Infrastructure Can Affect Capital Growth and Cash Flow
Infrastructure Can Affect Capital Growth and Cash Flow. I hear these stories all the time so I thought I would share one with you. There are a number of areas where the infrastructure is incomplete and represents possible cash flow issues and or reduced capital growth to the uninformed investor.
There are a number of city properties that have roadways with no curbs or gutter to the roadways. Others have only private wells or septic instead of city water or sewer. This is an invisible cash flow dilemma that should always be addresses within your diligence process.
By infrastructure I am referring to things like the road way out front of your investment property, the curb and gutter system (the drainage for the neighborhoods to avoid flooding of streets and yards), as well as the water supply and the sewer system for the individual property.
In the US, it is customary for rural farm land areas to have what is called a well and septic system. This means the individual home has a private well that is dug and water is pumped into the house. The plumbing then drains to a septic system buried in the yard somewhere. Routinely the septic system needs draining and cleaning. These systems require routine maintenance and upgrades. Over time, the septic system may be overcome by tree roots that pierce the tank and require replacement.
Most city properties have a city (metropolitan) water supply that is plumbed to the property though water towers, the city digs much deeper wells and filters the water and abides to certain clean water acts to insure safe and clean water. The public sewer system drains all away from the property and makes for a much cleaner and maintenance free system for the homeowner.
I have seen many investors miss this important piece of diligence and later learn they have big expenses in repairing and or replacing the systems. Sometimes when purchasing new property, they can go for a number of years with little to no concerns other than an annual cleaning of the septic tank. They later learn when they try and sell, that the end user is not interested in purchasing the property as the more primitive system is considered an obsolescence (a material aspect that will affect the value of the property).
Another challenge they encounter is to learn that a few years after purchasing a property that the city is now coming in to update the infrastructure and will assess you big dollars on your tax bill (cutting into your cash flow).
Simple questions to avoid all this:
- Does the property have city sewer and water or is it well and septic (this should be outlined in the purchase contract but many miss it or do not know what it all means)
- Can you visibly see if there is curb and gutter. If there is not, you may want to identify if the city has plans to bring them in and when.
It does not mean you should never invest in these properties. I simply suggest you do proper diligence and evaluate the property for its true merits. I have seen too many people purchase what seems to be a "too good to be true" property only to learn later why the price was so cheap in the first place.
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