Step 4: Know What to Look For

Welcome. This is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avis and Young's Tri State Investment Sales Group. In this program you'll learn game changing strategies to outperform the market. James will teach you how to source, execute and capitalize on the best real estate opportunities in New York and around the world. Now here's your host.

Welcome everyone to show number 119 of the Insider's Edge to Real Estate Investing. This is your host, James Nelson. I am principal and head of Tri State Investment Sales at Agency Young. Thank you as always for joining for listening. It means so much to me. It's just so great to be out and about. I was at a conference and was up on the panel at Colgate for our Real Estate Council event and was wonderful to hear some feedback from some of you have been listening to the show. So shout out to my fellow Colgate alums and I think I'm going to air that panel interview in a couple weeks after we finish this series. And if you're just tuning in for the first time, we that's Rachel Hartman, my writing partner and I, yes, we are coming out with a book. We have submitted it to the publisher. It's going to be out in January. I could not be more excited about it. That is why we have renamed the podcast and we are well into the fifth part of this 12 part series and today we're going to be talking about knowing what to look for in a tour in a walkthrough and what that means when you are going through and walking and listing and considering it for investment. And you know, there is sure some similarities to touring a residential home versus checking out an investment property. But we're going to be really diving into the specifics of when you go into our property, who you should be bringing with you, what questions to ask and information that will help you decide whether to make a bid. And believe me, there is a lot that you can find out on a tour seeing what opportunities might exist to convert that property, but also having those side conversations if you have that opportunity to meet with the broker, to maybe meet with the owner of the super to gather information. What are the questions that you want to ask to get the inside edge to real estate investing? So this is a really important step. This is a business where you gain a lot more from these in person conversations than you do from just your initial research online. So you're not going to want to miss this episode. And if you haven't already tuned into the previous episodes. Please go back and do that again. I couldn't be more excited about this series that I'm doing with Rachel. She pens content for Fortune 500 companies and she's a regular contributor for US News and World Report among others. So couldn't be more excited to bring this to you. So lastly, before we go to a break with a word from our sponsors, if you haven't already, please connect with me amesnelson, NYC on LinkedIn, Instagram, Twitter I really appreciate all your questions that are coming in from LinkedIn and those of you who reached out and I want to get to those questions that you're asking and I've been responding to many of you. Some of you have been asking to set up informational calls. I'm happy to do that. So this is what this show is all about. It's helping you become the most successful investor possible. So thank you as always for joining. We're going to have a brief word from our sponsor and we'll get into this discussion on knowing what what to look for A Different Approach to Putting our Clients First Avis and Young's Tri State Investment Sales Group sells multifamily office, retail, development and specialty sales throughout the New York metro area. As experienced thought leaders in our industry, our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our one unified team is built on an industry unique platform which promotes unparalleled collaboration and teamwork. We share core values of hard work, integrity and expertise. We put our clients first, providing tailor made strategies to achieve superior results. Please Visit us at aytristateinvestmentsales.com and follow us on Twitter, LinkedIn and Instagram amesnelsonnyc to learn more. Welcome to the Insider's Edge to Real Estate Investing. This is your host, James Nelson. I am principal and head of Tri State Investment Sales from Avison Young and I am back here with my writing partner Rachel Hartman. We are working on a book which will be entitled the Insider's Edge to Real Estate Investing. We are working. We are hard at work so we're going to get this to you by early next year, but you're getting a sneak peek of all the incredible things that we've learned so far. Rachel's got an incredible background. Not only has she written content that's been used by Fortune 500 companies including Wall Street, US banks, but she's also been a contributing editor to US news, bylines and Forbes and a bunch of other tremendous publications. And so now you all have the benefit of hearing from her as well. So, Rachel, welcome again. Thank you so much for doing this. This has been a lot of fun. So maybe for our audience, maybe you can remind them if they haven't gone back and heard the first three installments that we've done, maybe you could just give them a quick summary of what they've missed so far.

Exactly. So far, all of our discussions have been talking about those different steps that you want to follow to really get the insider's edge. We started out with, with the very beginning, what types of properties should we be looking for? In real estate, it's often referred to as asset classes. So a breakdown of the different properties that you might consider and also some that might be better for first timers, which again, right there is an insider's edge point. Then we talked about how this type of investment isn't something you necessarily do on your own. Certainly you can be involved in the process, but you really want to build that a team to surround you so that you can really build value, add value to the properties that you invest in and make it a long term process. For example, you start with one, you build your team, you move to another project that opens up more opportunities and so on. Last time we looked at step three, which was really walking through how to find great properties. So there's some out there that you might be able to find easily, some that you might be able to find not so easily. Either way, there's advantages and disadvantages you want to keep in mind and definitely some tips that you want to follow to really get a great property. This episode we're going to move the discussion to what I see as another layer in the process and it's actually a really exciting one. We're going to talk about the walkthrough. So here we get to physically with you. James, take a quote unquote on air tour of a property in almost what I see. A new light, a new lens. Certainly we've all walked through some sort of property. We all live in a home, hopefully. And so we're familiar with walking through a property. But what does it mean when you're investing in property? What should we be looking for? So I was hoping you could start us off with the concept of tour. What, you know, what do we mean when we say, oh, we're going to go tour property? I saw something, I might be interested. I can sit at my home in Miami and take a virtual tour of a property in Chicago. So if I Do that? Should I be doing that? What's great about that? What's different than if I actually go to Chicago and see it in person?

Perfect. And thank you so much for the summary. And yes, this is the fourth step, but we also had the intro, so this is actually the fifth time. But thank you for summarizing all that. And, you know, look, you all might be asking, James, why are you both doing a show just on the walkthrough? I mean, isn't this kind of basic? You go, you take a look at the property, you see what the condition is like, you make improvements. But I think there's a real critical step here and an opportunity if you leverage this in the right way. So, you know, first of all, we've talked about in some of our previous discussions about, you know, this is not an investment where you can just do this from the comfort of your own home or, you know, scrolling through on your phone and looking things up. When you get out there and you're walking the properties, you see things, you hear things, and you know, it's about the conversations also that you have when you're looking at properties. So, you know, look, of course, yes, part of the walkthrough is to go and determine what the condition is. And if you're going to do a big rehab project, yes, you're going to need to bring professionals along with you to understand what is it going to cost to reposition the property the way you see it. But it's also an opportunity, if you are touring with the listing broker or even the superintendent, who can sometimes be a wealth of knowledge, to understand a little bit more about the history of the property, to get a little more insight about the ownership. And that is really where you can get the inside edge, so to speak, before you're preparing to make your offer.

Excellent, Great points. And you're right, we did have an introduction that talked about all of the reasons why investing in real estate had definite advantages, especially compared to other investments which have their place, including the stock market and such. So what about the differences between a residential tour and commercial real estate? I walked through homes. Some of our listeners maybe have walked through homes during that home buying process. How does that compare to commercial property?

So, I mean, there's definite similarities. Right? So if you're walking to a place for your home, you're also looking at the condition. You're thinking about ways that you can improve it. If you are looking for ways to improve it, you should also be thinking about what it's going to cost. But you know, generally residential has this fail safe and I think we talked about this a little bit before, but you know, there's usually that property disclosure form where the owner's giving you the information. There's a lot of representations. When you buy residential, you bring in the, you know, after you've signed a contract. It's usually then that you bring in the professional home inspector and that's when the negotiation kind of begins. Well, yeah, I know I told you I buy your house for a million dollars, but it turns out the roof needs replacing and you know, I've got to do some repairs here. The boiler's old and that's usually negotiated as a credit off the price. You know, commercial is certainly, you know, oftentimes an as is where is proposition where, you know, you're, if you're an investor, you're considered a professional where you have to do your own diligence to understand what it's going to take to make repairs or reposition. Now you can certainly, and I think we talked about this on our previous discussion, you can certainly ask ownership of the broker and you know, for, you know, whether it's a roof warranty or, you know, I'd like to see records on this and that. But you know, oftentimes, you know, you're going to have to make that determination, you know, upfront certainly before you sign a contract and put down hard money. So the other thing is, you know, in residential, you know, kind of goes without saying, but you can go through the house, you can see, you know, every single bedroom. You can go up and you can see, you know, the attic, you can go down in the basement. You know, I know recently, pretty much across the country, it's become a very heated market. So, so, so maybe you're saying, James, that, you know, I don't have the luxury of taking all this time to do my studies because residential is also moving very quickly. But you know, with commercial, if you're going in and seeing a 20 unit building, it's very unusual that you'd see every single unit. In fact, I'd say I almost never see that happen. So typically what you're going to get to see on that first inspection is maybe one or two apartments. So what you're trying to do when you go into a property is say, you know, and ask, you know, I'd like to get a sense of a representative unit. So if you have a studio, I'd like to see what that looks like. If you have a one bedroom. Let me see this. Okay, can you show me what an apartment looks like that was not renovated. Okay. Can you show me what the owner's renovations are? Okay. And if that's the case. All right. You got 20 apartments. You renovated half of them like this. Okay, I got it. And usually if you can see one apartment in each line, you can kind of get a sense of what's there. You can then go in and see the mechanicals. Now look, after you're able to go in and do your inspection and make an offer and you know, if you're coming back for a second inspection, a third inspection, yes, they might be able to get you in to see more units. But again, it's very unusual or unlikely that you're going to get to see everything. And there is a little bit of risk there for sure.

Right, good point. So as I'm envisioning this concept of doing the walkthrough, talk to me about who's coming along. We've talked in the past about the importance of having a team. Certainly there are others involved in this process. Who should you bring along and will it vary depending on circumstances?

Right, It's a great question. And that goes back to our episode about having the team and having those people ready. So it really, you know, for that first tour, and if we're assuming this is a property that is going to need renovation, that we think there might be a way to reposition the units, you might want to bring in a residential rental broker. That's very common when we bring an investor who comes in and, you know, we're going to show them a sample unit and we say, well, look, here's a large oversized one bedroom. Does it make sense to turn this into a two bedroom? Right. That's very market driven. And if you have that good rental broker, they might say, you know what? Yes, this is a market you're close to, you know, the university. You want as many bedrooms that you can, you know, that you can fit in here. So yes or no? Hey, this is a very high end area. Keep the one bedroom. You're going to probably get some, you know, investment banker here. But, but, you know, you got to really step things up on the finishes. You're going to need to gut the kitchen, you're going to need to gut the bath. The key here is that you need, when you reposition a building, you need to do it to really meet the market. Right. You want to create what is in demand for the market. You don't want to create a unit where there's no demand for that. Right. Where you know, going back to the, is it a two bedroom or is it a one bedroom? You also don't want to over improve the unit and you know, spend a ton of money on the kitchen and bath if the work that you spend does not justify the increase. So, you know, bringing in a leasing, a rental broker, you know, certainly for the residential side, or if you're looking for a commercial space, whether it's an office space, bring in the leasing broker. Hey, when you lease office space, what is the base building work? Am I just delivering a white box? Do I need pre built? Do I need to put a glass wall up here? Do I need to deliver this turnkey? Same thing for retail. You need to understand to rent in that market, what, what is the expectation? Right. And you want to be best in class, right? I want to, you know, I want to be, you know, on the high end, the range. I don't want to over improve it. But I also, you know, want to make sure that I really make the right investment to maximize rent. So that, that would be, you know, the part where you'd bring along a broker. If you are going to do some significant work, you might want to bring an architect, right? Don't just assume, hey, I can throw up a wall here and you know, turn this one bedroom into a two bedroom. You might not have the legal light and air. Every bedroom needs a window. And it depends on each municipality as far as what's the code, how big does the bedroom have to be? And when you start talking about, well, you know, I'd really like the bathroom over here. Let's, let's switch this, let's bring the kitchen here, let's bring a bedroom there. You know, now you're talking about, okay, are there structural elements of the building that, you know, I need to work with? So, you know, a really good, you know, architect, even engineer, if you're going to do heavy duty work, is going to need to come take a look and you know, or even a general contractor, someone who is used to doing these things and saying, okay, I get where the risers are here and you know, we got a little bit of room here. You know, we should be able to, you know, you know, flip things over and move the bathroom over five, you know, five, 10ft. But again, you want to be respectful of everybody's time, right? So sometimes, you know, that first inspection might be just to bring your rental broker with you to understand kind of is there the potential you thought of just eyeballing it? Do we think we can do it? Then, you know, knowing that you can do your business plan, you know, try to formulate an offer, kind of understand where you would be, and if you get traction, then you say, hey, you're asking, you countered me. You're asking me to increase my bid. Let me come in with my general contractor. Let me really see what this is going to cost me to do. Let me see if I can, you know, if I can really tighten up my offer. But look, you know, if we haven't already said it this far, I apologize. You know, to, to, to find a great investment, you're going to have to look at dozens and dozens of properties. So, you know, your relationships are really important. So don't think that you're going to be able to bring your general contractor to 100 showings. Right. You need to, you know, and after you've toured with the rental broker here and there, you start understanding it yourself. So. Okay, I think this could work. Let me come back and get another opinion. So you do want to be respectful of people's time. And that's why, you know, sometimes doing a second showing, a third showing that. That way, you know, as you get more serious on the property, as you start making that initial offer to see if you're in range, that's when you can really, you know, ramp up your inspections.

Excellent. I have just a quick follow up question on that before we move on. And that relates to, in one of our earlier conversations where we were talking about potentially starting out with a small multifamily property. So do some of these tips that we're talking about apply to that too, that I might bring someone along? Let's say it's a duplex or it's a three unit place or not necessarily. Are these more for large, larger pieces of property?

You know, Rachel, it's, it's a great question. It's almost more important that you bring in, you know, a team for a smaller investment. I'll tell you why. Unfortunately, you know, if, if you're replacing a roof for a triplex, you know, a 3, 4 unit versus 20 units, you know, again, if you have income coming from 20 units, that can defray the cost of a roof, you know that repair is not as impactful as the bottom line. Whereas, hey, if you're only getting three rental units and you got to replace a boiler, that might wipe out your profit for, you know, half the year. So when you're buying smaller units where you don't have as much income to defray and offset these costs, it is really important that you understand, you know, the condition. But you know, again, our discussions and we talk about investing in commercial real estate, we're really talking about five plus units. Because when you're investing in four units and under, to me, that's still a residential investment. Right. And in fact, if you go and get a loan that is actually the cutoff of a residential loan is for and under units. Right. Five and above. Okay. Now we're doing a commercial loan. This is an investment. So. But you know, I think it was a good question for, for those who are looking at, at some of those entry point investments as well.

Yeah, thanks so much for talking us through that. That's very helpful. So another thing I wanted to ask about was what about red light? So your red flags, perhaps we should say you're walking through a property. Are there sure things from your experience that might be a sign that I don't want to make the commitment or even that this property isn't the best fit for what I was originally thinking I was going to invest in?

Sure, yeah. I mean, I'm going to assume that most of our listeners, you know, they have, you know, this is going to be their first project. You're going to be looking at kind of a light value add. You know, again, we want to get into adding a bedroom, doing a gutting, a kitchen, a bathroom. But if it really gets into heavy duty construction, I would say structural issues is a big no, no. And yes, even to the trained eye. I mean, you know, I've been into these buildings where the floors are sagging, you know, there's, there's beams, you know, that are cracked. And you know, again, if the seller's broker is doing their job that they should tell you up front, look, you know, there's structural issues here. I mean, I've sold buildings that are leaning right. In fact, I even sold a building, I mean, this goes years back, but literally it was just kind of a facade that was propped up and there was nothing behind it. And we, people still wanted to see it and we'd open the door. I once showed an engineer this and he literally ran in the opposite direction. When he opened the door, he said, this building is going to, you know, this facade is going to come down at any minute. And that's actually ultimately what happened. It was the week before closing and we lived right across the street from this. And my wife called me up, she said, you're not going to believe this. They just closed down the street and the building collapsed into the street. And thank God no one was There no one was, was, was hurt. But yeah, I mean tackling a project like that, that has major structural issues, you know, you just, you just don't know what it's going to take to get in there. And in many cases it's actually better to just demolish the property and start ground up. So I would say that's a definite. The other one is a tougher one because you might not be able to see it. But again it's something you need to research is environmental issues. So you know, when we're going through and I'm looking at a property that has a dry cleaners for example, what I'm asking is okay, are they doing the, the, the, the dry clean on premises or shipping it out? Very unusual now that dry cleaning would actually be happening on premises. But like back in the day, you know, they use heavy duty chemicals to, you know, clean clothes. That stuff gets into the soil, it's a mess. And you know, you could also put, if you're talking industrial properties, whether it's you know, auto body shops or whatever, I mean you do something like that, you know, you're going to, you're going to be looking for a contingency to get a clean Phase one and phase two. That phase one environmental report is for a really just for a. Researching the history of the property. The environmental specialist will go through and do the research. The phase two is actually where they do soil samples. So they're going to actually do borings and find out if the soil is clean or if not there's a remediation plan. So look for those of you who are looking to make your first investment, structural issues, environmental issues, definitely something you want to steer clear of.

These are such great examples. Actually when I was preparing for this episode in my head I was thinking, James probably has stories for days on the things that you can see in a walkthrough. Everything. Stories spanning from normal to just crazy. So I'm glad you brought up a few great examples.

I could definitely share the audience because they're kind of fun. But I've done thousands and thousands of tours through properties and one time I was touring a property and it actually caught on fire as I was showing it. No, I didn't start the fire. And we managed. I was sitting there with the buyer and we were passing buckets of water and we put the fire out and, and I thought I was a hero. And my client said, what are you doing? Do you have any idea how much I could have gotten from the insurance company if this thing Burned down because the place was a dump. So that was kind of fun. And then I've also been stuck in an elevator, which a lot of people have been stuck in an elevator, but not in a vacant building when your cell phone doesn't work. So we were stuck in there thinking, oh, my gosh, how are we going to get out of this thing? And thankfully, there was a trap door above and we could actually pry the elevator door on the next floor open. Otherwise, maybe I would not be here with you today to discuss this. So definitely. There is certainly some risk here in this business, but it certainly makes for some fun stories.

Yeah, I might be talking to. I might be tempted to include an additional chapter in this. I'm already brainstorming titles when you should and should not be the firefighter. But when I thought I should be the firefighter. Sounds like good moves to me. Another one I wanted to talk about was what questions should we be asking? So we're going through the property, we're seeing it, we're making our evaluations. What questions should we be asking about it?

So, Rachel, this is the most important part of the walkthrough. Okay? So, yes, you're looking, you're seeing, but this is really your opportunity to speak to the owner, speak to the seller's broker. Sometimes it could be the owner. Again, if you approach the owner directly, even better, right? You've got the owner there directly to speak to, or even the super. The super could be telling you the history of the property. Okay, so a couple of rules of engagement here. First of all, you do not want to be having discussions in the building within earshot of the tenants. Okay? It goes without saying, when you're looking at property, you don't ask questions of the tenants. Most owners do not want the tenants to know the properties for sale. Again, tenants have rights to their leases. It happens every day. A new buyer comes in, they assume the leases. You know, that tenant now pays rent. But prior to a sale, you don't want to speak to the tenants. Right. So you're not going to have conversations with the seller, sellers broke, or the super where soup. Where. Where tenants can hear. Okay, so think about having this conversation. I find that most things that I found out about a building or an owner either happens on the roof or the boiler room, depending on if it's a cold day or if it's a beautiful day and you're out on the roof. But, you know, so let's say you're up there on the roof with the owner. You know, again, this is your opportunity to find out a little bit about the property, but also to shine a little bit. And, you know, I would definitely, you know, let's start with the owner, right? So if you're fortunate enough to have the owner there, I would, I would definitely go with the advice, you know, don't tell someone their baby's ugly. Right? So you never want to go in there and be critical of the building. You know, you want to say, wow, this is really, you know, you know, this is a great spot here. You know, how long has it been in the family, you know, you know, anything in particular? Why, why you've decided to sell now? You know, kind of what's behind this, and you're kind of getting in this mindset and you know, look, maybe get. Someone says, you know, we had a great run with this. This building's been great to our family. You know, we lived in one of the units, our kids grew up here, but it's just getting to be too much and we're, you know, this is a New York owner now. They're moving down to Florida. Okay, so remember what we've talked about in the past with the most important thing is motivation, okay? Why is this person selling? Okay. Lifestyle is one of, you know, if we put estate right as the most motivated seller, right. You know, lifestyle is a big reason, right. Sometimes these decisions are not financial. Let's face it, running these buildings are a lot of work, right? It's hands on. So when that owner says, you know what, we had a great run, but this is just too much, you know, you know, the tenant calls, you know, keeping it occupied, keeping up with the paperwork, you know. Well, great. You know, maybe your next question was, so what are you just, are your plans to just cash out or are you looking to exchange? 1031 exchange. And you could be asking to this, the owner or the seller's broker. But a lot of these owners, you know, for tax reasons, rather than just selling cash out, they want to go buy another property, but they don't want to buy another property. That's management intensive. You know, we call them these triple net properties, whether it's a CVS or a Walgreens, you know, now I'm starting to understand, okay, what's the seller's goals? Right? Okay. Seller wants to sell because the property is too much management, they want to find another property to buy. So something I'd throw out there, which is a great win win for the seller and the buyers. Look, I understand how to do a 1031 tax free exchange. And I know that there's a timeframe, and I know there's pressure because after you close, you have to identify three properties within 45 days after closing. Those 45 days take place within six months where you have to actually close on the other property. You know, I want to let you know that I'm a very flexible buyer. I want to make this very easy for you, and I'm willing, you know, look, if you need extra time to close, I'm good with that. You know, I can close in 90 days if you want, but I can also close in 180 days if you want. You know, and then you can give me notice. But you really want to impress upon the owner or the seller's broker that you are going to be an easy buyer, Right? You're not going to be someone who's, you know, difficult, causing problems. And so again, you want to use this time to ask, you know, why? What is the motivation? What is the preference for the sale? Okay, now if you get the seller's broker, right, you want to ask them, okay, can you tell me a little bit about the activity to date? Has this been out on the market for a while? What's bidding activity? Right. So I'm trying to get a sense of where bidding is. Okay, I know you're asking, you know, three and a half million dollars. How's that going so far? How's the activity? You know, and some brokers talk more than others. Some brokers might say, well, you know, we're just getting started. Give us a sense of where you'd be and I'll try to get your response. Some might say, hey, the best offer we have is 2.8 million. And my seller told me at 3 million, they're out of here. I mean, sometimes they'll volunteer that information, but think of yourself as a detective. You want to ask these questions. Okay, so this is how the process is going. All right, so you've been out in the market for a couple of weeks. Well, you know, is the seller looking to make a decision soon? If I brought in an offer today that, that, that hit their number, are they willing to transact? Well, you know, we got a couple other bids. I think we're going to call this to a head. We're going to, you know, call for a bid deadline. And this is not too dissimilar from residential. I mean, I think a lot of this happens be to as well, you know, is there going to be a bid deadline? How's this going to work? But, you know, Again, this goes back to do you want to be the first buyer? Do you want to be the last buyer? So look, if you catch someone early in the process, say, look, I know you're early into the marketing, but do you think your owner would consider a preemptive offer? If I came in with the right number, could we do, can we go to a contract now? Well, maybe. Let's see. Let me put, put an offer out there. Well, great. Do you have a sense of where, what kind of offer, initial offer would, would get me a response. Great. What kind of terms are they looking for? You know, do they want a short closing, do they want a long closing? You know, again, you're really trying to get a sense, try to gain that information, that inside advantage so you're not just making an offer cold.

Okay. I can tell from listening to, you've done this a multitude of times. These are clearly questions based on a great experience. So thank you for sharing. One quick follow up on that. When I think about this process and these questions that we're asking people we're bringing through, is there a typical range as far as the number of walkthroughs you might do to a place? Does it vary or might you be doing several walkthroughs before you make an offer?

I think it really depends on the kind of property. Look, if this is a property that's in great condition, it's got great cash flow, and you're just buying it for the income, you know, you might only see it once or twice, Right. And then it's almost the, you know, the paperwork, you know, you're going to want to review the leases and the expenses, you know, the financial due diligence, that's almost more important than the physical due diligence, you know, so. But if it's a property that needs a lot of work, yeah, you might have to go in there a couple times to kind of get some different opinions. And look, let's remember, most of our listeners here are probably going to be working with partners. You might find that great opportunity. And again, remember, maybe for your first purchase, you've got a friend who's bought 10 other properties and your job is you're out there trying to find these, tee up these opportunities. So you're probably not going to be bringing them along to every single opportunity unless if you find, you know, the one where, hey, this looks too good to be true. I've seen the comps. This price is really cheap per square foot. It sounds like it's the right situation. You Know, I think we're going to have to move fast on this. You know, let's go take a look at it. Right, right on the spot. But you know, generally, and if you do this enough, you're going to be going the first time to kind of get eyes on it. But you do want to be careful because sometimes, you know, owners aren't going to want to show the property multiple times. Brokers might not want to show the property multiple times. So it is, you know, you really have to kind of gauge where you want to make sure that you can move quickly, that you're not going to, you know, wear out your welcome. But you also want to, again, going back to my earlier point, be respectful of people's time and not bring 20 people to every single showing that you go to.

I love that. Yeah, we could almost make a list of do's and don'ts. So those are great tips. I know you've shared some really good examples along the lines of our discussions where we've talked about ways to add value, make spaces different, renovate, bring in other people. I'm wondering if you have tips on how we can reimagine a space as we're actually doing that physical walkthrough. Are there some things that you usually do or that you've seen in your experience where you can reimagine to add value?

So again, this is really where you need to understand the market. Right. Because you can have two buildings on the same street and on one side a one bedroom is going for 2500amonth and on the other side of the block it's going for 4,500. It's the same size building, same, you know, vintage. Clearly one building is gut renovated, fully improved, the other might be a mess. But you need to know what is the competitive landscape in the area. Right. So this goes back to not over improving it, but you want to be best in class. So I think oftentimes when you start to learn a market, the first thing you need to do is go be a tenant, go walk around and see some competitor listings, see what apartments are on the market, understand what's going on. You know, okay, this kind of two bedroom, you know, gets a premium because it has a washer, dryer, because it has a bike room, down in the basement, because it has a roof deck. Right. These are the kind of amenities and I think your rental broker should be able to help you also to understand what is needed. Right. So once you have looked at enough of these and you understand what it takes now when you go into a building, you see that old, you know, an apartment that hasn't been touched for 20 years, you kind of understand what the market is. This apartment's way too big. I can easily take this one bedroom and turn it into a two bedroom, the kitchen, you know, no one cooks anymore. Right. You know, we can take this kitchen and we can cut it in half. Right. And so, you know, we can get more efficient with the bathroom. You know, we don't need a bathtub here. We can, we can do a shower. You know, you're going to understand by having seen other comparable properties, you know, what is in demand, what is, you know, what you need to deliver. And I think that's going to be very helpful to understand the rental competition before you start going and thinking about how you're going to improve your property.

Excellent. Those are such great, such great thoughts. I was actually going to ask you about the value of knowing a neighborhood. You know, does that walk through actually consist of doing more than going and see the property? You know, might require understanding that whole block or that whole area as well.

No question. Yep. No, that, that is when you're, when you're out doing your initial walkthrough and you've identified that area, you, you want to know what the competitive landscape looks like for sure.

Okay, perfect. I guess one of the last questions I had here was just if there's any other tips that we can share to find add value and really have that insider edge as you're walking through a property.

Awesome. So a lot of this is where the creativity comes in. Right. And also the knowledge. Okay. And this is why understanding the parameters of what you can do are really important. So before you visit the property. Right. So again, I've made a couple plugs here for reanimate. Some people use Property Shark in New York, but I can actually go in and before I even see the property, I know what the zoning is. Right. So I understand. Okay, can I do residential here? Can I do commercial here? Can I do retail? Right, well, retail, commercial being that you know the same thing. So understanding what the landscape is, because, you know, now this goes into some more heavy value add, but, you know, understanding if you have this old tired office building, can you turn it into residential? That's a zoning question. Right. So is residential legally permitted? Okay. If the answer is yes, that doesn't mean that you can now just add kitchens and bathrooms and voila, you have apartments you need to understand, you know, how do I get this up to code? Right. So am I going to need a sprinkler system? Am I going to need two means of egress? You know, what are the requirements? Because the requirements for an office building are very different for residential. And that's why, you know, things like light and air. When a building is built full in a lot, for example, in New York, you can't convert the rear and put bedrooms in the rear of the building because there's no, there's no light in air. So, you know, you might have to cut off the rear 30% of the building if you want bedrooms in the back. Or you might say, hey, I just want one of these big giant soho lofts. I'll put the bedrooms up front overlooking the street and they can put their living space in the back. But again, you need to understand what you can and can't do. And so I think doing the research, the other thing is, yes, there are grandfathered uses and sometimes those can be very valuable. You know, I've seen, you know, some of the, you know, the coolest restaurants, bars. There's a famous one in the West Village called Chumley's. And you know, it's been there for 100 years, right? And even though it's in a residential area, because it's been in business for so long, it is grandfathered. So when something's grandfathered, for example, in New York, it has to have been in business continuously over the last two years. But you're also going to look for that certificate of occupancy, right, to understand, you know, what is the building certified for. You know, some of the buildings in New York, that being said, are so old that it actually predates the certificate of occupancy, right. So what I, what I'm trying to say is you need to do that research before to understand what you're working with and the potential. Another big piece is the air rights. Okay. So in, and again, this varies city to city, you know, different municipalities. You know, in New York, our zonings as of. Right, right. So if I have a building that is, let's say it's on, to make matters easy, it's on a hundred foot by 100 foot lot and it is built, you know, two times that the floor area. So I've got 20,000ft, but it has 10 times far floor to area ratio. I could build a hundred thousand square feet there, right. So I have 80,000ft of air rights, right. Those can be really interesting opportunities because especially if it's encumbered, you know, we call those covered land plays. You could have a long term lease and you're buying it based on the income there. But you know, hey, one day I've got a development site, right? So I mean, those are the kind of things when I'm, when I'm going through a building, I'm looking around, I'm looking at the neighbors, okay, who's done this, who's done that? Hey, do I have air rights? If so, can I, can I use them here? Can I sell them to a next door neighbor? I'm looking and seeing how can we add value here. Can I do something with the lower level? Sometimes you see these big gigantic basements and you got a tiny boiler in the front of it and the back is just open for storage. Well, hey, maybe I can duplex down that garden apartment. I can put another bedroom down below and add value. What about the roof? Can I put a roof deck on here? Right? So these are the kind of things where if you really want to step up and make the property valuable, it's not just the work that you're doing in the apartments, but how do you improve the common areas, right? How do you include, you know, the lower levels? Is there amenity space? Like one of the biggest amenities now is, is a package room, right? You've got these Amazon lockers where instead of having, you know, walking in and having, you know, tripping over 100 boxes, you've got the Amazon locker there that you can access. Tenants love that because then they don't have to be there during the day to accept packages. So as you're doing your tours and looking the competitive, you know, properties again, see what the amenities are as well. So, you know, that's really. Rachel, the most fun part of the business is the creativity, right? Is really getting in there and seeing, you know, how can I reposition this property? How can I think of doing things that maybe the previous owners thought of? And by the way, you might want to keep those ideas to yourself because if you tell the broker, they might say, wow, that's a really good idea. I'm going to tell the next buyer who comes along.

Oh, I love it. I'm never going to walk through a building the same, whether it's in New York or here. These are just excellent insights. So in closing, I guess my last thing I wanted to address was do you have an example or a podcast that we can share with listeners, something that they can listen to or turn to get. Just to highlight some of these points that we've talked about today? The benefits of a great walkthrough sure thing.

So one of my longest term clients is Margaret Stryker because we both met on the first week or two of our career. We were both fresh out of college and we've had, over the years, Margaret has bought, you know, probably dozens of properties through me. And she is incredibly talented at finding value where others do not and understanding, you know, how do I reposition properties, how do I take this multifamily? And you know, what we're really talking about is how do you determine what is highest and best use? Okay. And what that simply means is how do I make this property as valuable as possible? And you know, Margaret's case, you know, she took some multi families where, look, they, sure, they generated cash, cash flow, but because they were located in very, a very prime Chelsea neighborhood, she said, I'm going to take this eight family and I'm going to turn this into a high end single family, you know, a townhouse. And you know, she was very successful in repositioning these properties. Some of these buildings she even condoed and she sold off individual units. But I think the greatest one that, and I say this, you know, you know, jokingly is that, you know, she was able to figure out on a property I sold her in the Village, that there was additional development potential that I did not know about. And I'd like to think that I'm pretty good when I represent an owner of knowing, you know, what you can and can't do with the property, how do you maximize the potential? Because, Rachel, when I'm selling property, my job is to tell you, the buyer all the great things you can do. You know, so I usually, you know, if there's air rights or there's a way to do something, I'm going to usually highlight that. Well, you know, Margaret found that there was, you know, this. You look at the New York City zoning handbook, it's like 700 pages thick. And she found some archaic rule that had to do with carriage houses. You know, maybe back from the days when, you know, you had these horse drawn carriages. And I sold her this multi family in the Village and she figured out that she could build a carriage house in the back of the property. So here I thought, okay, this is kind of what you can do with it. It's in a historic district. But she figured out a way to build another building on the same site. So I give her a lot of credit and that podcast is definitely worth to go back and give a listen.

I completely agree. Who would have thought? Carriage houses? But that's such a Great example of the inside edge.

Well, this is fantastic, Rachel. So, yeah, we're really making great progress here and I just really hope our listeners are getting a lot out of this and taking notes. And, you know, these are the skills that are going to give you the advantage, you know, knowing the right questions to ask. You know, how to improve these properties in the best way. You know, if you have a better business plan, think of it like this. What you're doing is creating a business plan for the property. And if you can create a better business plan and you can figure out how to unlock value where the seller did not, that's what this business is all about, right? That is how you really create value. And so, you know, it's, it's really. And not every buyer has this, the same vision. And I think that story I just gave from Margaret, the reason why she was able to be successful because she paid the same price everybody else was bidding. Otherwise she wouldn't have won the bid. But she was able to find that extra value to really generate an outsized return. So I hope our listeners are getting a lot of feedback. As always, I love your comments and your questions. So connect with me at James Nelson nyc. You can link in with me, ask questions. Rachel and I are happy to field your questions and give some answers. And if you haven't already, please also check out james nelson.com I built this site to you to give you the insider's edge to real estate investing. And so as always, I really want to thank you for joining. This is your host, James Nelson. Until next week, thank you again.

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