HOW to save $1000 a month- Leak Search and 3 toilets

Question

In mid-August, we closed on a 32 unit property just west fo Salem OR (About an hour south of Portland.)  11- Three Bedroom units, 21- Two bedroom units, backed up to the elementary school, awesome location and room to build another 12 units.

During underwriting, the loan officer and I independently saw the utilities were off...a lot...the area has relatively low water/sewer costs and these were running around 7% of gross rents.    I figured there were leaks etc somewhere.  We have used a leak finder specialist on other properties and had great success.  This time was no different, we were losing 6 gallons A MINUTE....culprits ended up being 3 bad toilets and a couple of small water heater leaks into the crawlspace (I knew about those form the inspection.)

Total repair and labor cost, around $500 MAX.  Leak search was $350.  We just got the water/sewer bill today and it was $1011 LOWER....and the city gave us a $600 credit for fixing the leak.

SO, in summary....160,000 gallons of water per month saved (1,920,000 per year)

$1011 per month at 7% cap rate means that repair nets a increase in value of 14.285 x (12 x $1011)= $173,305.62

Which is sort of like finding another 1.5 TWO bedroom units.

Richard Sherman · Answer

@Karl B. EXACTLY.  Properties run by mom and pop with low rents and some deferred maintenance are my favorite!

It was on the market for about a year.  The seller did well, they bought it 3 years ago, put almost nothing into it but got it fully rented, made probably 600k on it when they sold.  I wish I had seen it back then, they got a steal...then again I did not have the ability to buy it back then either.  Crazy how fast the snowball can build.  Went from buying 10 a year or so to this year going to be 58...

Richard Sherman · Answer

@Karl B. Thanks!  Yeah, the broker I use is a small office, VERY VERY good it was the owner of the office that noticed it (if anyone is looking for a commercial lender in Portland OR area DM me and I will send you their info.)

Yes, it is a good property..was not run well for a long time, but big units, great location, just needs some more work (and now I have an extra $1000 a month to do it with  bwahahahahhah..hhhaaaahhh...ha...sorry

Karl B. · Answer

That's awesome! It would be cool if you told management about the underwriter being great and helpful.

Congrats on the find (both the property and the leaks)! It sounds like an exciting property that has the potential for value-add.

Karl B. · Answer

Poorly run properties are my FAVORITE. They often reek of value-add & a deal to be had.

Now when you turn on a faucet at that place you'll smell money in your pocket.  :-)

How long was the property on the market?