All Forum Posts by: Greg Scott

There are three ways you usually remediate charring.  1) Replace 2) Dry ice blast or 3) Seal (but not with paint)

The spreadsheet you included is incomplete and insufficient for determining if this is a good deal or not.  Here are my comments on the analysis, not the deal.

We need to know the total dollars you are bringing to this deal.  You only show the downpayment.  You are missing the following:  capital improvements, working capital, closing costs, pre-payments, and anything else you will need to pay in advance.

You are missing several income and expense lines.  On the income side there are numerous things you could do to improve revenue but they are not listed.  You are also short on your expense calculations.  I would expect to see property management, admin, marketing, and contract services (more than just lawn care.)  You have an 8% vacancy factor, but does that include bad debt?  In my experience, economic vacancy is typically more than 8%.

Your NOI calculation is not correct. Since the valuation of an apartment is based on NOI, this is critically important. Get this wrong at your peril. Debt service is not part of NOI.

There is no calculation here showing your cash on cash returns, projected valuation, nor projected total returns.  I would want to see all of that before making a decision.

With respect to the deal, $35K per door is a very cheap price these days, so it could be a good price. However, $750/mo rent for a 2BR unit is exceptionally cheap, so it could be in a bad or depressed area, so that price may not be so cheap.

DM me

I would think that if the mortgage was recorded properly, it will simply be paid off.

This is a question that you probably should have asked of the title company / lawyer before going under contract.  I recommend you contact them immediately.

It would be worth checking with your CPA if there are any tax-related issues or filing requirements you should know in advance.

If you are renting out one or both sides, you can bill back for water usage, even without a second meter.  If you don't want to split it by some formula, such as number of people, you could always charge a flat rate.  

If you did the either of the above, there doesn't seem to be much savings at all.  How do you get to $2,493?   You would probably have a much bigger benefit from low-flow water fixtures.

Neither of these diagrams represent the way our business is set up, nor how most of my colleagues have them set up. 

We have one holding entity for each property.  (Keep in mind, those are multi-million dollar apartment complexes.  For what you are planning, both of those diagrams have a huge amount of entity structure that will need to be maintained. You may consider simplifying by bundling a handful of properties in one holding company.) 

We also have one management company entity.

Our management entity is the manager for all the holding entities.  We have an agreement that they will manage the properties and the management company earns an asset management fee for ongoing management of the properties.  There is no cross-entity leasing arrangement. 

It is also important to know how to sign documents correctly.  For how we have our business set up, it looks like this "Greg, Manager of Management Entity, Manager of Holding Entity #1"

Derrick:

I 100% know what I'm talking about.  You are now warned.  If you choose to play with fire, that is your perogative.

For your reference, here is a good primer.

Here is the key paragraph:
Rental discrimination is when a landlord or property manager treats an applicant differently based on the applicant’s inclusion in a protected class. Courts recognize that discrimination may result from both intentional and unintentional conduct.

The important term is "protected class". By its own definition, everybody alive is a member of several protected classes.  This is not just a racial issue. 

You have already admitted that you treat each person differently.  If a tenant, applicant, or prospective applicant finds out that you treated them differently, they can file a complaint saying you discriminated against them.  As the above paragraph says they assume you may have UNINTENTIONALLY discriminated, so the burden of proof is largely on your shoulders. 

Good luck.

Two stories to share...

ONE

I have a friend that has a fractured condo. (In other words he owns about 30 units of a 100 unit condo that he runs like an apartment complex. Another guy owned about 15 units and the rest were owned by individuals.) A few years ago their water bill suddenly shot up thousands of dollars more per month than historical norms. It was killing the HOA.

They worked hard to get a vote of enough people to spend the money on submetering the water.  Once they did, they isolated the problem to one unit.  The flapper had broken completely off the toilet and the toilet was running full-tilt, constantly, for MONTHS.  That condo owner had a sobering moment when he was presented with a $20K bill for recent water usage.

TWO

From personal experience, we recently bought an apartment complex that had submetering installed a few years prior.  The problem with that system is that the meters were in each unit and electronically transmitted the usage to a third-party provider for billing. When we bought the property about 20% of the meters were clearly malfunctioning, and showing zero water usage or near zero.  The staff expressed great frustration with the system because they could not easily diagnose if the problem was with the meter or the electronic transmission system. The cost to repair the system was high, so we decided to move to a flat monthly fee for utilities.

This is an obvious fair housing law violation because you are choosing which prospect get the concession. DO NOT DO THIS. It could cost you dearly in the future.

Concessions, when used poorly are dangerous to your business. In my opinion, they should be used surgically, and not as blunt instruments.

The most dangerous are "First month free" and the like. They encourage deadbeats and liars to apply.  Usually, by the second month, you are figuring out how to evict.

Sometimes we have a specific unit that has been on the market a long time.  We'll try to figure out if there is some defect causing that unit to sit.  If there is no obvious reason, we know the staff still sometimes can develop a superstition around that unit.  In those cases we may offer "one month free" but it will be the third month that is free. We still require a deposit plus the first month to move in.  The resident pays the second month on time and then, and only then, do they get the concession.

If the market is soft, and we are having trouble renting, before we consider concessions, we look at the product, the marketing, and lastly the price. We are more likely to simply reduce our asking rent than offer a concession.

FWIW, I did not read the attached article.