36 unit in suburb of Columbus, Oh

Multi-Family and Apartment Investing
10yFollow

36 unit in suburb of Columbus, Oh

Bill McCartney
Heath, OH · Member since 2016 · 24 posts · 4 votes

First, a little about me. My wife and I have had a few really good years with our business so I took the profits and spent the last year building a small portfolio of 21 units in Columbus and Newark, OH. We have quite a few SFH, a couple of duplexes, a quad and 2 weeks ago closed on my first 6 unit. Most of the units are C's but have a few B's. I didn't really know what I was doing so I started out using all cash thinking it was the safest route but recently started using both owner and bank financing to leverage the cash I have left. I have really only bought home run's. Earlier this year, I bought a foreclosure for 50K for cash, put 2K into it, then it appraised for 100K so right now I'm doing a cash out refi and getting back 70K. Oh, and it rents for $1500/mo!

That is how most of my portfolio is. Not including maintenance (which I mostly do myself and has been averaging just $175 per month) or capex, anything over 46% occupancy covers all of my costs. I read somewhere on here that not including management costs, not paying out for maintenance and not including capex and calling what you have left profit is not really profit. Got it but not sure what else to call it! My wife has been managing our business and now all of my time goes to real estate so if you want to call it a job, I'm ok with that. The longest I've had a unit sit vacant is 10 days. I take good care of the units and the word is out. I have a waiting list from current tenants' friends and relatives.

At any rate, it takes A LOT of time to find those deals. I've probably looked at close to 250 deals in the last year. And I bought up every one that fit the criteria I was looking for. The good deals have been much harder to come by in the last few months and I think finding 21 more units like the ones I have will take a lot of effort. 42 more would take forever.

Which finally brings me to the reason for my post. I told you what my strategy has been to date. This is quite a bit different and so I'm looking for some advice.

The off market deal:

36 units asking $825,000. 2 buildings with 18 units each. Built in the early 70's. All brick. Tenants pay all utilities. Radiant electric heat in floors in one building and gas furnaces in another. All single pane, older windows. Roofs 8 years old. Cast iron plumbing. One building is gas and as I understood it, is concrete floors and walls as firebarrier. I imagine this would be a pain when it comes to plumbing repairs. The other building is electric and is stick built.

23 1 BR units averaged @ $397 per month.

1 1 BR unit converted into laundry @ $0 per month.

12 2 BR units averaged @ $427 per month.

Gross $14,255

Expenses (owner claimed) $2000 - I will be managing the building myself and doing most of the maintenance.

Taxes $916

Insurance $566

Net $10,773

Mortgage $5536

Cash flow $5237

Owner is willing to carry financing. 10% down. 5 years at 6.5% then jumps to 8% in the hope I'll get traditional financing within that time.

The building is probably the lowest rents in the entire city (I wouldn't call it a town, but it's a pretty small city). The building manager told me this was because it wasn't a very nice area and attracting higher paying tenants was a problem. As it turns out, it has been poorly managed for quite a while. They have the lowest rent and attract the type of tenant that can only afford the lowest rent. Which in turn drives out the decent tenants so they have to further reduce rent to attract more low paying tenants. The good news is they have very few vacancies. The bad news is when I started asking around, most people with options would prefer not to live there because management "either doesn't see or doesn't want to see" what goes on there. The area is pretty nice, however. To me, I see that as opportunity. If I run out the drugs, low lifes and trouble makers and turn around the reputation, in a few years I can get rents to where they should be which would add about $4000 per month in revenue.

So there's the deal. This would be a big step for me. My gut says jump in with both feet like I always do. But there's a part of my brain that is making me nervous (or could be my friends and family who all work real jobs and don't have a penny saved that want to give me investment advice....) It would be nice because I'd have 36 units in one place. But that is putting a lot of eggs in one basket. And if I do this deal, it will probably be the last one I do for a while as it will eat up a lot of the cash I have left.

What do you guys think? Is this a deal you'd do? Thanks in advance!

0Reply
38 views

Most Popular Reply

Michael Gansberg
Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes
10y

@Bill McCartney, interesting property. I've had experiences in properties somewhat similar to this- a problematic ten unit brick building in my primary stomping ground of Troy, NY, comes to mind. The tenants were extremely challenging when I acquired it, and after several years, we managed to increase the quality of the tenant base somewhat, but not as much as we'd hoped- the building's reputation preceded us, unfortunately.

Then things changed quite suddenly and I think this story is relevant to your potential acquisition. So for that and for amusement's sake, I'll give a snippet- I was on vacation, and got a text at 11 PM from management. I knew that good news wouldn't follow. Turned out one of our tenants had burned their apartment down- total loss of property, was fortunate in that it was largely contained to one apartment(cigarette in the kitchen garbage can, then out to dinner, those fools.) My manager said to me, "It's so strange, they were 2 months behind on rent, and they just paid their renter's insurance this morning!" I replied, "Odd isn't the right word, let's go with "suspicious."" 

So we decided(or really, it was decided for us) that we'd completely rehab the apartment. And we went with excellent finishes- I thought, why not update this baby? And when we did, we also raised the rent by 15%, and got the best tenant we'd ever had in that building. So a eureka moment followed- why not do the same upgrades to the remaining 9 units as they turned over? Over the next year, we modernized(re-did kitchens and baths, essentially) about 7 apartments, raised the rents on those apartments by 15%, and the tenant base changed almost immediately. The building became a desirable place to live, occupancy(which had been 80% at best) zoomed to almost 100%, with very short turnover times in between move-outs. Problem tenants? Nope, no more. (side note- after rehabbing the apartment completely, the tenant texted us and asked if they could have their apartment back- not that they tried to become current on their back rent or anything like that. Oh, the humanity.)

You have a thornier situation, I think, as 36 units is more challenging than 10, and rehabbing a substantial fraction of those units will be expensive. What leapt out at me was the electric heating- my guess is that exerts substantial downward pressure on the rents there. Residents know how expensive that can be, and insulation requirements in the 70s were much lower than they are today- throw in the single pane windows, and oofah! That place has gotta be expensive to heat. I'd look into the possibility of installing heat pumps with electric heating elements for very cold days(one per unit, hopefully, in the units which currently have electric heat) these can be installed in the window much like typical air conditioners and they will function as air conditioners in the summer- some can be installed through the wall. This might be your most inexpensive path to lower heating bills for residents. As a contractor, you probably know more about this stuff than I do. Maybe look into some better insulation. And upgrade the units aggressively and en masse- if you can manage to change the building's reputation rapidly, you'll be able to raise rents sharply and quickly. 

I think under-rented situations offer the most promise for stellar returns, especially when those low rents are a direct result of poor management, inefficient building systems, and poorly finished apartments, as those problems are generally fixable. 

MG

4Reply
See this reply in the discussion

36 Replies

Jump to latestLatest
  • Account Closed
    Rental Property Investor · Orlando, FL · Member since 2016 · 463 posts · 220 votes
    10y

    Definitely sounds like a great deal, especially with the huge potential for improving the place and attracting better-quality and higher-paying tenants! If you have the cash to jump in, I say GO FOR IT!!! Since you are doing real estate full time now, and have quite a bit of experience and success, I have no doubt that you will make this work. Once you improve the place and raise rent revenue (2-3 years), you may be able to get most of your money out by refinancing to pursue other deals. Good luck!

    1Reply
  • Zach Quick
    Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
    10y

    @Bill McCartney Is the area actually nice? Within a block or two radius what do the other apartments or houses look like? The owner expenses are way low(as you probably know). 

    Can this area (you said it was a small city) take raised rents? This will take you a lot longer than whatever timeline you think you have unless you are literally kicking everyone out and rehabbing and then leasing up.  If you are really comfortable with the area, then maybe, but those rents are extremely low and my hunch is the neighborhood is poor. Just my two cents.

    0Reply
  • Rocky S.
    Broomfield, CO · Member since 2016 · 1 post · 1 vote
    10y

    @Bill McCartney There is a lot more you need to consider which will bring down the cash flow. How old are the units and how have these been maintained? What is the upcoming big ticket expenses for repairs and improvements (not including regular wear and tear that you plan to do)? You should also consider landlord insurance and create an LLC to buy. The owner quoted expenses both seem very low and will likely cost you more over time of your ownership. Typical rule of thumb is 50% of the income goes into expenses. Of course, it varies depending on the portfolio but yours is off by quite a bit.

    1Reply
  • Marc C.
    Buy-and-Hold Rental Investor · Santa Fe, NM · Member since 2015 · 438 posts · 352 votes
    10y

    14255 x 12 = $171,000. Since it's older, let's use 50% expenses. So your NOI is $85,500. $825,000 purchase price, so we're at a 10.3% cap rate. On the face of it, with seller financing, it seems like something to pursue further. A lot of questions to ask: How far of a drive is it from you? From major employers? What's happening with the economy there? Can you get the opinion of the #1 apt. Appraiser in the area about expenses and cap rates?

    0Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    10y

    It is the lowest priced units in the whole city. Similar units are going for $600 for 1 BR and $725 for 2 BR.

    I would only get rid of problem tenants and then do upgrades as the unit turned. I am thinking 2-3 years on bringing rents up, not a quarter. 

    I've seen spreadsheets with people showing 50% expenses but never a breakdown of how they accrue that cost. Can anyone provide me with a year of expenses that comes out to 50g? I haven't been doing this long, but besides what I would consider CapEx on new purchases my expenses don't reach anywhere close to 50% unless I include debt service.

    0Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    10y
    Originally posted by @Marc C.:

    14255 x 12 = $171,000. Since it's older, let's use 50% expenses. So your NOI is $85,500. $825,000 purchase price, so we're at a 10.3% cap rate. On the face of it, with seller financing, it seems like something to pursue further. A lot of questions to ask: How far of a drive is it from you? From major employers? What's happening with the economy there? Can you get the opinion of the #1 apt. Appraiser in the area about expenses and cap rates?

     It's half an hour from me so I'd be managino myself. There areally quite a few major employers in town and a lot of people make the easy drive of 35-45 commute to Columbus for work. I'd say the economy in town is stable. I've been reluctant to consult with anyone local as I don't want someone to offer the seller a better deal! How would I go about talking to someone about it without an off market deal being swept out from under me?

    0Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    10y
    Originally posted by @Rocky S.:

    @Bill McCartney There is a lot more you need to consider which will bring down the cash flow. How old are the units and how have these been maintained? What is the upcoming big ticket expenses for repairs and improvements (not including regular wear and tear that you plan to do)? You should also consider landlord insurance and create an LLC to buy. The owner quoted expenses both seem very low and will likely cost you more over time of your ownership. Typical rule of thumb is 50% of the income goes into expenses. Of course, it varies depending on the portfolio but yours is off by quite a bit.

     I was only in 4 units thus far so I can't say for certain but the units I was in were nice. Once we have everything in writing, I'll do a walk through of all of the units and can renegotiate or back out at that time but my understanding is that those units were representative of the buildings as a whole. The roofs are newer (8 years) and brick exterior and there's copper supply lines. I can invision cast iron drains may pose a problem at some point in the future. I would want to replace the single pane windows before raising rents but that's a relatively minor expense as there are only one window in each bedroom, one in each family and one in kitchen. I don't have an age on the furnaces in the 18 units and would need to consider that but other than as you say normal upgrade costs, I don't see a lot of big ticket items. Maybe I'm missing something?? That's why I posted to ask for more experienced guidance :-)

    0Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    10y

    As a followup to my question about how people actually spend 50% on expenses, does anyone have a rough figure for what percentage folks are budgeting for maintenance and management? Maybe that's where my significant savings is coming from. But those two would have to account for probably 25% of the 50%!

    0Reply
  • Peter Lohmann
    Property Manager · Columbus, OH · Member since 2012 · 309 posts · 275 votes
    10y

    Is this a deal you'd do?

    No. Run.

    0Reply
  • Marc C.
    Buy-and-Hold Rental Investor · Santa Fe, NM · Member since 2015 · 438 posts · 352 votes
    10y

    The 50% rule includes vacancy rate; typically 5%. But ACTUAL vacancy is almost always higher than that. I use 10% in my calculations, especially if I am raising rents. 

    You should be able to get management done in the 4-6% range, depending on how many choices of management companies you have. (A factor in smaller towns.) For a property 30 min. from me, I'd probably want to figure on the payroll expense of having an on-site "helper" for management...eyes and ears that report to YOU, not the management company. The cost? Maybe one-half month's rent or so. 

    For repairs, 5% is usually my minimum budget...if you're not spending that, the building has deferred maintenance. Add another 5% for cap-ex (which, by definition, isn't an expense, so shouldn't be included in the 50%, but should be included in your cash flow analysis). 

    Other figures depend on your unique situation: Local property taxes (which WILL go up the year after you buy it) and insurance being prime examples. Water and sewer are significant but localized as well. Is dumpster service included in your water bill, or do you have to use a 3rd party for trash? Landscaping, janitorial and snow removal are often overlooked expenses; "because the owner does those" is often the reason the seller doesn't list them. Your expense to drive to the property once a week at $.55/mi. should be included as travel expenses (and maybe even your time). So should $500/year for tax return prep. Advertising is no longer a significant expense, since Craigs List is free, but I add a budget of 3% of the vacancy rate so that I can cover extra advertising like social media and for-rent web sites. 

    If you add it all up, it's really hard to be under 40% total for an older building unless it's been fully renovated and therefore has near-zero repair expenses. If it's master-metered for heat/lights/water/sewer, 50% (plus vacancy) is more realistic. 

    The point is to ALWAYS be conservative. Everything costs more than you think it well, and certainly more than the seller shows. 

    You can't "really" know what it will cost until 1.) You've seen the seller's tax returns and profit/loss statements, and 2.) You have run the property yourself for 2-3 years. 

    As for consulting with someone about the property, you can try a non-compete and non-disclosure agreement. But be willing to PAY for consulting. 

    It's great you have a lead. You are in personal contact with the seller? You've met? You've figured out why he wants to sell and what his needs are? Estimate your expenses and what you need to see for cash flow and offer accordingly. He wants $825,000? 

    GET ON IT. If you don't, someone else will. Don't wait to get his numbers. If his "actual" numbers vary greatly from your projections, you will have to "retrade" (reprice/re-negotiate) with the seller. But that comes later. For now, I'd offer in an LOI a couple of options: Full price with small down, lower price with more down. Closing 60 days after you receive all of the Seller's Documents. But GET IT UNDER CONTRACT this week. Don't over-analzye...move.

    3Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    10y
    Originally posted by @Peter Lohmann:

    Is this a deal you'd do?

    No. Run.

    You're local. Would you mind sharing your reasoning? It doesn't sound like there's any uncertainty in your response!

    0Reply
  • Peter Lohmann
    Property Manager · Columbus, OH · Member since 2012 · 309 posts · 275 votes
    10y

    Units that rent for under $500/mo in Columbus Ohio, it's simply impossible to make a decent return no matter what you pay (I wouldn't even take a building like this for free). The income (which is spotty to begin with due to the tenant demographic) is simply not enough to cover the operating expenses. You can't maintain and turn over units at $500/mo. There's just not enough cash there to handle routine maintenance, turnovers, plus unexpected expenses and capital improvements. Humans and the environment inflict more damage per day than you are receiving in rent, if that makes sense (over the long-term, that is). I've seen this play out time and time again. Another way to think about this - your expenses are independent of the rent you are receiving. Everyone should stop thinking about repairs and capex as a percentage of rent. It makes no sense and leads you down dangerous paths.

    You need to be around $550/mo per unit, regardless of the rest of the details, to start making any money, and preferably a lot higher than that if you want to actually earn a decent return.

    2Reply
  • Brad Clarizio
    Flipper/Rehabber · Columbus, OH · Member since 2014 · 161 posts · 116 votes
    10y

    When I initially read your breakdown, the numbers work, but there's major hesitation because of the area. I'm a native Columbus-er and could predict 1 of 3 locations this building is in (just based on rents). If they're in any 1of the 3, you'll have one of the biggest headache you've ever had. Is that really worth sacrificing your current model? Stick to what you're good at, and that's managing the C and B properties you have now, and probably making damn good money doing it! 

    Now, I do respectfully disagree with Peter. You'll make money, and you'll probably make a lot. But you will have constant turn, no matter how good of a manager you are. Also, I disagree that you should stop looking at repairs and capex as a percentage of rent. Plain and simple, it's an average, not an exact. 

    Example: if my portfolio brings in an average of 10k a month, and I estimate 5% for capex across the PORTFOLIO, it's going to be fairly accurate. 6k a year across all my houses? Probably accurate. That's windows and a roof in one house per year. However, KNOW YOUR PORTFOLIO. I know that right now, I have a duplex that will need a roof in the next 5 years, so I'll up my percentage in my capex PORTFOLIO to 6% until that's done. Big deal...

    Bill- I would walk from this deal. Not because of the reasons Peter stated, but because this place will literally be a living nightmare. PM me if you'd like to connect further- we have a very similar model. 

    1Reply
  • Michael Gansberg
    Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes
    10y

    @Bill McCartney, interesting property. I've had experiences in properties somewhat similar to this- a problematic ten unit brick building in my primary stomping ground of Troy, NY, comes to mind. The tenants were extremely challenging when I acquired it, and after several years, we managed to increase the quality of the tenant base somewhat, but not as much as we'd hoped- the building's reputation preceded us, unfortunately.

    Then things changed quite suddenly and I think this story is relevant to your potential acquisition. So for that and for amusement's sake, I'll give a snippet- I was on vacation, and got a text at 11 PM from management. I knew that good news wouldn't follow. Turned out one of our tenants had burned their apartment down- total loss of property, was fortunate in that it was largely contained to one apartment(cigarette in the kitchen garbage can, then out to dinner, those fools.) My manager said to me, "It's so strange, they were 2 months behind on rent, and they just paid their renter's insurance this morning!" I replied, "Odd isn't the right word, let's go with "suspicious."" 

    So we decided(or really, it was decided for us) that we'd completely rehab the apartment. And we went with excellent finishes- I thought, why not update this baby? And when we did, we also raised the rent by 15%, and got the best tenant we'd ever had in that building. So a eureka moment followed- why not do the same upgrades to the remaining 9 units as they turned over? Over the next year, we modernized(re-did kitchens and baths, essentially) about 7 apartments, raised the rents on those apartments by 15%, and the tenant base changed almost immediately. The building became a desirable place to live, occupancy(which had been 80% at best) zoomed to almost 100%, with very short turnover times in between move-outs. Problem tenants? Nope, no more. (side note- after rehabbing the apartment completely, the tenant texted us and asked if they could have their apartment back- not that they tried to become current on their back rent or anything like that. Oh, the humanity.)

    You have a thornier situation, I think, as 36 units is more challenging than 10, and rehabbing a substantial fraction of those units will be expensive. What leapt out at me was the electric heating- my guess is that exerts substantial downward pressure on the rents there. Residents know how expensive that can be, and insulation requirements in the 70s were much lower than they are today- throw in the single pane windows, and oofah! That place has gotta be expensive to heat. I'd look into the possibility of installing heat pumps with electric heating elements for very cold days(one per unit, hopefully, in the units which currently have electric heat) these can be installed in the window much like typical air conditioners and they will function as air conditioners in the summer- some can be installed through the wall. This might be your most inexpensive path to lower heating bills for residents. As a contractor, you probably know more about this stuff than I do. Maybe look into some better insulation. And upgrade the units aggressively and en masse- if you can manage to change the building's reputation rapidly, you'll be able to raise rents sharply and quickly. 

    I think under-rented situations offer the most promise for stellar returns, especially when those low rents are a direct result of poor management, inefficient building systems, and poorly finished apartments, as those problems are generally fixable. 

    MG

    4Reply
  • Jeff Kehl
    Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes
    10y

    @Bill McCartney if this property is in an area you consider decent I think you should get it under contract ASAP. Your posts indicate you have done lots of due diligence already regarding the physical condition of the property and the numbers look pretty good.

     And you have a competitive advantage on this property. You're a contractor and can do your own repairs, you're local and familiar with the area AND you're willing to manage it yourself. Given that you should make money.

    If you luck out and the area gets better/you improve the quality of the property you will make a LOT of money.   

    If it's in the 'hood you can probably still do ok if you're willing to put in the work and don't mind dealing with the drama. Just don't think you will 'turn it around' because you can't control what's around it. You'll make money on cash-flow and mortgage pay-down but it will never go up in price much.

    Regarding your 50% expense question, I find it fairly accurate over a lot of properties. It varies a lot property to property but roughly: Taxes 10%, Insurance 5%, Vacancy 7%, Repairs 8%, Capex 5%, Property Management 10%, Services like Landscaping, Snow removal, pest control 5%. You have a competitive advantage because you can do many of these yourself or hire them out.

    When you decide to do them yourself be really honest with yourself about what it costs to do them and make sure you understand what all they do. Are you good at tenant screening? Accounting? These things are a vitally important part of the business and you may be terrible at them.

    0Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    10y
    Originally posted by :

    So we decided(or really, it was decided for us) that we'd completely rehab the apartment. And we went with excellent finishes- I thought, why not update this baby? And when we did, we also raised the rent by 15%, and got the best tenant we'd ever had in that building. So a eureka moment followed- why not do the same upgrades to the remaining 9 units as they turned over? Over the next year, we modernized(re-did kitchens and baths, essentially) about 7 apartments, raised the rents on those apartments by 15%, and the tenant base changed almost immediately. The building became a desirable place to live, occupancy(which had been 80% at best) zoomed to almost 100%, with very short turnover times in between move-outs. Problem tenants? Nope, no more. 

    I think under-rented situations offer the most promise for stellar returns, especially when those low rents are a direct result of poor management, inefficient building systems, and poorly finished apartments, as those problems are generally fixable. 

    Your situation was essentially my game plan (less the tenant torching a unit)! Thanks for sharing your experience! I know every building is different and has it's own path to success but at least what I had in mind should work in theory.

    0Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    10y
    Originally posted by :

    Regarding your 50% expense question, I find it fairly accurate over a lot of properties. It varies a lot property to property but roughly: Taxes 10%, Insurance 5%, Vacancy 7%, Repairs 8%, Capex 5%, Property Management 10%, Services like Landscaping, Snow removal, pest control 5%. You have a competitive advantage because you can do many of these yourself or hire them out.

    When you decide to do them yourself be really honest with yourself about what it costs to do them and make sure you understand what all they do. Are you good at tenant screening? Accounting? These things are a vitally important part of the business and you may be terrible at them.

    I think you're spot on with your assessment. It isn't in the hood. It's a nice little area but due to mismanagement they are attracting the worst tenants the town has to offer. Thanks for the rough breakdown on the numbers. Off the bat I'm saving 10% on management, 5% on services, and 5% on repairs (I'm paying materials only). That's 20% off the top that's going into my pocket and with the apartment complex we'll be close to 30k a month in rents. To me, that's worth my effort! If I had a full time job and had to hire everything out it might be a different, but I'll be making a full time income working a part time job.

    0Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    10y
    Originally posted by @Peter Lohmann:

    Units that rent for under $500/mo in Columbus Ohio, it's simply impossible to make a decent return no matter what you pay (I wouldn't even take a building like this for free). The income (which is spotty to begin with due to the tenant demographic) is simply not enough to cover the operating expenses. You can't maintain and turn over units at $500/mo. There's just not enough cash there to handle routine maintenance, turnovers, plus unexpected expenses and capital improvements. Humans and the environment inflict more damage per day than you are receiving in rent, if that makes sense (over the long-term, that is). I've seen this play out time and time again. Another way to think about this - your expenses are independent of the rent you are receiving. Everyone should stop thinking about repairs and capex as a percentage of rent. It makes no sense and leads you down dangerous paths.

    You need to be around $550/mo per unit, regardless of the rest of the details, to start making any money, and preferably a lot higher than that if you want to actually earn a decent return.

     I have only a couple units below $500 but I deal almost exclusively in units below $600. What you're describing hasn't been my experience. My approach has been to offer quality housing at an affordable price. I am relatively picky about the tenants that I place. I fix all known issues before I move someone in and I am responsive when they call about any maintenance items which are fixed normally within 24 hours. My tenants are extremely grateful and take care of the units. I know that I'm new to this business and I currently have the capital to freely make improvements so we'll see if this model chews me up and spits me out!

    That being said, long term capex hasn't bitten me yet. I completely understand what you're saying that a water heater, furnace and roof all cost the same no matter whether you're getting $600 or $1500. 

    0Reply
  • Kim Younkin
    Real Estate Marketing Professional · Columbus, OH · Member since 2015 · 299 posts · 125 votes
    9y

    @Bill McCartney, we just helped an investor client do a similar deal earlier this year on a 22-unit Drugs and Bugs property - a term I just invented! We can tell you that it was a heck of a lot of work to get the bad eggs out -- both the people AND the pests. Those efforts can be expensive notwithstanding all the other expenses you've listed and posters have mentioned. PM me or David Panzera if you'd like to hear more about it. Best of luck!

    2Reply
  • Douglass Benson
    Investor · Mason, MI · Member since 2014 · 151 posts · 152 votes
    9y

    We have turned 25 of the last 37 units we purchased in 15 months.  Highest rent used to be $575, now the lowest rent is $625.  Recent units go for $690 and we are FULL. Kick all the bad guys to the curb as quick as you can.  Be aggressive and the good guys will see that you mean it and start to sign leases.  It doesn't matter where you live, people like being a part of something good. 

    2Reply
  • Brandon Schlichter
    Real Estate Agent · Circleville, OH · Member since 2008 · 633 posts · 488 votes
    9y

    Seems like a good deal with a huge upside potential with very minimal downside. I don't know what neighborhood or town you're in, but most of central Ohio anymore is above $500/1br and $600/2br unless you're in an absolute slum (And if you're within 2 counties of Franklin, from what I see those don't exist).

    My thought would be to slowly raise rents over a 2-3 year period, and let the tenants know up front what's going to happen. Here in Circleville someone did it with a 32 unit, raised rents from $450 to $699 for 2br apartments, and they went from ~50% occupancy to 100% when it was done (including upgrades as well). So you WILL need to budget at least some money for quality upgrades to attract decent tenants. 

    0Reply
  • Thorney Gibson
    Engineer · Bel Air, MD · Member since 2009 · 136 posts · 24 votes
    9y

    following

    0Reply
  • Clifford Kearns
    Investor · Culpeper, VA · Member since 2016 · 20 posts · 5 votes
    9y

    Bill

    From what I read I hope that you have already closed on that deal! There is plentyof room for more cash flow to come get the cancer out so that the complex with be in good health!!

    Clifford

    0Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    9y
    Originally posted by @Kim Younkin:

    @Bill McCartney, we just helped an investor client do a similar deal earlier this year on a 22-unit Drugs and Bugs property - a term I just invented! We can tell you that it was a heck of a lot of work to get the bad eggs out -- both the people AND the pests. Those efforts can be expensive notwithstanding all the other expenses you've listed and posters have mentioned. PM me or David Panzera if you'd like to hear more about it. Best of luck!

     Drugs and Bugs, ha, I might use that. I'll be sure to credit you if I do :) I will probably take you up on your offer! Thanks! 

    0Reply
  • Bill McCartney
    OP
    Heath, OH · Member since 2016 · 24 posts · 4 votes
    9y
    Originally posted by @Douglass Benson:

    We have turned 25 of the last 37 units we purchased in 15 months.  Highest rent used to be $575, now the lowest rent is $625.  Recent units go for $690 and we are FULL. Kick all the bad guys to the curb as quick as you can.  Be aggressive and the good guys will see that you mean it and start to sign leases.  It doesn't matter where you live, people like being a part of something good. 

     That's awesome! Congrats!! Did the last 12 units make the cut or are you still in process? That was my thought and how I did it with my smaller multis and I know it works on a smaller scale but I have no experience in large buildings. How long did it take you to identify good v bad? Were you nosey? haha Would you mind posting or PMing your costs on upgrading the units during turns? Thanks and congrats, again.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free