7 CapEx Items We Hate In Under 10 Minutes

We will go over 7 items that are an evil necessity in CapEx, which just are big-ticket items. 

We will talk about these things…and more in another episode of Multifamily Investing Made Simple in under 10 minutes.

Tweetable Quotes:

"It's like you don't get points for taking a shower. You only get deducted points for not having taken a shower. - Anthony Vicino

"So ideally, when we're looking at properties, we'll see that they have updated their electrical systems at some point in the last ten to fifteen years or so." - Dan Kreuger

LEAVE A REVIEW if you liked this episode!!

Keep up with the podcast! Follow us on Apple, Stitcher, Google, and other podcast streaming platforms.

To learn more, visit us at https://invictusmultifamily.com/.

**Want to learn more about investing with us?**

We’d love to learn more about you and your investment goals. Please fill out this form and let’s schedule a call: https://invictusmultifamily.com/contact/

**Let’s Connect On Social Media!**

LinkedIn: https://www.linkedin.com/company/11681388/admin/

Facebook: https://www.facebook.com/InvictusMultifamily

YouTube: https://bit.ly/2Lc0ctX

Transcript

Anthony Vicino: [00:00:15] Hello and welcome to multi-family investing, made simple in Under Ten Minutes, this is the podcast where we take the complexity out of real estate investing so that you can take action today. And today we are going to talk about seven cap ex-items that we absolutely hate. Dan, why do we hate them? First of all, that's because hate is a strong word, maybe dislike or strongly unfavored. Our only unfavorite I don't think this thing anybody's ever said, well,

Dan Kreuger: [00:00:43] In the multifamily investing space, there are certain types of improvements you could do to your property that will get you higher rent or more income in some way, shape or form. And then there are other things that just need to be done that you don't get paid for, kind of like the routine maintenance on your car. You got to do it to keep it running. But you don't really get any benefit as you would from, like, upgrading something or adding a new amenity to your car and a turbo also. And it's more powerful. Those things are great. When you change the oil, it's just like, OK, I did the thing I need to do and now it's just like working fine.

Anthony Vicino: [00:01:19] I'm going to tie this in with a really weird analogy my dad used when I was young, back when I was a teenager, I was a dirty boy. I didn't want to shower a stinky middle schooler. And he goes and I would take a shower. I come out and I'd be like, look, I took a shower. It's like you don't get points for taking a shower. You only get deducted points for not having taken a shower. And that's what happens here. You don't get any points for doing these things but should definitely get deducted points if you don't do them. They're critical. They're super important. People are going to notice. If you don't, it's going to underly. They're going to impact negatively your business model. So you got to do them. So here they are. But with that said, you have to do them. You need to plan for them. But also, we don't like to go out acquire assets that have a lot of work in these areas.

Dan Kreuger: [00:02:08] So and these are all things that are pretty expensive, too. So it's not just like unclogging in a drain. These are we'll get into them. These are big-ticket items.

Anthony Vicino: [00:02:18] Yep. So let's hit the number one CAPEX item that we just like roofs, roofs. Anytime you have to fix a roof, it is a pain in the butt. And when you win, you can go up there and you can do these patches and that can solve the problem for a little bit. But then you're just really signing on to have an ongoing maintenance issue that you're going to be getting calls with trips and issues. And at some point, you're going to have to suck it up and fix the big roof. And that is never a cheap item and nor should it be. I was a roofer for the summer. I don't think I ever told you this. It was the worst job I've ever had in my life. It is so hard. So kudos. If you're a roofer out there, you earn your money. But from an investment standpoint, it's not something that we want to deal with.

Dan Kreuger: [00:03:00] Yeah, if you're looking at a 30, 40 unit apartment building, a roof on something like that, it's going to cost 40 to 50, maybe even almost sixty thousand dollars, depending on which way you go. I'd say the 30 ish range is probably about as low as you can go. So if you need to replace a roof on your apartment building, it's no small chunk of change. So that's one of those things that that's one of the reasons that we just don't like that CapEx item because that's 50 grand out the door. And all that happens is you just don't have leaks. Nobody going to pay more for rent and

Anthony Vicino: [00:03:34] Nobody's going to thank you. Nobody is going to be like, thank you for the lack of leaks.

Dan Kreuger: [00:03:38] You'll probably get some complaints about the noise you expect.

Anthony Vicino: [00:03:41] So that one right now is an easy one. We hit. The next step is boilers. Boilers. Why do we hate boilers?

Dan Kreuger: [00:03:49] Yeah. And if you're in the southern area of the US, you know, this could just be replaced by the word chillers, basically HVAC systems. What are you looking at? Either the system that's used to heat the building if you're in the cold area or chill or cool the building if you're in a warm area. And, you know, we just like these systems for I should say, we just like the systems. We dislike having to replace these systems similar to the roof issue big and it's expensive and you don't get points for doing it. You know, to Anthony's dad, you just get deducted points. If these things aren't working properly and get big-ticket items.

Anthony Vicino: [00:04:26] The boiler is a tricky one, too, because it's complicated. It's not if you have to go in there and replace it, that's not super quick and easy. And if it happens at an inopportune time, let's say that always does. It always does. If it happens in the dead of winter in Minnesota, when it's fifty degrees below and suddenly all your tenants have no heat, you have a real issue. And that's like, oh, we either need to find them in a hotel or we need to take over some space heaters. And now you run the risk of your whole building burning down. There's no matter what, it's a lose-lose.

Dan Kreuger: [00:04:54] So, yeah, boilers, nova, No.

Anthony Vicino: [00:04:56] Three foundation issues. We don't want to deal with a cracked foundation.

Dan Kreuger: [00:05:02] So important if that isn't up to par as a whole and it's like

Anthony Vicino: [00:05:06] Literally the foundation of everything that it's built upon it. If it's if it's crumbling if it's cracked if it's tilting. If it's a. No good, there is no such thing as a cheap foundation fix at all.

Dan Kreuger: [00:05:19] Yeah, yeah. And I think I can safely say that if we are looking at a potential opportunity and during due diligence, due diligence, we find out that there are foundation issues that might just be one of those things where we say our endless walk away because it's not as straightforward a fix as a roof. Sometimes you might think that doing certain things are going to fix the problem, becomes the foundation, but maybe it doesn't work. You don't know. It's kind of it could be kind of a finicky thing to try to fix it.

Anthony Vicino: [00:05:48] Absolutely. Because a lot of it depends on the ground and the area that you're in. And that's like a macro issue that you have no control over. You don't know what you're getting into down there. You maybe dig down and start putting in some piles to stabilize that thing and you just discover that you're in the path of erosion and it's just not happening and it just keeps occurring. And so no foundation issues are enough to make me generally just go, no, no, thank you. Walk away. I don't want to deal with it. Next up, actually, this is a more common CapEx item that we are accustomed to dealing with. That doesn't mean we like dealing with it. It's windows. But nobody is going to pay extra to have nice, fancy windows, actually. And honestly, people don't care if they have crappy windows. Generally, the bad windows are bad for us because it leads to a lot of rotting wood cells, a lot of water getting in behind walls, a lot of issues due to condensation. And so it's a pain in the butt for us, not so much for anybody else.

Dan Kreuger: [00:06:46] I will say the nice thing about the windows is that you don't do them typically. You don't do them all in one fell swoop. They're an issue that you can kind of chip away at over time. So I'll give them a little bonus point for that. Windows, you're not just one thing like a roof or a boiler, but they are they do take a decent amount of capital. And I will say that the types of properties we look at which are, you know, historic brownstones, you know, stuff that's been around for a little bit, finding some windows that need to be replaced is just par for the course for us. So we work in indoor underwriting and we plan on doing that over the course of one to three years as we're renovating units. So it's not a big, big hit all at once, but it is one of those obnoxious things that are usually on the list of things to do when you're looking at value. Add multifamily in the C plus B minus category.

Anthony Vicino: [00:07:35] And in that vein, if you have bad windows in an old building like a historic brownstone, then the next thing on our list, which is tuckpointing, might also be something that you have to deal with at some point. So Tuckpointing is just going back in there, taking care of the bricks and mortar and making sure that it's all cleaned up because as the water gets as it gets in between the bricks and the wood behind the windowsills, you start to get this expansion, this erosion as problematic because now you can have a brick wall falling down. So nobody wants that.

Dan Kreuger: [00:08:05] Yeah. And I will say with the tub pointing at least on that one, it should improve the look of the building, the outside, at least marginally. So you get a little bit of a benefit outside of just doing your necessary routine maintenance. But still, I couldn't imagine a tenant walking into a building and saying, oh, you guys just pointed this out, I'm going to pay a few bucks for rent.

Anthony Vicino: [00:08:27] Some good checkpoints not going to happen. It's got a really good truck pointing to ever notice. All right. Number three, now, these next two on the list are really big and they can potentially just again, like a foundation issue, just pretty much and a project before it even gets started. Number one, electrical? No, pretty much. There is no such thing as a cheap electrical problem. And in fact, electrical problems are very scary because where there's electricity, there's a potential fire. And so it's not something that you can just put off or decide, OK, I'll do it at some point later in the future. Like sometimes you have to do it immediately. You have an outdated electrical system that's maybe been grandfathered in for many years. And now the city is saying, you got to do something, you got to move those panels so that they're outside where you have to change from knob and tube. Like now you're staring down the barrel of a very expensive problem.

Dan Kreuger: [00:09:20] Yes. Yes. It really just comes down to the fact that electrical systems are literally just wired into everything in the building. So you can't just move things. You've got to breach in walls. You've got to just completely rejigger how things are set up. And so it's a complex project, to say the least. So ideally, when we're looking at properties, we'll see that they have updated their electrical systems at some point in the last ten to fifteen years or so. Like Anthony mentioned there, there's there are some pretty old systems out there that if we see those, we discount a property's attractiveness by quite a bit. Right. If we see fuse boxes, things like that, then we just know that A, either we're going to need to spend some money to fix that ASAP or B, maybe that's just that, that property doesn't have enough meat on the bone to justify that type of. CapEx spend on that kind of thing,

Anthony Vicino: [00:10:16] And now we are reaching the top of our episode, we got about 30 seconds left for our last one, which is plumbing in the same way, the electrical is a pain in the butt. Plumbing reaches everywhere. It's hard to see. It's gross. It's hard to fix. It runs under the buildings. It can be catastrophic. You don't you rarely understand the full length and breadth of a plumbing issue, but it's always, almost always problematic. So with 10 seconds left. You have nothing to add. So go ahead and take us out of this episode.

Dan Kreuger: [00:10:43] Plumbing sucks