All Forum Posts by: Oren K.

@Art Maydan - OK so we are now separating process from personal preferences.

I agree with you, that calling you out of the blue and saying ' a service person is here and where can I put it' is not acceptable. Someone else failing to plan, is not your emergency. Any accommodation you make, if possible, is goodwill and just being a good person.

With respect to where to put a phone line; the depends how far you are going to go. Most units have a connection in the kitchen, living room and each bedroom. Alternatively, you provide 1 connection point somewhere central and the installer will run wiring along / under the baseboard (going under carpets or around doorways to cross hallways) to where each plugs are needed.

Personally I have a base phone station connected at a wired location in the living room and then use cordless phones for the rest of my place (office, bedroom, etc).

High Speed Internet if not pre-wired (and usually not in older places), usually is provided via the cable or phone service provider via a splitter from the main connection point. One branch will go to a modem box that provides just ethernet or to a box that combines modem and router and switch.

Leaving this stuff out when already doing a gut rehab is not a good idea and can be costly to retrofit; Live and learn. Depending on what happens, as this is only a 9 month tenant, you should make sure you point out to any future tenants, what is and is NOT in place.

Good luck,

Oren

Art - Sorry but getting wired services (television, phone, internet) vs. wireless is not an unreasonable request as the quality and reliability of the services is simply better. He should have asked / noted the missing jacks / connection points before he moved in but I also have to say I'm surprised that they are not there. Did you recently remodel / rehab the place and simply not put them in? If so, you should make a point of making people aware when showing the place.

I do have a slight issue with the dish and agree that on move-out, removing it and repairing should be at their expense.

Kathy - Don't think there is a formula-istic approach to this. Both you and the Seller are saving $ by doing the transaction for all three at one time. Depending on how the local market is for these duplexes, you are also saving the seller the time / effort of marketing the properties separately. 

How the Seller values their time or if they has reasons to move things along, you may be able to get a slightly better price. By the same token, if you had to buy these three duplexes from three different owners, would you be willing to pay the same price.

@Alex P. - I think what has been missing from this thread is the idea of segregation. A licensed PM will set up a separate (segregated) set of accounting books and a separate bank account for each property. It is the only way to accurately track what is going on. On top of that, they will have their own books / accounts for their company. So when you pay the PM company, the funds are physically and notation-ally transferred from on place to the other; a check gets written from your account and deposited to their account.

Just as you would not want your funds co-mingled other owners funds, there should never be a co-mingling of your funds with the PM's funds.

Oren

P.S. If you have several properties, you could run them from one account but that is just asking for problems down the road and I don't think most licensed PM companies would do that.

@Eric P. - Actually I purchased at an auction and almost embarrassed at the price I won it at. Having said that, I have put a fair bit into it for rehab. Even so, the all-in CAP rate is a home run.

@Barry Wittine - That was exactly part of the calculus when I purchased it. Good / great income for now and a possible / probable appreciation event down the road.

@Federico Gutierrez - I was hoping that some of the loan broker / financing types would show up with a suggestion so I could unlock capital. Would even look at an lower LTV Line of Credit if it was possible. Holding and accumulating cash flow is just a slower option then getting a refi loan. Regarding the tenants; so far so good - credit loss seems stable @ 2% - 2.5%.

  As well, you may be surprised at what is going on EVEN in East Cleveland. Also, some of the properties that have gone through moderate / extensive rehab should be coming back on the market in the next 2 - 3 years. If the EC and Cleveland merge, it will be a pay day all around.

Doing any work on the inside only mitigates (reduces) the secondary damage of the water that has already come inside. It also potentially (depending on the work) require some additional long term maintenance (e.g. sump pump replacement, collapsed interior weeping system).

If at all possible any water penetration should be addressed at the source on the outside by digging down to the foundation, sealing all cracks, putting in a waterproof barrier, dimple board, stone, etc. 

If you already digging down that far, you don't want to have to do it again in your lifetime :).

So what do you do when the appraisal does not come close to value? Am I becoming yet another unrealistic owner :).

I have a 39 unit property that I have remodeled and re-rented. It has pros and cons;

Pros 

- Occupancy is now over 90% (needs a bit of seasoning but I am confident)

- NOI annualized is ~$120K (if not more)

- Just finishing extensive rehab 

Roof, heating (boiler and in-unit), kitchens cabinets and counter tops, updated appliances, bathrooms vanities / low flush toilets, all water valves, video system, unit painting and carpet, etc. Still a bit left to do (e.g. common area carpet & paint) and some tuck pointing but all the big stuff is done. A few occupied non-remodeled units left which have tenants from before purchase (leaving a bit of upside on the table).

- All tenants screened and management in place.

Cons

- ~60% section 8

- East Cleveland market

My problem is that having spoken to a couple of appraisers and lenders in the area, they have told me that no MF in East Cleveland appraises at more then 10K per unit due to the cities financial situation and general city issues. Also, literally everything sold in the past 2 years has been run down properties at fire sale prices that have undergone / undergoing some level of rehab but have not re-traded to reset the market.

On a NOI basis, using 8 - 12 CAP, you get $1MM to $1.5MM but the appraisal will likely only come in at ~$400M. A 65% LTV based on that appraisal will only be ~$260M; little more then 2 years of NOI.

My inclination is to either sit on it and just take the cash flow or see if it can be sold at a real 10 CAP ($1.2MM).

Any thoughts??

NO argument from me - Slow and steady wins most of the time. If you happen to catch one and send it out of the park, that is a bonus and makes up for the easy fly outs.

Oren

You have to appreciate that any lender just want to be secure that they will get their payments on time and the loan paid off just like a landlord wants their rents on time.

As an overseas person, you are considered a Non-Resident Alien and so many of the traditional tools that lenders use to provide themselves with security and comfort are not available (e.g. Credit Scores, Cross Asset Collateral, etc.).

The LLC does not help as that is a pass through entity. At the end of the day, they are lending the funds to the your client. If they have to chase him, it is extremely difficult to do so in another country even if he has millions over there.

Hard money lenders are much more asset value and track record oriented so if your client has successfully done flips, they derive some comfort from that. A hefty down payment (skin in the game) also goes a long way. If you go that route, taking any funding offers (even if it cuts into profits) to build a track record is one way to go.

Oren

William,

CAPEX / Reserves is about putting funds aside from operation to cover 'big ticket' items that have predictable life spans to avoid the 'cash call' when that item needs to be replaced. There is a reason that condos and professionally run syndications do this.

They know that if they ask for the funds when needed, some owners will refuse or delay and the work will not be done in a timely way causing the asset to deteriorate in value. By taking a bit each month / year, the funds are in place when needed and they just do what needs to be done.

Just as you set an annual (1-year) operations budget for snow, garbage, utilities, etc, this is separate multi-year budget that you need to account for.

IF you wait to fund CAPEX until something fails, you risk not having the funds available at that moment (Murphy rules!) and you are mis-leading yourself regarding the actual return of your investment during the years that nothing fails.

I would re-characterize what @JD Martin and all flippers do. They are pre-funding / paying all CAPEX up front during the rehab and so can reasonably expect to have very few (if ANY) failures before they sell the asset. The purchaser, as part of their assessment, needs to jump start and pay into their own reserve fund.

Oren