Investor · San Jose, CA · Member since 2014 · 40 posts · 19 votes
Well, I'm in a bit of a jam. I have a 10 unit building in Ohio that I need to make a decision on. I just had one unit busted for dealing drugs, so they were evicted. I've also had 4 other units sent eviction notices for being behind on rent. These were all inherited tenants. So I am possibly being hit with 5 unit turnovers at once, which will probably be around $5-8k each. The units rent for $450-500, but I'm really getting bled dry here. The past due rents are substantial ($5k), but I don't have much hope for collecting. Does it make more sense to -
a. Do the renovations, and try to get better tenants? I have the money, but it's a substantial amount of my savings.
b. Sell the place and take the loss? I could maybe hope to get what I paid for it, but I'd lose the money I've spent on renovations. I've put in close to $30k on a new boiler, roof work and other renovations.
Yes, I realize that I screwed up in my due diligence, I don't need to be reminded of that ;)
Buffalo, NY · Member since 2014 · 371 posts · 146 votes
8y
Turning a property over (ie. increasing NOI) is THE way to make money in the rental business. Make your property perform better. This is assuming you bought it at a decent then-current cap rate.
Buffalo, NY · Member since 2014 · 371 posts · 146 votes
8y
Turning a property over (ie. increasing NOI) is THE way to make money in the rental business. Make your property perform better. This is assuming you bought it at a decent then-current cap rate.
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
What area of Ohio is this in? What are the market rents? If the market rents are much below 700 it’s probably in a bad area and renovating it may not change your tenant base much.
Rental Property Investor · Manitowoc, WI · Member since 2016 · 178 posts · 186 votes
8y
In my opinion, this is where you really start making money on the property. Yes, you need to rehab the units, but now you get to choose your own tenants (and potentially raise rent?) and increase the property's value. If you have the funds for the rehabs, I think your current misfortune is actually good in the grand scheme of things.
This is only based on the details provided, which doesn't include the class of property/tenant pool.
Investor · San Jose, CA · Member since 2014 · 40 posts · 19 votes
8y
@Caleb Heimsoth - It's in Dayton. $450 - 500 is pretty average for a one bedroom. If I fix them up and rent them, I could get $500, which would be a decent return. I would say it's in a C area.
@Mark Bookhagen - I understand your point, but the issue is that renovating is probably not going to increase my income very much, and it's a big expense. I could maybe get $500 for the renovated units, which would increase my gross rent by about $285 a month. Is it worth it?
Investor · San Jose, CA · Member since 2014 · 40 posts · 19 votes
8y
@Brad L. I have another property in Dayton with really good tenants, and great cash flow. My management has done a great job in the past of finding me good tenants. I guess I'm just freaking out a bit about the expense of the remodeling.
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Those are just such low rents, I’m not sure the tenant base would improve much. Are you sure it’s a C area?
I own a rental in a C area in Cleveland and that rents for over 800 (it’s a two bedroom). But at such low rents you’re going to attract a certain type of tenant
Investor · San Jose, CA · Member since 2014 · 40 posts · 19 votes
8y
@Caleb Heimsoth Like I mentioned above, I have another property in Dayton with one bedrooms around $500 and the tenants there have been great. Even in the nicer areas of Dayton, a one bedroom would be maybe $750, so it's just not a super high cost of living area.
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
8y
If you can spend $30k in renovations to make $280 more a month you're looking at an 11% return on that money. On top of that, the property NOI has increased the property value as well. AND you have a property manager that has been successful in getting you good tenants in that area? No brainer, fix the property, raise rent, make more money!
Rental Property Investor · Dayton, OH · Member since 2014 · 57 posts · 34 votes
8y
Some properties that I take over management have inherited residents. It sounds like you have you good management in place, give them a change to improve your client base. See if you do do a little something that better residents will want to be there. Use a two tone color scheme for a start.
If you can spend $30k in renovations to make $280 more a month you're looking at an 11% return on that money. On top of that, the property NOI has increased the property value as well. AND you have a property manager that has been successful in getting you good tenants in that area? No brainer, fix the property, raise rent, make more money!
If your goal is to sell, spending the money to rehab and get better tenants will get you a much better exit price. Have you thought about partnering with someone local? As in "I'll sell you half of it for X, and I'll contractually agree to use X for rehabbing the property."
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
8y
Value add MF is one of THE best ways to make $$.... take a POS and add some value, bump the rent and get better tenants and manage it better. Yes, there is a limit based on the location....you wont make a D area into a B area by making your place really nice..... so you do have to be careful on over improving based on your neighborhood etc
From your basic numbers, seems like its a decent value add opportunity.
@Brad L. I have another property in Dayton with really good tenants, and great cash flow. My management has done a great job in the past of finding me good tenants. I guess I'm just freaking out a bit about the expense of the remodeling.
Totally understandable. It all comes down to your comfort level. You say the rehab would take a substantial amount of your savings...does that mean 40%? 90%? If you don't have the reserves left over in case of emergency, then it's definitely not worth holding on to as a major capex or a couple more evictions would easily sink you. If it just means you have to tighten your budget and live a little uncomfortably, I'd stick with it.
Rental Property Investor · Niceville, FL · Member since 2017 · 88 posts · 136 votes
8y
I agree with most all the other posts...Spend the $$ if you can and let the management company try to get better tenants in there. It sucks when there are that many at one time..On the bright side, at least it is spring/summer time and a good time to be renting units. I took a run down drug infested 23 unit property and added 7 units and changed the renters to a totally new property that stays at or near 100% full now! Good luck and let us know how it goes.
Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
8y
Keep in mind that renovating will mean you can attract better people. You might not get higher rents, but you should be able to find better tenants who actually pay you.
Assuming this is a C property with rents at $500 you are way over renovating if you are spending $5-$8K each.
Max out your renos at 1K per unit and get them re-rented. Your rents are way to low to spend more than that per unit. Tighten some screws, slap on some paint and get them back in service.
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
8y
Problem 1: I think one challenge is that you are located out of state, unless you have great boots on the ground. Problem 2: Low income, market rate tenants usually have high default rates. That is why landlords in these areas like section 8 housing vouchers. These vouchers may be difficult to get since you have one bedroom units. Problem 3: Dayton. The city is nice, but it has been losing population for more than 2 decades. This creates a scenario where class C apartments are not competitive (as opposed to California). And certain areas become blighted.
You have to turn around this building, so the only way out is to screen your tenants better. Perhaps the only tenants attracted to your building will be marginal. So it is the type of building that will require a lot of hands on management to make it successful. I've been there. I sold my two troubled buildings that I couldn't fix the recurring eviction problems. Don't sell your building in a distress situation. Paint and clean the vacant units, make them presentable, and you will get a higher percentage of your money back.
Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
8y
Charlie Price that sounds like a great story, I would love to hear about it. That’s what I do.
Do you have any tips on getting rid of drug dealers, keeping them out and turning a property around?
Retired Landlord/Author · Commerce Township, MI · Member since 2012 · 1k+ posts · 1k+ votes
8y
When I took over several properties from a previous landlord I knew I had my work cut out for me. Almost all tenants were behind on their rent, and property taxes were 3 years behind.
I terminated each tenant that was bad, one at a time. Fixed up the unit after they moved out. Doubled the rent and within the year I was making a good size profit.
I developed a great lease agreement, made everyone stick to it, and made this business work like clockwork.
It's tough to take over somebody's mess, but if you buy cheap and see a potential and know your own mental and financial worth, you can do it.
The bottom line is that we need to train our tenants to pay rent when it is due and not pay rent anytime they feel like it in a rental month. That is the first mistake new landlords make.
File that Notice to Quit on the very first day rent is late.
You see tenants are used to having landlords not adhere to the rental agreement if they have one at all. By the time we get them, those of us who have everything in place that should be in place, need to train these tenants to understand that a Lease Agreement is an actual legal contract and has an actual DUE DATE !!!.
I think you'll do fine. Recoup and as said above, you're now able to choose your own tenants. The first thing you need to do is to make sure they are COLLECTIBLE. Second, get as many co-signers you can if they are questionable. That's half the battle.
Retired Landlord/Author · Commerce Township, MI · Member since 2012 · 1k+ posts · 1k+ votes
8y
The Tenant Phase by Nancy Neville
THE FIRST MONTH (THE HAPPY PHASE)
During the first month of a rental period, the tenant is happy. They wanted the home, they got the home and everything is fine. THEY ARE VERY HAPPY! You spent a lot of time at the signing of the lease telling them what you expect from them and what they can expect from you. They seemed to be happy and they nodded in understanding.
THE SECOND MONTH
Somehow during the second month, when the newness wears off and the happiness falls into a routine, the new tenants become confused. They seem to forget what the rules are and when rent is due (even though they have a written lease agreement to refer to). If they are one of the few tenants who do not get confused during this time, this means they have jumped from the Second Month phase into the TESTING PHASE which may cause a few problems, but I will talk about that in a few minutes.
To help the Tenants not be confused during the 2ND MONTH PHASE, I always bill my Tenants their rent 10 days before it is due. It's during the 2ND MONTH PHASE that I will answer any questions they have and not make them put it in writing.
TESTING PHASE (May begin as early as the 2nd month)
The TESTING PHASE is a very crucial phase. Whether the tenants and you get along is determined during the TESTING PHASE. More Tenants than not like to Test the Landlord. If they had gotten away with it with their previous landlord, chances are, they feel they can get away with it with you.... so they will try. They will pay their rent when they want to, putting you last and live the way they want to regardless of your rules.
It is very important to nip this in the bud during the TESTING PHASE, because if you allow the tenant to get away with things such as paying their rent when they want to and doing what they want, then chances are you will never proceed past the TESTING PHASE.
THE THIRD MONTH:
If you make it to the third month, that is good. But it is also very crucial at this time as well to make sure the tenant stays on course. The Third Month strengthens your position as to who runs what. During this time you want to make sure that the tenant keeps paying their rent on time and keeps obeying the rules. One little falter on your part can throw the tenant back into the TESTING PHASE. It is very important that you guide them during this time as to what you expect and want. It is important that you gain their trust and respect during this time.
THE FOURTH MONTH - THE COMFORT PHASE:
The fourth month through the first year is THE COMFORT PHASE: the tenant becomes accustomed to your rules and is starting to feel comfortable. If you have handled everything correctly, being strong when needed to be, and doing evictions when needed, the Tenant will feel secure because the Tenant will know what is expected of them and will feel comfortable and will want to stay. (Tenants usually feel comfortable with stability and sameness).
AFTER THE FIRST YEAR:
After the first year, the COMFORT PHASE becomes more stable and each year thereafter. It's just a matter of keeping your Tenant happy, yet, making sure they don't slip into the Testing Phase from time to time. Even old time Tenants will want to go to the Testing Phase if they see their Landlord falter, get too over-generous or too understanding.
When that happens the Tenant's stability changes because the rules are changing throwing the tenant into the Testing Phase again, so we don't ever want to falter but always stay strong and in control.
THE MOVING PHASE:
During the moving phase the Tenant, no matter how many years they have been with you, seems to forget everything again. They become babies and they revert back to the TESTING PHASE. Once again they never refer to the Lease and must depend on you for answers.
During the MOVING PHASE, the Tenant can change personalities quickly. It's like they drank a potion that changed them from Jekyll into Hyde. They become this fiend, this villain that could destroy you and is probably the hardest phase of all the phases.
It is during the MOVING PHASE, that you must be cool, have all your wits about you and be prepared, yet still be cordial so as not to enraged the monster that seems to be lurking in your Tenant during the MOVING PHASE (as there is NO ANTIDOTE to calm the savage beast once it takes form). If by chance this happens, it is best to not confront the beast but to keep your distance until the courts can set it free!
With time everything will fall into place as long as you treat Land lording as a business!
Rental Property Investor · Barrington, IL · Member since 2017 · 208 posts · 310 votes
8y
Stop!!
I’m reminding you that the reason that you’re in this mess (as you said in the OP) is that you didn’t do your DD. You’re about to make the same mistake again. Take a step back, take a couple of weeks, write down/consider your options and then move forward. You’re taking advice from random people on BP who know nothing about your individual situation and all of the details of your apartment building and you are ready to immediately throw money at the problem. This probably won’t end well. At a minimum, you should consider doing the following:
A. Plug in your current numbers, estimated construction costs, rent increases, assumed exit cap rate and more into a deal analysis spreadsheet specifically designed for multifamily. The BP calc won’t get you there. Buy one from Michael Blanks site or Real Data and learn how to use it. This one investment will save you a ton of money going forward.
B. Take @Thomas S.’s advice about construction costs/plans. Talk to your PM, talk to people on BP, talk to the people doing the work. Get your budget nailed down and then go back to step A above and plug in your new numbers.
C. If your numbers from above work and you're happy with the ROI then you move forward and take @Account Closed’s advice and sell. Just keep in mind that nobody will want to buy your problem unless it is for a deep discount. You might have to do all of the above before you are able to sell anyway.
Take your time and break this problem down. Those who fail to plan, plan to fail. Don’t be that person. You can do this.