and then ensure that the price our client is paying fairly reflects the additional expense required to get the property into shape.

The inspection process generally costs around $1,500, but it’s critical. There’s no use making a pretty spreadsheet showing high returns if the drain-lines rupture and you have to come up with an unexpected $10,000.

Review the documentation

At Adaptive, once a client goes into contract on a building, we send the Seller a comprehensive request for documentation. Then, and this is critical, we actually help you read and interpret every single document.

This is serious business, where mistakes can cost you tens of thousands of dollars. Some examples: When you buy a building, you become liable for illegal rent increases by previous owners. If your building was cited by the city and the problems weren’t addressed by the old owner, the city may reduce the rent you receive from your tenants. An unscrupulous seller might doctor the leases to make it seem like the rents are higher than they are and then leave you with rent controlled tenants paying much less than you expected.

By listing potential problems above, we don’t mean to scare you. It’s just that, in life, anything that promises rewards comes with risk. You work with really Adaptive because we help you minimize the risk.

Closing and after

Assuming we reach agreement with the seller regarding adjustments to the price and that your loan process goes ok, you can expect to own your building approximately 30 days after going under contract.

But what happens next? Where do you turn for advice if you have a question or something goes wrong? As we write this, we’re managing 21 buildings totaling 174 apartments in gentrifying areas of L.A. We’re not going anywhere and we’re always happy to talk about real estate. So, just give us a call.

An invitation

If you’ve read all three of our pieces on the Eastsider, you’re either masochistic or seriously interested in buying an apartment building. If it’s the latter, get in touch and let’s see if we can help.


Moses Kagan
President, Adaptive Realty, Inc.
1670 Beverly Blvd., Ste. 1, LA, CA 90026

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