Cheyenne, WY 7 Unit Apartment Complex

Cheyenne, WY 7 Unit Apartment Complex

Rental Property Investor · WY · Member since 2016 · 243 posts · 221 votes

On December 2, I closed on a 7 unit apartment building. When I made the offer, I saw a lot of things, but the two most common were disaster and potential. Due to the size of the place, the insane income numbers, and the way that the first 6 days of ownership have gone, I figure i'd do a deal diary. I'm hoping to update this every 3 months or so.

This was an on-market deal that I found, owned by a guy who had inherited it from his father in law. He was absolutely done, and did not want anything else to do with the property. It is in rough shape, and comes with the types of tenants that will put up with the extremely poor condition that the  property was in. However, the income numbers were good, the location was good, and it's got a huge upside. I decided to go for it. Time will tell if I'm a fool or a genius.

Deal Stats

Purchase  Price: 160,000

Down Payment: 40,000

Gross rents (when full) 3,040

I closed late in the afternoon friday, dec 2 and decided to pick up the serious work of finding a property manager and dealing with the utilities on Monday.

Monday began with calls to the utilities, informing me that the seller was paying ALL utilities (they told me that I'd be paying water/sewer/trash and electric only for all units). In addition, the kind folks at the water department told me the building used 60,000 gallons of water last month, which was exceptionally high compared to its average use of 40,000 gallons. I grew up here in the Western US, and not only is that devouring my margins, there's not a lot of water here to waste and that's practically criminal. I dont know how many gallons per month an efficient 7 unit would use, but I can assure you I'll come close to finding out during this turn. After getting all the utilities in order, I started calling property managers. I called between 15 and 20, and many took a day or two to call me back (tossed, unresponsive) a few said they'd go drive by, and called back after and said they were not interested due to the condition. There was one willing to work on it, and this group has a broker with a background in house flipping. I set up a meeting for thursday morning for a walk through and tour of the 2 vacant units.

I met the property mangement broker, assistant and both maintenance guys, and went to let them in the first vacant unit. I knocked (I dont know why) and someone said "one minute". The tenant I believe was pretty shocked to see me, as I was him. I was under the impression that the unit was vacant. We chatted with him a bit, and he produced a lease, as well as receipt for payment for rent in december (Which I was told was not collected). He also informed me that the stove in his units (as well as 5 others in the building) were not functioning. We thanked him for his time, and went into the crows nest (the studio apartment at the very top) and looked around. They agreed to provide a bid for me for the work, and we went downstairs to check the mechanicals.

We spent a bit of time downstairs with the mechanicals, and discussed the strategy that I had laid out to widen the spread between income and expenses on this property, as well as a "Please do this asap" list I had prepared. Here's what was on it:

  1. Collect December rents
  2. New leases for all tenants - month to month - (except the new one, who is on a 3 month lease), that has the tenants paying the Gas portion of the utility bill for their unit.
  3. Replace a few broken windows and siding as required by the insurance company
  4. Efficiency upgrades
    1. Water: Things like new toilets, faucet aerators and showerheads
    2. Lights: LEDs are about the only think I can directly impact here.
  5. Implement a RUBS for the water/sewer portion of the bill at some point in 2017

They were on board with the plan, and were happy to help and excited for the project. I went over and signed the agreement (3 years, 10% PM fee) at around 1130, dropped my daughter off at school and went to work.

Then all hell broke loose. 

I get a call from the seller - apparently he's got the rent check from the new tenant, and he'll drop it by tomorrow, but none of the other rents have been collected. The person who was living in the crows nest (seriously, so gross) who they had to have civilly committed to get out was living in one of the other units with some guy, and I should under no circumstances let her move back into the crows nest, and she will ask. I was also informed that unit 7 was now empty (this is currently pending verification) . I thank him for the time, and start working again.

A few minutes later, the gas company calls. Someone is in the mechanical room in the basement, says there's a gas leak and I need to get over there right away. I ask if he's serious as I was in there less than 3 hours prior and didnt notice anything. He says he is. I call up the property manager, tell them the situation and they send someone over to get the keys to the building and head over. I dont hear from them for a while, then an hour or so later I get a call saying I got red-tagged by the city. The property manager has an HVAC Guy already on site, and they are dealing with some sort of backdraft issue that is filling the area with carbon monoxide, and there's a gas leak somewhere. Still unsure as to how it happened and who told the utility, but that is an issue for another day. 

So, an interesting first 6 days of ownership on the 7 unit building. I did get some good news from the property manager that my estimated rents after the units were turned were low by a fair bit, which is awesome. 

Stay tuned for update 2.

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Jerry W.Pro Member
Moderator
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
9y

@Jeff F., I am really enjoying this thread.  Keep us posted.  Let me know if I can be of any help.  That probably sounds better than it is since I have a full time day job and about 30 rental units.  For what it is worth WY has one of the best eviction laws.  I think I average about 10 days from filing to court date and Writ of Restitution.  Total costs average about $600 to $800 per eviction including costs.  I could not help you in Cheyenne, but it may give you an idea of costs.  Legal costs may vary a lot there, so shop around if you get high quotes.  If the other side gets an attorney costs could also go up and things could get delayed.

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  • Rental Property Investor · AZ · Member since 2013 · 213 posts · 50 votes
    7y

    @Jeff F. Sorry to hear about your vacancies and especially the extensive damage to your unit but it sounds like things may be getting back on track now with most of the units filled. I don't recall if you are still using your current PM but if you are, I have an excellent one I use for my SF here if you're interested.

    @Jerry W.  I am also sorry to hear about your vacancies, that is unfortunate timing going into our winter so hope that turns around quickly for you!

  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    7y

    @Account Closed, thank you for the kind thoughts.  While I would have wanted to keep them as tenants, I look upon it as having been blessed with having 24 years of combined rental years for the 3 tenants.  They kept my houses in good shape for the most part.  It will create some extensive rehab as most will need new carpet, paint and other upgrades.  However The next few months are good times to do indoor projects.  When you look at the big picture, those 3 tenants actually paid for one of my houses in full, even after considering upkeep costs.  You need to see the good and the bad.

  • Rental Property Investor · AZ · Member since 2013 · 213 posts · 50 votes
    7y

    @Jerry W. That is a very positive outlook and a great perspective when you say you were blessed with 24 years of combined rental years across the 3 tenants. And especially that they actually paid for one of your houses in full! That is definitely a success, so congratulations!!

  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    7y

    Hey @Jeff F., don't want to bug you but would love an update if you have time.  this is one of my favorite threads.  What I am hearing is that Cheyenne is staying strong.  My local market is a tiny bit weaker I think.  By the way I mis-spoke in one of my last posts it was a 4plex, not a duplex.  I have turned down several applicants.  We finally accepted a young couple and they are supposed to bring in money to secure the deposit while their 30 day notice runs.  They talked to my resident manager and mentioned a friend they want to move in who has 2 large dogs.  I said no go to either.  We will see how it shakes out.  My 3 houses are still problematic.  One had the entire upstairs updated, new carpet, new vinyl in the kitchen and bathroom, touched up walls, new bathroom vanities, some new lights, my new handyman wanted to rent it, so I said OK but didn't do my regular background check, didn't even do a lease hehe dumb lawyer.  Fixed up some walls, new paint, he moved his assistant into the basement, (large house), they got drunk, got into a fight.  Several drunk calls later one in jail, the other headed out of town as fast as his car would take him.  No good deed goes unpunished.  As I am the local prosecutor for a few more weeks, I had to chinese wall his case and stay away from it.  He is now out of jail and sober, and I am getting the second house redone.  New carpet upstairs, new lights, new outlets, scrapped off popcorn ceilings, texture that, new paint, new bathtub, with new tile (1970s forest green is kind of out of style), and soon a new vanity.  I am trying to rent the 3rd house as is (not to a contractor who I didn't check out hehe), but no luck so far.  I feel your pain bud.  I hope you get your appraisal to come out well.  

    I hope you had a great Christmas and I wish you a Happy New Year.

  • Rental Property Investor · WY · Member since 2016 · 243 posts · 221 votes
    7y
    @Jerry W. I'll update soon. Long story short, not going to be a good one.
  • Investor · Weston, WI · Member since 2016 · 105 posts · 114 votes
    7y

    Oh no! What happened?!?

  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    7y

    Hey @Jeff F., for my part I got another house rented.  The guy going to work in my old office called me on Thursday and lost the house he was moving into, and was moving Sunday.  I worked about 14 hour days on saturday and Sunday and got him moved in.  Now what's going on with your place?

  • Cheyenne, WY · Member since 2018 · 42 posts · 12 votes
    7y

    @Jeff F., I have been following your story, too. Real estate is pretty expensive here in Cheyenne, so I bought a little 2BR rental in SC where my family is that I am fixing up to rent (to a friend there).  So I am amazed at the scope of what you have been doing here in Cheyenne!

  • Rental Property Investor · WY · Member since 2016 · 243 posts · 221 votes
    7y

    Been a while, so time for an update.

    I was able to get the building under control once it was self managed but while I had started work finishing the last unit, the contractor just skipped out. Id whine and they'd show up for a day then take a week off. What was promised by Thanksgiving is still not done (Feb 16) and I finally had to get rid of him. The quality of work significantly deteriorated and the only way you could get them to fix something was not paying until they do. To this day - they'd emails/call etc 3-4 times a day if payment was 5 min late but I emailed them about not finishing a job I've paid for and haven't heard anything.

    I've still got 5/7 units full, but I've completed the refinance. It came in at 390k and I'm carrying 45k+ in debt that I thought I'd be able to cover (and then some - I figured my lowest refi possible was 450k). In addition to being wrong on the appraisal, the bank forced me to move from 80% LTV to 70% LTV, which hurt a lot.

    I'm working a plan forward but it's taking time. The biggest unit isn't quite done, so I'm still down revenue which hurts but I can't fill it until I finish it.

    I'm not sure this will be the huge deal I thought it was early on, but it's still good for now.

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    Thanks for the update @Jeff F. and hang in there. Congrats on getting the refi done, even if it wasn't what you needed.

    What's the game plan on filling the other (2) units?

  • Gettysburg, PA · Member since 2017 · 17 posts · 16 votes
    7y

    I think once you have the last two units filled, your appraisal would definitely come in higher. Don't worry about the bank side yet, try to finish the two units and get them filled. 

  • Rental Property Investor · WY · Member since 2016 · 243 posts · 221 votes
    7y

    It has been a LONG While, but I've finally (I think) got this building under control. 

    I was able to find a new contractor and get some small problems taken care of at the large apartment & get it rented. Tenants who were looking to move out for more space ended up moving into it, so it worked out well for everyone.  I gave it to them a bit below market, and further discounted it because he's going to take care of the shoveling & lawn at this property. Having a tenant do it for a bit of money has been something that has been pretty successful for me in the past, so I'm happy to not have to worry about it. He's also been doing some light maintenance for me, which has been a huge help. 

    I had a tenant move out, as well as the above tenants move into a vacant one, so I had a pretty tight feb/march (there was an empty at another one of my units as well). I ended up getting some significant work done on all of them so while they were not producing the were costing me money, but I really am happy with how they turned out in the end. I was able to raise rent on each of the units that ended up coming empty and got some good tenants in there, so im going to be +1000 or so per month in may vs feb, which will be nice.

    Unfortunately, im still carrying a bunch of debt on the property, and have not yet found a solution for it. I'm going to keep working at it and try to refi in the coming months, but who can say at this point. Right now, it's going alright, but things are far tighter than I'd prefer them to be. This hasn't been a super quick & rosy deal like I had imagined with with me wandering off with a 6 figure cash out check after all debt but it's still going to be alright (I hope). I've been able to significantly increase the rent on the building, and hopefully that'll increase the value. Here are some final numbers

    Gross rev: 4270

    expenses: 2577

    That's where we're at for now, and there's still a few ways to make this better. The studio is currently empty and i'm leaving it that way for a while to build up some cash/pay down some debt. It's awkward and would be hard to rent, and after the last tenant took apart the plumbing it's been unrentable anyway. 

    Once that happens, the next step is to get the electrical worked on, which im currently paying because the building isnt separated out. it's costing me $300 of that 2577 per month, but up until now it has been small potatoes. It's probably the biggest expense at the property I that I can reasonably pass off. 

    I had taken to calling it a dumpster fire for a while....funny thing about that is that I ended up getting an early morning call from a tenant about.....a fire in the dumpster next to the property. Some of the siding was melted, but other than that I was pretty lucky. 

  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    7y

    Thanks for the update, @Jeff F..

  • Bryan DruryPro Member
    Investor · Owensboro, KY · Member since 2008 · 130 posts · 65 votes
    7y

    @Jeff F., Hang in there fella. I know you’ve had a lot of challenges with this project. The price of tuition can be steep, but the education is invaluable. We’ve all paid for tuition in one or the other, if you’ve done it very long. I admire you for putting yours on display. Like I said, hang in there and be tough!!!

  • Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    7y

    How is the debt structured that you would like to pay down?

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    @Jeff F.  Good job on getting it this far, seems like you can see the light at the end of the tunnel.

    Really hope you can work out the financing/valuation part asap.

  • Cheyenne, WY · Member since 2018 · 42 posts · 12 votes
    7y

    Jeff, you are an inspiration. 

  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    7y

    Hey @Jeff Fruhwirth just saying Hi and checking in to see how things are going Bud.

  • Rental Property Investor · WY · Member since 2016 · 243 posts · 221 votes
    7y

    It's almost time for another update. I'm exactly 32 months into this project, and thankfully the updates have not come as fast and furious as they were early on. 

    Things have finally started to stabilize at the property, and have been continuing in that direction. While i'm still hanging on to the debt from the rehab of the property, I'm happy to report that the 7 unit has 8 producing units! I rented the shed/garage (the one that had a space heater + cats in it when I started) and all others are now full. I've had about 1 month of good income off it, which  has helped, and I've also been able to raise the rent a bit as things go forward and tenants change. I've got a lot of good tenants in there at the moment and am not expecting any major expenses on the interior of the structure. I'm starting to get the outside of the property cleaned up, and am planning on trying (again) for a refi in the fall. Hopefully i'll be in a better position, but for now, i've got the monthly rents up to 4785 (from approx 1500 when I bought it) and I've gotten expenses down (The building now is using less energy completely full than it was 3/7ths full when I bought it, and the water/sewer/trash has gone down as occupancy has gone up. 

    Gross rents are 4785

    Expenses are in the 2400/mo range

  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    7y

    Good job bud.

  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    7y

    @Jeff F. well done. It always takes longer and costs more. One thought is that for max on refi, banks like to see two years of bank statements. I realize that may not work for you but it's something to think about. Are you still self managing? I assume so from the quality of tenants you mentioned. Take care and keep us posted.

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    7y

    Keep it up @Jeff F. good work.

  • Rental Property Investor · WY · Member since 2016 · 243 posts · 221 votes
    6y

    This is probably going to be one of the last updates (I'll do the last one after a refi).

    Things now have stabilized at the property, and it has been a long road. It has been throwing off some good cash, but I'm still hanging on to a lot of the debt related to the improvements. I'm hoping to get all those taken care of with a better cash flow record during appraisal (for a higher value) and a lower LTV. That day cant come soon enough.

    A few final improvements for the next 12 months:

    1) I recently had the trees trimmed. The place looks way better

    2) Replace windows

    3) landscaping at the property

    4) painting the trim

    All in all, im probably looking at putting another 10-15k into the building before it's truly where I want it, but right now its doing pretty well. Hoping to get all the money I lent the company back sometime soon. 

  • Rental Property Investor · Houston, TX · Member since 2013 · 476 posts · 294 votes
    6y

    Thanks for the update @Jeff F. I'm glad the property continues to stabilize.  Looking forward to hearing from you after the refi.

  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    6y

    @Jeff F. Nice job. Do you know when you expect to go for the new loan? When you have a good balance sheet, be sure to shop the loan. There are a lot more banks willing to lend at better rates on pretty properties that throw off cash. 

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