Currently negotiating first multi family deal and have questions

Multi-Family and Apartment Investing
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Currently negotiating first multi family deal and have questions

Rich SomersPro Member
Investor · San Diego, CA · Member since 2019 · 131 posts · 116 votes

So I'm currently in negotiations for my first multi family property (5 units & up). I wrote an offer yesterday, and today the seller countered. Before I counter the seller, I am trying to more accurately nail down my pro-forma numbers. Right now the owner pays the majority of the tenants' utilities (gas & electric/water & sewer). When the current tenants' lease agreements expire I plan on implementing RUBS to push those utility costs on to the tenants. Currently tenants go off site to do their laundry, I plan on cleaning out the basement and adding coin operated laundry and installing storage cages for the tenants to rent if needed. I also plan on installing key phob entry for the lobby, and some security cameras in the common areas to better secure the property and help the tenants feel safe. I also plan on swapping out all the units older appliances for brand new appliances when I take over the property. All of the lease agreements expire within 60 days of our scheduled close date so with these minor upgrades and savings it looks like I can conservatively increase the NOI by 30-35%. Have any of you guys implemented RUBS when you took over a property, and if so could you tell me about your experience using it? Also, has anyone used any of these other techniques mentioned above personally and if so any feedback would be awesome! Thanks guys!

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Zachary Rall
Rental Property Investor · Scottsdale, AZ · Member since 2019 · 10 posts · 8 votes
7y

Hey Rich,

Couple comments on your questions/ideas below:

- RUBS are a great way to have tenants help with some utility costs, but I would say that it's entirely market dependent. I don't know where you're buying at, but try and do some research to see 1) if it's market to charge RUBS where you're at, and 2) how much your nearest comps are charging for RUBS.

- Depending on size of the property, scope of the work, and how much rehab you're willing to do, you can always consider individually submetering each unit. That way you can fully push electricity (and water if you wanted to submeter that as well), and then charge lesser RUBS for gas, sewer, trash, etc. 

- On-site laundry is better than off-site laundry, and in-unit washer/dryer is better than on-site. Depends on your CapEx budget and what the market standard is. In certain markets, it's common for tenants to rent or bring their own w/d. In others, it's almost expected to have in-unit w/d (so installing them gets an automatic rent bump). Things to keep in mind.

- Key FOB and extra security are always huge. I don't know that they directly correlate to X% increase in rent, but you're going to expand your renter pool if they feel safe.

Hopefully some of this was helpful!

Zack

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  • Zachary Rall
    Rental Property Investor · Scottsdale, AZ · Member since 2019 · 10 posts · 8 votes
    7y

    Hey Rich,

    Couple comments on your questions/ideas below:

    - RUBS are a great way to have tenants help with some utility costs, but I would say that it's entirely market dependent. I don't know where you're buying at, but try and do some research to see 1) if it's market to charge RUBS where you're at, and 2) how much your nearest comps are charging for RUBS.

    - Depending on size of the property, scope of the work, and how much rehab you're willing to do, you can always consider individually submetering each unit. That way you can fully push electricity (and water if you wanted to submeter that as well), and then charge lesser RUBS for gas, sewer, trash, etc. 

    - On-site laundry is better than off-site laundry, and in-unit washer/dryer is better than on-site. Depends on your CapEx budget and what the market standard is. In certain markets, it's common for tenants to rent or bring their own w/d. In others, it's almost expected to have in-unit w/d (so installing them gets an automatic rent bump). Things to keep in mind.

    - Key FOB and extra security are always huge. I don't know that they directly correlate to X% increase in rent, but you're going to expand your renter pool if they feel safe.

    Hopefully some of this was helpful!

    Zack

    1Reply
  • Bryan MitchellPro Member
    Rental Property Investor · Columbus, GA · Member since 2016 · 634 posts · 337 votes
    7y

    Additionally, without the value adds, what is the cash after estimating all expenses? (Vacancies, Maintenance, CAPex, etc)

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  • Drew Taylor
    Rental Property Investor · Ashburn, VA · Member since 2009 · 17 posts · 3 votes
    7y
    Adding to Rich's thoughts, you should consider mystery shopping similar, nearby properties to strengthen you comps inlcuding viability of RUBS or calling if visit not reasonable.  

    Originally posted by @Zachary Rall:

    Hey Rich,

    Couple comments on your questions/ideas below:

    - RUBS are a great way to have tenants help with some utility costs, but I would say that it's entirely market dependent. I don't know where you're buying at, but try and do some research to see 1) if it's market to charge RUBS where you're at, and 2) how much your nearest comps are charging for RUBS.

    - Depending on size of the property, scope of the work, and how much rehab you're willing to do, you can always consider individually submetering each unit. That way you can fully push electricity (and water if you wanted to submeter that as well), and then charge lesser RUBS for gas, sewer, trash, etc. 

    - On-site laundry is better than off-site laundry, and in-unit washer/dryer is better than on-site. Depends on your CapEx budget and what the market standard is. In certain markets, it's common for tenants to rent or bring their own w/d. In others, it's almost expected to have in-unit w/d (so installing them gets an automatic rent bump). Things to keep in mind.

    - Key FOB and extra security are always huge. I don't know that they directly correlate to X% increase in rent, but you're going to expand your renter pool if they feel safe.

    Hopefully some of this was helpful!

    Zack

    1Reply
  • Oleg Shalumov
    Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
    7y

    @Rich Somers good points made already here but wanted to add:

    - as @Zachary Rall mentioned RUBS would only work if other rentals are charging them. If rental is offered for $600 a month with utilities in the building next to use, nobody will rent from you for $600+RUBS

    - note, laundry usually does not bring extra income, it is normally installed for tenanats convenience. 

    - let phone entry is also important but again, compare it to rental around you. You will not be able to increase rent based on that.   

    1Reply
  • Theo Hicks
    Rental Property Investor · Tampa, FL · Member since 2015 · 1k+ posts · 969 votes
    7y

    For all of the value-add opportunities you plan on implementing (RUBS, W/D, storage, etc.), determine if they are demanded in your market by looking at comps. If they are demanded, you can use the comps as a guide to determine how much extra rent you can charge. If you cannot find a comp that charges for storage, you may not be able to charge a fee, for example.

    For RUBS, I would determine the ROI, because it doesn't make financial sense on all sized deals in all markets.

    1Reply
  • Rich SomersPro Member
    OP
    Investor · San Diego, CA · Member since 2019 · 131 posts · 116 votes
    7y

    Awesome, thanks for all the great advice guys!  I was able to get this building into contract today after 3 days of back and forth negotiations.  It seems that about half of the neighborhood have owners that include utilities and the other half that either use RUBS or have lease agreements where tenants agree to pay a set monthly utility fee to owner in addition to their rent payment.  I'll have to get with my attorney out there and see what kind of lease agreements we can get typed up for this.  I love the idea of secret shopping some of the near by buildings, I will do that next time I'm out there!  

    1Reply
  • Oleg Shalumov
    Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
    7y

    @Rich Somers congrats on you making the next step!

    1Reply
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