All Forum Posts by: Jennifer McElliott

We invest in the Snohomish County area and there are a lot of great neighborhoods you can look into - though in the last few years, prices have risen so much that cash flow is definitely more challenging to achieve.  With the projected light rail, there still may be upside potential with appreciation though.  We've found that it's not just the city i.e. Lynnwood or Everett that's good or not good, but of course the neighborhoods w/I those cities that you'd have to evaluate.  We also bought with families in mind, and found that the Martha Lake area of Everett/Lynnwood was nice and more affordable as a rental.  I'd check school ratings - that's usually a good indication of the neighborhood as well.  And if you're willing to look even farther north, we were able to find good little multi's in the Lake Steven's area.  

Good luck to you!

Hi @Gino Barbaro - thanks for commenting - I had to go back and re-watch/listen to your podcast - and was truly inspired! Sounds like your first deal might be a similar situation (minus the drug den part and weekly renters ;P)... I believe you mentioned that you also purchased that place at or around 600K, did that price make sense w/ the current NOI that the sellers were collecting or were you and your partner purchasing it knowing that the future NOI outweighed the fact that the current numbers weren't good? Have you guys written out a pro forma to show the sellers that why their ask price is too high and actually have them come down as a result?

@Rich Hupper - very true, in this case however, it'd be a relatively small deal for the big players - and it's not a traditional apartment building either - definitely more mom and pop style think large property where there's a 4-plex on one end and some single units in a separate building on the same property... this one also appears to be represented by a residential realtor and was listed on MLS and not loop net ... But I hear you.

@Ali Hashemi - thanks, yes I see it now, I am embarrassed to admit that I've been basing deals on it's potential as opposed to it's current value (b/c I think it can be worth more than the 600K that I'd be paying right now. and/or I believe I can make the cash flow when I turn the place over.).  In this case, I think beyond the eventual cash flow that I believe I can achieve, I think there is still room for forced appreciation even at the 600K price... but I think you all are saying that's (too) risky and plain, not wise....?

Thanks @Andrew Johnson - that's exactly why I'm posing the question - it does seem like too good of a deal, so I figured I'm missing something.  The bank is only loaning $350 b/c they don't see the property valued at 600K based on their calculations - similar to what 

@Scott Skinger was calculating w/ PM and CapEx etc factored in and the current rents. They are willing to take a blended method and review market rents and raise that value if they see that market rents are substantially higher. I just haven't finished the process and we haven't gotten that far yet.

Yes, I believe this property was self managed, so there was no PM expense - which is why it's not listed.  I normally manage my own properties as well (since up til now I've only had smaller MF and they have been low maintenance... but with this property I would plan on turning that and maybe all of my units in that city over to property management.). 

So Andrew - I think I'm unclear with your advice - are you saying verify the expenses, and if they check out, then buying it at 600 is reasonable and then if/when I'm able to get rents to market, I would be looking at possibly a refi at a new value closer to 1mm?

Thanks @Scott Skinger, sure here are the actual numbers:

The property has been on the market for almost 2 months now, it was originally priced at 690K, and has now been reduced twice to 620, and we're putting in a cash offer at 600K.

The property itself is not a traditional apartment building that you'd think of, it's more like someone had a duplex, and very bug chunk of land that they just kept adding to! So this property has 2 3bd 1ba units, 2 bd 1ba, and 2 1bd 1ba units for the total of 6.

the MLS information:

Financial Information
• Cash Out, Conventional
• Annual Taxes: $4,412
• Tax Year: 2017
• Cap Rate (NOI/LP): 0.60
• Gross Rent Multiplier: 13
• Total Monthly Income: $4,190
• Gross Scheduled Income: $50,280
• Gross Adjusted Income: $50,280
• Net Operating Income: $40,350
• Insurance Expenses: $2,170
• Water/Sewer/Garbage Expenses: $1,325
• Other Expenses: $2,023
• Total Expenses: $9,930
• Total Expenses: $9,930

So we have a duplex and a triplex in the area where we get b/n 1300-1500 for a 2bd 1ba the smaller of the units being around 800 sqft, so I was using that rental number for our projections for both the 3bd and 2bd in this property.

Likewise we have a 1bdrm that is around 500 sq ft that we currently rent for $850 and I used that figure for the 2 1bd units at this property (which is on the low end also as we've seen other 1bds going for up to 1K.)

Leaving expenses where they are - does this deal make sense to do as a BRRR? and am I looking at a new value of somewhere in the ballpark of $1.2 after all the work and new tenants are placed? (recent cap rates appear to be anywhere b/n 5-6%) and GRM 12-15.

Thanks!!

Hi All,

This will be my first foray into anything larger than a triplex - so I'm sorry if this is a dumb newbie question!  

I'm looking at a 6unit property that had appeared to be marketed to regular residential purchasers (i.e. it was on the mls by a residential realtor who doesn't appear to have sold any commercial properties before)... so they valued the property (based on comps) - again so it would seem.

When I've talked to commercial brokers about a loan for this property, they looked at the current rents, and NOI and they are willing to loan about 350K, leaving about a 300K balance that I'd have to pay out of pocket.

Now I know the rents are below market and I can raise the NOI almost 100% (wish some improvements of course...). So what I was figuring was if we purchased this property at 600K and put in 100K but brought rents up and the NOI up from $4190 a month, or 50280 annually to $6900 a month, or 82800 annually and using the low end of the GRM that I've seen in listings for the near by area of 12... it makes the new value $993,600. (btw, I'm basing the rents off of what I currently get for my similar units in the same city/area - and using the low end to be conservative)

Should I expect this, (if I accomplish my plans) or am I missing some other key factors when trying to see what I could potentially refinance out of this property at (or resell it at?)

Thanks in advance for the input!!!

Thanks again @Marcia Maynard!!!  I took ALL of your advice and spoke to tenant #2 tonight and I feel like we're off to a good start - a better start b/c of how you suggested that I approach it.  With Tenant #1, I wish I had your advice before I spoke with her the other night and thus wouldn't have made any rent rate changes and would have focused more on developing a good relationship with her first!  I have tried to keep my cool with her though as I do believe she's feeling stressed and her emails are reflecting that attitude.  Having spoken to my insurance company, I was able to give her two options that seemed fair ... 1.) the dogs could stay as long as she could show extended coverage for the dogs and rent would stay the same on the m-m that's she on now and we'd revisit that early next year. or 2.) she could choose to terminate her lease and give us 30 days notice and in the meantime house the dog somewhere else.  

I can't thank you enough for your advise and words of wisdom!!  :). I'm going to apply this to all inherited tenants going forward!

Best to you!

Hi @Marcia Maynard  - first, thanks so much for such a thorough and thoughtful response!  And Yes, I remember your podcast - I listened to it over again today to refresh my memory of all the great nuggets that you shared!  I wish I had remembered it before I spoke w/ the first tenant - but will definitely work in your tips with my call to the second tenant tonight!  

I think w/ Tenant #1, my problem is I'm not sure what I want to negotiate on this move out plan... I think at a minimum I have to give her 15 days (under the 'fix the breach of contract rules') but could extend that to be one month... and what if she comes back and says they still haven't found a place?  And what do I do in terms of the insurance since we still wouldn't be covered for her breed of dog....?  Do I still have her sign a new lease w/ us - for just the one month then?  

for Tenant #2 - those are great ideas... and I think that's where I went wrong w/ Tenant #1... I did some online research of #1 and thought I knew enough, and jumped in way too fast, but w/ Tenant #2, I plan to listen more :) and I like the idea of the 6 month lease!

Hi everyone,

We just closed on a triplex - and are of facing those same issues of inherited tenants... i.e. below market rents (by about $400,) questionable histories since we didn't vet them ourselves etc etc... but besides those 'normal' issues that comes w/ the existing tenants I have a question to gather some opinions on what you more seasoned investors might do...

We are in Oct, one tenant is month to month... I spoke w/ them last night and discovered that they have 2 adults and 3 children (ages 8, 4, and 1) and 2 dogs living in a 2bd 1 ba.... their existing lease didn't specify the dog breed... but she answered honestly and told me that one was an American Stafford pit bull (terrier)... i.e. it's not a dangerous dog, but comes from the pit bull blood line and insurance companies still ban it, so I told her this would be a problem.  She, of course, is not going to get rid of the dog, and their renter's ins policy does not cover dog bites (the upstairs tenant also has a 1 y.o.). So she's asked how soon do they need to be out.  We're coming into a rough season to try to find tenants (i.e. winter in WA State and the holidays)... what would you guys do in this situation?

Tenant #2 - these were the friends of the previous owner and they are below market by a little over $400 and have only left a security deposit of $250!  (rents in this area for a 2bd 1 ba would be around $1500.). I'm going to speak to them tonight and obviously I need to raise their rent... do most people just do it a percentage at a time so as not to lose the tenant right off the bat?  Obviously I'm concerned w/ the security deposit amount too... when I have them resign w/ us (their lease w/ the previous landlord expires 10/31 - i.e. this month anyway) can I include a bump to that security deposit?

We're also managing from a distance now - we used to the live in the area, so we did all of our placement and management ourselves... it's the first time I'm considering have a PM help us show the unit(s) and place the tenant... is it common to also ask them to help w/ coordinating any 'rent ready' activities that might be necessary - like new flooring and cleaners?

Phew - that's a long winded post - thanks for getting this far if you're still reading!!!  Would really really appreciate any suggestions!!!