[Old House Acquisition Due Diligence] Real estate investors have three lines of defense when buying a second-hand house: structural cracks, rusted water pipes, and electrical box load assessment

The key to success in the acquisition of old houses: due diligence on water, electricity and electricity

In the real estate markets of Taipei City and New Taipei City, acquiring apartments or medieval buildings that are more than 30 years old, and performing "asset remodeling and resale (House Flipping)" or "subleasing suite management" through exquisite decoration is a classic model for many commercial real estate businessmen to obtain high investment rates. However, although old houses have the advantages of low unit price and large real estate, they are also accompanied by huge "hidden defect risks." When purchasing, many investors only look at the location and appearance. After signing the contract and transferring the property, they discover exposed steel bars, severe corrosion of water pipes, and limited capacity of distribution boxes as soon as they remove the decoration. As a result, the original capital expenditure (CapEx) for repairs surges by more than 50%, directly swallowing up all expected profits. Therefore, during the appraisal (Due Diligence) stage of acquiring an old house, investors must establish stricts and accurately assess the real health condition of the property.

The first line of defense: Cracks in structures and walls—determining whether there are earthquake resistance and serious leakage concerns

Old apartments are most afraid of structural defects and serious water leakage problems. When conducting on-site inspections, investors should carry a strong flashlight and laser level with them:

• Cracks in beams, columns and load-bearing walls: Carefully inspect the beams and columns in the basement, first floor, and walls inside the subject property. If shear cracks are found that are wider than 0.3mm and extend diagonally at a 45-degree angle, or if the steel bars rust and expand causing the cement to peel off (commonly known as exposed red bricks or signs of a sea sand house), this is serious structural damage, and the cost of future repairs and reinforcements may be as high as hundreds of thousands of dollars.
• Wall cancer and hidden water leakage: Wall cancer is a phenomenon in which cement is subject to long-term penetration of water vapor and free calcium is precipitated. If there are large areas of wall cancer around the ceiling or under the window frames, or even paint peeling and bubbling, it means that the external waterproof layer has long since failed. At this time, special attention needs to be paid to the difficulty of implementing exterior wall facelifting and waterproofing and the cost of coordination with the building management committee (or neighbors).

The second line of defense: water supply and drainage pipelines - assessment of old iron pipes and pipe diameter back-siltation

In apartments built in Taiwan before the 1980s, the water supply pipes mostly used "galvanized steel pipes (iron pipes)", which are easily oxidized and rusted.

[Key to Waterway Assessment]

1. Rust and water output test: Open the faucets in the bathroom and kitchen and observe whether the tap water flowing out in the first 10 seconds is light yellow or rusty red (commonly known as red water). If the water flow is thin and rusty, it means that the iron pipes in the wall are seriously blocked. This means that during renovation, the entire house water supply line must be completely replaced with stainless steel crimp pipes, an unavoidable CapEx expense.
2. Drain pipe back-up and trap conditions: The walls of drain pipes in old houses are often severely reduced due to decades of accumulation of grease and dirt, and even cement blocks may become stuck. Before purchasing, you should use a flashlight to illuminate the inside of the drainage hole. If there is water that does not recede, it means that the drainage slope may have been deformed, or there is a blockage in the middle of the pipeline, which needs to be included in the budget assessment of water jet cleaning.

The third line of defense: electrical box capacity and electrical load—whether there is room for modification of power distribution

Modern life uses a large number of high-power electrical appliances (such as air conditioners, heaters, microwave ovens, IH induction stoves). When old apartments are built, the total power capacity is usually only 30A to 50A, and there are very few internal circuits. It is often the case that several rooms share a 15A circuit breaker.

【Electromechanical Capacity Assessment】

• Check the distribution box main switch: Open the electrical box and confirm the amperage of the main switch. If it is only 30A, it means that if the future decoration design requires equipment such as whole-room variable frequency air conditioners and heaters, the electrical box will not be able to load and will trip out frequently.
• Assess the feasibility of "external line re-pulling" and "applying to Taiwan Power Company for meter installation/capacity expansion": If the total capacity is insufficient, investors must entrust a qualified Class A hydropower contractor to apply to Taiwan Electric Power Company to expand the household line capacity to 75A or 100A. This project involves the replacement of wiring pipes in the public stairwell and the update of the switch box. If the electricity meters of the apartment are concentrated on the first floor and there is no appropriate public pipe room, the construction difficulty and the risk of obstruction by the management committee are extremely high. The application process may take 2 to 6 months, and the fees and wages need to be budgeted ranging from 50,000 to 100,000 yuan.

Example of financial forecast model for Laowu Acquisition Due Diligence

Before bidding for acquisition, mature real estate dealers will convert the above "three lines of defense inspection results" into an accurate CapEx assessment list and use it as a bargaining chip for bid negotiation:

Conclusion: Use due diligence to lock in ROI

In the field of ancient house investment in Shuangbei, the dividing line between success and failure often lies not in how beautiful the soft furnishings are, but in whether due diligence on the electromechanical structure was done before the acquisition. Institutionalizing the "Three Lines of Defense for Home Inspection" into the front-end evaluation process will not only allow investors to have solid negotiation data when making bids, but also effectively lock in capital expenditures for repairs and prevent financial landmines where funds are stuck. Before signing the acquisition contract, it is the most stable and scientific real estate business operation logic to bring a professional plumber technician to thoroughly understand the truth behind the walls of the old house.