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Introduction
When you buy a property, you need to go through a lot of standard third-party diligence reports. There are plenty of websites that go into great detail on the contents of these reports. What I’m going to try to do is give you the points most relevant when discussing real estate private equity for beginners. That is, how do I actually interface with such reports during my day-to-day job? It’s good to wrap your head around the general concepts for these reports, but no need to get stuck in the weeds. If they come up during a real estate private equity interview, the questions will likely be generic in nature. It will impress your interviewer if you know anything at all about these, given it’s a bit of a niche subject. This post in particular will focus on the property condition report. Other posts will focus on the environmental site assessment, seismic risk assessment, zoning, and survey reports. High-Level, Why do I Care about a Property Condition Report? The main purpose of property condition reports is to tell you what the property is like. In broad terms, you probably want to know that the edifice you’re about to purchase is not caving in. Are there cracks in the wall? Is the rainwater runoff eroding part of the grade beneath the main superstructure? Are any of the toilets broken? Technical Description of Property Condition Reports In technical terms, property condition reports follow this set of standards called ASTM E2018-15, the “Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process” along with any additional scope set forth in the engagement letter. The typical purpose of a property condition report is to identify conspicuous defects or material deferred maintenance, and to present an opinion of costs to remedy the observed conditions. These reports are conducted by impartial third parties. Partner Engineering and Science, Inc. is one of the larger players in the space, so you’ll often read reports produced by them. The Key Takeaways of a Property Condition Report When I personally read a property condition report, I look for three things:
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