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5 Pitfalls to Beware of When Buying Multifamily Properties

May 25, 2016 



Mineral Deposits in Water Heaters


You don’t need to know much about chemistry to understand the damage mineral deposits can do to your water heater. When hard water flows through the tank, the high heat causes minerals in the water to separate and sink to the bottom. Over time, this precipitate will buildup, reducing efficiency of the heater and weakening the steel. The most obvious sign of sediment buildup is a loud noise coming from the heater caused by steam bubbles erupting from under the sediment. Always thoroughly check water heaters before purchasing a property. If they need to be replaced, keep in mind a brand new tank can be easily fitted with a brass ball valve and hose adapter before it’s installed, saving you a lot of money and headaches. In fact, a sediment-free water heater can last 5-7 years longer than normal.


Polybutylene Plumbing


Polybutylene is a form of plastic resin that was used extensively in water supply piping from 1978 until 1995, most commonly in underground water mains and interior distribution pipes. Although manufacturers have never admitted that polybutylene is flawed, numerous cases have been reported of defective pipes causing hundreds of millions of dollars in damage (not to mention, increased insurance premiums). It appears that oxidants in the water supply react with polybutylene and cause the pipes to become brittle. If a property you’re examining was built between 1978-1995, be sure to ask your inspector to check for polybutylene.


Water Woes


There’s almost nothing worse than finding out you can’t execute your development plans because of shallow water tables or existing drainage issues in the general area. Before you purchase, make sure you run a percolation test (AKA “perc test”) to determine whether the plot is suitable to build on, especially if you’re planning to build on raw land or add any expansions. In addition, contact the local government to review ordinances for retention and detention ponds that may fall on your property. Often, a large new development will require a new pond. 


Undisclosed Easements


Sometimes, through historically inaccurate records or a simple mistake, a title company fails to disclose an easement. These include sewer pipes, phone and cable lines, power lines, and dividing walls, to name a few. Undisclosed easements can create unforeseen headaches and, if you’re developing a new project, may halt your building plans in their tracks. Also, they may give third parties the rights to dig up your property for maintenance. In order to ensure you have accurate knowledge of the entire property, purchase an ALTA survey before buying. An ALTA survey is much more expansive than a regular boundary survey and will reveal all easements and possible encroachments.


Cable Chaos


When cable providers install wiring on commercial properties, they often sign a contract which allows them to retain ownership of the wires even if the property owner terminates the cable service. Thus, if you wish to hire another provider, you might be forced remove the old wires and/or install new ones, at a large expense to you. Before you fall into cable chaos, make sure you know who owns the rights to the wiring and who must eat the cost if they need to be removed.

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100 Grandville Ave SW Suite 100
Grand Rapids, MI 49503
616.575.7006

The NAI Global Great Lakes Region Multifamily Team specializes in Investment Properties throughout Michigan.