All Forum Posts by: Neal Collins

@Eric Struben If you're buying residential and can get a fixed, 30 amortized loan then why would you want to get an commercial loan with an LLC where the term will be between 5-10 years, a high interest rate, and you'll still have to guarantee the loan?

You may also want to clarify about what you mean about a second mortgage. A bank will want to be in first position. HELOCs will naturally be subordinated to junior positions on your primary residence.

@Jeff Kehl Great question. I ask myself this question regularly and there are a couple reasons why I invest in Portland’s hot market. 

First, it’s in my own backyard. I am very confident taking over an underperforming asset simply because I know my numbers and I know that there is a big appreciation lever that I can pull. I can also control it better than in another market. Plus, an up and coming area here is a hell of a lot safer than other gentrifying areas of the country. No copper stripped from our units yet...

Second, is that I can see the writing on the wall with where the city and other west coast markets are going. I don’t meet very many people that want to move to Ohio, but I sure do meet a lot of people that want to move to Portland. While i may bemoan some of the pro-tenant leaning policies that are getting put in place, it sure does make real estate values go up. 

I’m all for diversifying, though, and investing out of state is on the horizon. 

Originally posted by @Fred Heller:

That RUBS thing is not the milk and honey everyone thinks it is. I checked into it for a six-plex and it sounded like such a pain the landlord decided to drop it and he pays the water and garbage.

This is what keeps us in business and food on the table....Landlords that say “screw it, that sounds like a pain. I’ll just let the property ride.” They most likely have a small basis and high cash flow and don’t worry about peak property performance. 

I’m sure one day down the road I’ll be doing the same thing saying “gosh, that sounds like a lot of extra hassle for just a 10% increase in cash flow.”

Micah Shelton You’ll need a Developer’s license to flip properties that you do not intend to live in.

William Castiglione You don’t have to have a system that does it automatically if it is a duplex, you simply need to decide on a formula on how you are going to bill back and then put that in your lease. In Portland at least it is common to have separate electric and gas for each unit, but one water main. Water is very expensive here so we choose to bill it back on the number of occupants living in the unit, rather than splitting it say 50/50 for a duplex. Most property management software systems allow for this, but if you want to do it by hand just make sure you keep the water bill and your formula in case a tenant ever questions the math or you need to support it in court.

Joel Moore The storage closets aren’t very big, probably 4x4. In other buildings we own or manage the sizes range from a janitorial storage closet size to a small bedroom. We try and push a $25 storage locker rental, but can use that as perks to sweeten a deal if we are in a slow leasing season. Why include internet? Well, it certainly isn’t the norm, but on apartment communities where there isn’t a ton of amenities like larger complexes offer, we really try to find low cost high value amenities that incentive the tenants to stay longer. Property performance is a balancing act between getting top rental rate and reducing turnover. For me personally I’d rather have less turnover and slightly less rent than higher vacancy risk. We are also at a point in the market where supply is up and competition from other properties is high. Tenants are being more selective and are allured by concessions like 3 months of free rent and free beer on Thursdays. Regarding property management...We use Latitude Property Management. Full disclosure is that I am an Owner of the company but have a phenomenal team that runs the day-to-day operations and they are the ones that I give credit to for running a tight management ship that keeps vacancy low and rents at market rate. Having that team is vital to free me up to focus on finding opportunities for ourselves and our clients. If you want to get into the rental space I implore you to underwrite your deals to allow for management fees to be included, and then, if you’re really savvy, you find a good property management company to take over and let them do their thing. Unless you have a couple houses and want to gain the experience, or want to scale up a management company to several hundred units+, I can tell you from experience that having professional PM is worth the money, even if it just for the time saving aspect. Most of PM operational systems are simply too expensive for a mom and pop or small time landlord to afford with a low unit count.

@Bjorn Ahlblad 

I don't have many before shots, but here is one from the exterior. No painting required which is great.

After rehab:

Being in a relatively expensive market I know how discouraging it can be to try and break into real estate scene, particularly the multifamily space. We're in Portland, Oregon and very few cases can you hit the 1% "rule", and if you do you have to be creative.

I wanted to share a win today that has been in the making for the past 10 months because I think it is a good example of what a low cap environment looks like and what a solid base hit looks like for those that want to invest in small multifamily deals.

Here are the details on the property:

9-units in an up-and-coming neighborhood 

Purchase price: $1,550,000

Cap rate: 4.5%

Average rent was ~$995 and Owner was paying for garbage and water/sewer

When we took over we immediately had a couple units turn over, which was great because we wanted to get in there to do some upgrades (we do a lot on the sustainability side that include reducing hazardous building materials, energy efficiency upgrades, bike storage, decreasing utility consumption, etc). Tenants moving on their own volition also saves lots of money on relocation fees.

The gross income last August was $6,100.

We then started to fix up the units, made private decks, put in heat pumps in the upstairs units and radiant heating in downstairs units, re-did the landscape, put in covered and secure bike parking, fixed some plumbing issues, and took out a bunch of carpet. Internet was installed for the complex that is now a free amenity for the tenants, and we also put in storage lockers into the basement that are separately rented.

We didn't get to all the units because the tenants opted to stay in them and instead just pay closer to market rent. These units are still below market by about $150/month and in the future when they move they will get turned.

This week marks full stabilization with gross rents at $11,625---90.5% higher than when we took it over (there was a couple vacancies so it makes that number look great). Even better is that the water is now being billed back to the tenants on a pro-rata basis and eliminates a huge water bill each month.

After it's all said it done the property went from a 4.5% cap to a 6% cap when you factor in the amount of money that went into the rehab. It still sounds low, but the increase in performance has led to a $330,000 increase in value in ten months. 

It's not a deal to retire off of, but the rents are between $1,250 - $1,400 for two-bedroom units so there is a huge demand for these units and will continue to be so, it's in  a great up-and-coming area, and it will be a great property to manage.

So the lessen is...don't be discouraged! It can be done!

I’d first give them a call if you haven’t heard back from them in 5 weeks. Send a notice of a rental increase and cover yourself if you do end up rolling m2m.

@Joel Keefer You should record the Option at the county courthouse.