Commercial Real Estate Investing From A-Z My First Commercial Real Estate Offer: What Happened (Part 2 of 3)
In this episode I'm going to share the things that we had to do on our own during the due diligence process of my first offer, as well as the things that our attorney looked at and objected to on the title report.
Read the full details here: https://montecarlorei.com/my-first-commercial-real-estate-offer-what-happened-part-2-of-3/
What did we on our own:
1. Checked Geotracker which is a website to see if there is contamination near the property. This helps us understand what our Phase I report will probably look like. The Phase I report is an environmental report that costs around $3,000-$4,000 and that you must do in order to see if the ground of the property is contaminated. If it is contaminated, it’s going to be very costly to decontaminate the property, and the city will make sure that you eventually decontaminate the grounds. It’s very important to know if your property is contaminated or not. When you search Geotracker, you’re able to have a preliminary idea if it is contaminated or not, based on existing data.
2. Checked the current assessed value of the property to see how much taxes they were paying.
3. Reached out to the City Department Services Division, and the Community Development Division and asked to see if there were any approved permits for the property. I also had to find out information on zoning in the downtown area to see if we could do what we wanted to or not.
4. Because we were potentially going to run this as a business and do events in the property, I had to check prices for the following: audio and visual installation, new chairs, how much it would cost to level the floor, how to dispose of the existing chairs (could we sell it or not?). I also had to find out how much we could charge per event and the costs associated with that (tables, catering, security, electricity, water, etc).
Reports that we paid for during the due diligence process, and the contractors that we had come by to give us quotes:
1. Phase I Environmental report: the report came out clean (as we expected after checking Geotracker).
2. Roof survey: we found out that it was going to cost us around $127,000 for a new roof since the existing roof already had three layers on it, and we could not add another layer. We had to redo the roof from scratch.
3. Structural engineer: we had one come by to assess the structural damage and do a shear wall test – this meant that he was going to test how strong or how weak the wall was and he was going to tell us if we had to redo the wall entirely, or just reinforce it.
4. Architect: the architect came over to assess some of the costs that we were going to incur during the renovation.
5. I had to find a person that was working at Calwater (California Water Service) in order to find out where there was a water source for the building. Also, where was the line, and if there were fire hydrants near the property. During this process I learned that in California the businesses are the ones who have to pay for installing a public fire hydrant if the property does not have one nearby! This alone can cost at least $50,000. We had to understand how much it would cost for us to pull in water for the fire sprinklers because the property was not up to code and we would have to install fire sprinklers.
6. Fire sprinkler contractor: he came over to give us a quote on how much it would cost to install the fire sprinklers. We ended up finding out that we would have to bring water from the back of the building to the front, and that was going to cost quite a lot of money (I believe it was around $100,000).