All Forum Posts by: Joel Florek

@Brad McDaniel Thanks for the feedback. The idea is that sometimes a job will be a bit harder, and sometimes it will be easier. Rather then quote every job on a case by case basis or bill you after resulting in an unpleasant surprise, I will take a hit when its a bit tougher but profit more when things go smoothly. This way we can keep it simple for the property owner allowing for easier budgeting and less hassle. 

@Warren Straley I have closed a 16 unit and closing an 8 unit using 80% with the bank, 10% to 15% on a seller 2nd position note and I only bring 5% to 10% to closing. Has worked well for me but finding motivated sellers willing to keep some skin in the game for 18 months to 36months is tough since there are so many buyers. Finding a bank to work with this structure can be tough buy clearly not impossible. 

Terms on my 16 unit were 15% of the purchase price at 2% interest rate on a 10yr amortization with a 3 year balloon. 

New deal is 10% of the purchase price with 5% interest rate on a 20yr Amortization with an 18 month balloon. 

Let me know if there are any questions you have! 

Joel

Let me know if you need labor as my work just finished up for the house flipper I have been working for. 

Hello BP multi family members,

I am exploring the idea of of a new contracting business focused on the multi family market and want to gauge interest from the people like myself who own multi family property. I have been a contractor working with house flippers and home renovations but am needing to change directions since my last major job has completed. Please comment and provide ideas as I think this could solve a lot of issues for apartment owners. Scale and commitment from owners is key for this model to work. 

The idea is pretty simple, build a contracting business that specializes in turning apartment units and performing small capital improvement projects. Prices would be fixed for various activities and would be available on a sort of "menu." You would have one contractor to go to for all your renovation needs and you would eliminate the hassle of surprise labor charges, delays because your preferred vendor is building a house and has you at the bottom of their priorities, and eliminate the process of getting quotes for work to be completed. 

An idea of how this work would be an owner/manager could go online to order new flooring, painting, a window replaced, new toilet, or a light fixture exchange. They would indicate the desired range of dates for the work to be completed and provide the unit number and building for work to be completed along with an estimate for the floor square footage for the proposed work area(how most of the work is calculated off the "menu." You would even select the paint color, type of flooring, and other material from our list of standard options. 

After providing confirmation for the scheduled work date we simply show up, you let us in, we perform the work, take photos to go along with our electronic report, and bill back the material and labor charge per the guidelines of the "menu" you ordered from. 

In my experience of owning and managing my 23 and soon to be 31 units, I need work completed in 3 ways. 

1. Scheduled work: this is for capital improvement type projects. I am planning 2 weeks to 36 months in advance for flooring replacements, patio doors, water heaters, kitchen/bath renovations, painting, or light fixture changes. Some things come to my attention from tenants that need to be replaced on the shorter timeline but are not emergencies so I tell them typically 2 weeks for that type of work. But most things I can plan months in advance and can stay within my planned budgets for maintenance/capX.

2. Apartment turns: Sometimes I know in advance, but generally only have a 30 to 60 day notice of this type of work. When the apartment comes available I try to get in and get out within days or a week so my next tenant can move in and I dont experience much loss of lease. This work is typically based on my expectations of the condition/damage performed by a tenant. I always try to get into a unit in advance of their move out so I can better estimate the amount of work that needs to be completed. Paint, sometimes flooring, and a good cleaning are usually the items needed during these events. 

3. Emergency work: this is where we have a furnace or water heater or other problem that needs to be handled within 8 to 24 hours. This is 98% of the time specialized labor, but there are a number of options available and I have reliable contractors for this work. 

The contracting business would focus on providing services for #1 and #2. We wont be doing designer kitchens, individuals residential bathroom remodel or building new construction. We will focus only on providing services for the multi family rental market. 

We will contact apartment owners/managers to see if they are interested and if so walk them through the "menu" to be sure they understand our pricing, and provide a sample pack including material cuts and photos of our standard material offerings to see if they have any objections requiring special circumstances. 

By eliminating the process of quoting each job and standardizing material we can cut costs in a number of different ways that will allow us to win on price while still paying employees a very competitive wage to keep good labor working for you. There are other unique ways we will be working with labor and the business model to provide an efficient set of systems but thats not necessary to talk about right now. 

Please let me know your thoughts, objections, or recommendations. I will be focusing this in my market of Northwest Indiana to South Bend. However, I believe that if set up with the right systems processes, and pricing this could be a business easily scaled to other markets. 

Thank you in advance! 

Joel

@Derek Luttrell This will be for a property in Northern Michigan, but using part of the line to fund the closing on an 8 unit in south bend. Check out Old National Bank and talk with their commercial team and see what they can do to help you. 

@Derek Luttrell Look at doing a secured line of credit with a commercial lender. I am doing this right now on a property I bought only a few months ago. Bought it for $54000 and am getting a line for $50,000 based on the appraisal which we expect to come in at $65k or $75k. I have done nothing to the property but did purchase it in cash so the seasoning rules didnt apply according to the bank and they could provide a line up to 75% of the appraised value. You should have no problem pulling all of your money out of the property if that is the way you wanted to go. 

Another great thing about this line is its at 5%, interest only payments required, $800 to close on the line and an annual fee of $150 to maintain it. 

@Vishal Didwania, I don't have too much experience on knowing all the areas of South Bend but would like to hear others input on this. Maybe @John Warren or @Account Closed could chime in and give their advice. 

@Andrew Reich There is always a crash coming... If you spend you whole life waiting for it to happen then there will always be a reason to keep waiting even when the crash happens. 

In my opinion the best place to be is multi family. If you have millions or just a couple hundred thousand to work with you can do a lot in multi family. If you want to be conservative then you can put more down, but leverage is what makes real estate so attractive so I would focus on that as much as possible but keep cash or cash equivalents in reserve so you can deal with any issues that come up. 

If you are comfortable getting your hands dirty then I would say you could go after a $1m to $2m property with 50 to 100 units and hire out the management. But you will have to manage your management. If you have $1m to work with you can do $4 to $10m in transactions very easily. 

If your wanting to stay higher level in your investing I would recommend trying to find an operating partner. Someone who can put some cash in the deal, have a vested interest in your collective success, and has experience managing multi family properties successfully. They will be your boots on the ground ensuring occupancy stays high, maintenance issues are dealt with, and the property is being maintained through scheduled capital improvement projects that ensure your longterm value will be sustained or increased. There a lot of people out there, like myself who have owned and self managed(or hired out portions) of their portfolio ranging from 20 to 50 units. I would think these investors would be optimal partners if you went that route. They are hungry to grow to do bigger deals, have great practical experience, and are likely full time or mostly full time investors already with plenty of bandwidth left to take on bigger deals.

Best of luck and feel free to connect if you wanted to talk more real estate. Happy to get on the phone with any investors out there working on building their business. 

@Angela Przulj Thank you very much. Picked up another 3 this summer and closing an 8 right now to get me up to 31. Moved states, switched jobs and had a baby since closing the 16 unit last year so its been a fun adventure over the past 18 months! 

@Lillie MAnon Some banks wont finance under this structure. What I would recommend is that you put together your deal packet explaining the property, its past performance, your goals for it and showing your expected future performance. When you do this you will want to have your "ask" or "pitch." This is where you provide a proposed financing structure for the deal. In a case where I am closing an 8 unit right now I asked for 80% from the bank, 10% from the seller and I would bring 10% to the deal. After prorations it will end up being more like 7% but thats the beauty of this! I asked for a 20yr amortization with a rate of 5% and a balloon at 7 years. I got the 80% from the bank, they will allow a 2nd position seller finance piece of 10% and they did 20yrs at 4.5% with a 5 year balloon. 

Again, not all banks will do this structure but shop around and have a good loan packet for the bank and you will eventually find someone who can help you.