All Forum Posts by: Ed Matson

The staffing number might be for on site management? If so, the PM at 10% is too high. Phil makes good sense. Analyze the property with the current income and expenses, not future. That's what should determine price. And, if 60% of the units have been updated, you need a CapEx plan to address the other 40% to increase rents. That should be a discrete cost line item and factored into the ROI, as most of these costs will be capitalized I imagine.

I think Josh makes good points.  Assuming the market rate for these units is $700, and the area's vacancy rate is low, having a goal to get all units to or very near market rates is the way to go.  The question is how best to get there.  I am a fan of the incremental approach as it gives you a chance to test the impact on vacancies of the rent increases.  Your $50 increase is just under 10% of existing rent levels, and would put you about 13% less than the $700 goal.  An increase of $140 might create excessive vacancies.  Based on the reaction from existing tenants (or not), you could implement a second increase a further six months down the road. We have 46 units outside of Portland OR and found last year that older tenants were paying about 20% less than new tenants because we raised the rents for new people faster than existing tenants. We recently increased the rents of these old units by about 10%, leaving them still 10% under market, which we felt was appropriate for good, long term tenants, and for avoiding turnover costs. We had about 10% of the affected tenants move out after the increases and filled them at market rates with new folks. We felt this method minimized the potential for income disruption while still getting us closer to market rents for the longer term tenants.  I know this is a relatively conservative approach, but it has served us well. 

Cody,  Be very careful when looking at seller's maintenance and repair numbers.  Sometimes they defer maintenance to save $ knowing they will sell.  This understates their costs and you will be paying disproportionately more in the first year or two of operations.

That's 15 years old, not 125.  Oops.

Hi Cody,

I generally don't like "rules of thumb" as situations differ based on several factors, such as age/condition of the building.  However, a 50% of income number for total operating expenses is not out of line.  We have 46 units that are 125 years old where operating expenses (including professional management) are about 41%.  This is at 98% occupancy and several recent rent increases.  We also have an older, smaller three family where it is a little higher due to higher maintenance costs and no efficiencies of scale.  In your numbers above, the $10K per year for taxes and insurance combined seems light for 16 units.  I never like lumping major cost categories either.  I like to state them separately.  Helps me see if something doesn't look right.  I don't see power utilities, water, sewer, maintenance or repair costs in your numbers?  Also, why 89% occupancy?  Is that typical for your market? Seems low to me.  In my two markets I use 95% occupancy, and actuals are a little better.  Your market maybe different, but you're at 100%.  Is that 100% physical occupancy or 100% economic occupancy?  Are all rents up to date?

Hope this helps.

Hi Christian,

I don't see anything in the bank rep's explanation that looks unusual to me. Essentially its fixed 5 year money with them waiving principal in year one with a reset at year 5 and a 25 year amm. The rate seems reasonable for a combination construction/hold loan.  My bank normally gives me  both 5 and 10 year fixed options with the interest rate higher for 10 year fixed.

Hi Peter,

Congratulations on taking action!  There is a meet up the last Wednesday of the month at 7:00 PM at Crave in Fairfield. There are normally about 30 people there, including other investors, RE agents, attorneys, bankers, insurance agents, etc.  There is also another one in Norwalk on the second Wednesday  of the month.  If you reach out to me and provide your email, I'd be happy to give you the contact info.

OK, so you have no money and no experience.  But you may have a deal.  I always think when you bring a partner something of value (the deal) you can create a win/win and both benefit.  So, I like there second option.  Consider foregoing  the wholesaling fee altogether and make the deal your contribution to the partnership so you can get more equity.  

I invest in condos for long term buy and hold.  In addition to the excellent points above, talk to the property manager, and also look for signs of deferred maintainance (roofs, siding, driveways, that may result in a special assessment.

Has anyone had experience closing on a property with after winning a HUBZU auction?  Their PSA looks very one sided to me.