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Due Diligence on a Condo
Conversion
A WomenforWealth.com Interview with Shannan Marty
by Emily Cressey
In a recent interview with commercial real estate investor and first time condo-conversion success story, Shannan Marty, I uncovered some of the important steps she includes in her due diligence process to make sure she’s covered her bases when she decides to close on a deal.
Shannan told me, “In looking at a condo conversion, my sense is that if you have an existing property with the appropriate zoning, it’s much, much easier to move forward with a condo conversion. When you go in and build new condos from scratch, on the other hand, a lot of times you’ll have to pay for a lot of right-of-way improvements or median cuts or things like that because you’re a developer and the municipality of the government can make you do that.”
If you’re a savvy commercial real estate investor, you want to avoid paying for the city’s planned improvements for your area because they can be very expensive!
When looking at a condo conversion that includes a lot of building rehab and repair, Shannan will also send in a construction crew (most likely the same people who will ultimately be hired to do the work) to assess the tasks that will need to be done, and estimate it cost of the repairs.
Shannan has an experienced roster of contractors that she likes to work with and she says, “I have my plumber, my electrician, my environmental guy, as many jobs as I can think of that I’m going to likely use on the project… I get them out there during the inspection….”
“I usually have an active inspection going for a couple of days. I just have the people come by. They are usually willing to do that at no charge because they know if I end up buying it they’re going to get the work. Plus, by having people in the trade they can look at it and give me preliminary cost lists. So, I look at those preliminary cost estimates that I get from all my sub contractors and then whatever that number is I add 10%, 20% or 25%. They can’t see everything that’s going to be needed, so we don’t know at that point exactly how many extras we’re going to have to do. So, I add a fudge factor.”
If you are a real estate investor who rehabs houses or if you have undertaken extensive remodeling before, you know how smart it is to be conservative on your cost estimates. Nothing is more disappointing than working for 6 months on a project and then walking away with no profit because your cost overruns were so high. Protect yourself, whether it’s a condo conversion, or any other type of remodeling project or real estate investment, by building in a margin for error when it comes to estimating your repair costs.
To understand even more about how Shannan was able to lock up these apartment buildings and then convert them to condo’s, listen to the full interview:
Condo Conversion A-Z: What I learned from my first Condo Conversion.
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