Ashland, Massachusettes · Member since 2013 · 14 posts · 0 votes
Im a young investor - relatively new to the game. I have built up to acquire a 16 unit apt complex worth roughly a million. Here are the numbers
Gross rents - 13200/month 158,400 /yr
Operating costs avg range-82-88k /yr
Net - roughly 67-75k factoring in 2% -5% vacancy range
The mortgage is at 200k at 2% over 10 years so about 24k a year bringing my net down to 43-51k
The building is in MA and I'm currently living in Texas- I'm managing remotely using people for books, repairs and rentals (my net factors in their pay). I have about 80k in stocks and 50k in cash on hand and am renting in Texas.
My question is this: what are my best options in my position to parlay what I have into something more. Should I trade up to a bigger property? Should I leverage it to buy a few smaller fixer uppers in Texas to rent? (Austin area) I feel that with my situation (800k roughly equity- 50k passive cash flow-130k cash) I could be doing much more and generating higher returns. Aggressive ideas, medium risk ideas? Thanks!
Have you considered and evaluated the prospects for converting the utilities to being individually metered per unit and then paid by the tenants? That is usually one of the things to consider when looking to reduce expenses / improve net income.
For the purposes of 1031 exchange, you should consider what your basis is in this property. Let's say for example that it is now worth $800K; if you paid $800K or more (total basis, not just purchase price), then there is no capital gains for which you would be seeking deferment, so no point to the 1031. If your basis is way less than value of a sale, then a 1031 makes sense to consider. You could 1031 from that one building to many single houses, but that could be really tough to do within time constraints limits for a 1031 exchange (especially if you really are holding out for good deals to buy).
Ryan, I really think you should physically inspect each unit before you go spending big bucks on separate meters. What you find might be eye opening. Although I know it is inconvenient and expensive to travel here, it is cheaper than the quarterly bill you just received for $8300. (to others, Ryan and I have been talking by email, and he does not have a local property manager.)
I'm also engaging Brian Lucier, who is a very experienced MA landlord. Brian, please read this entire thread. Ryan has has bills steadily increasing and the water department history shows consistent increases. At the current rate, he'll be paying $33K per year for 16 units. To me that says major leaks getting worse, or a car wash / laundromat operating out of the building. :-)
Ryan, Brian may also have specific recommendations for a contractor for you. He is not exactly in your area, but has lots of contacts.
Hi Ryan-
I'd heard the law had passed, I like the idea of the individual metering for a couple reasons. It helps the tenant be more responsible about resources if they are paying for it. It helps you detect where leaks might be or at least which units have high usage. Do you know how the billing from the water dept would work? Is it left to the property owner to bill the tenants?
If I were looking at a property of this size in MA now and the water was metered per unit I would see that as a plus.
Most of the plumbers I've dealt with are too small for this I would think (1 or 2 person outfits). I'll ask around to see if anyone I know has any preferred contractors in the area.
Kris
-just saw Ann's post. I'd agree inspecting each unit and mains on the property before undertaking the metering. I mis-read, thinking you did have a local property management.
I am late to the party but have brought the chips and dip. Yes, physical inspections are in order of each unit, in fact the whole building. From experience I know a running toilet can cost $100 per month for something as simple as a new $5.00 flapper. New toilet replacements are still cheaper than a leaking one. That is the type of thing a tenant won't call for either.
Scenario #1:
Leaking toilets. At $100 per month (if they are all leaking) is $1,600 in water down the drain each month. Times twelve months is $19,200 a year, which is almost 3/4 entire water bill.
Scenario #2:
Pre-meter the water bill. You can do this in Massachusetts but there are two things in your way. First, you have to go through every spigot, sink, shower and toilet and install energy efficiency amenities throughout the entire building. You still get the water bill, then charge up to 85% of the usage to the residents. Your second obstacle, is that sub-metering hasn't really caught on here yet so residents may move if you hit them with the expense. You cannot add this charge during a lease term either.
Scenario #3:
Find the source of the leak. It would be easy enough to see if there is a leak. Coordinate with the tenants a time for the inspection. Go to each door and confirm all sinks, showers are off. Check the meter. If it is spinning, you have a leak.