All Forum Posts by: Sam Grooms

@Dom Chit, you have some good ideas to decrease OpEx, but sometimes it's easier to focus on the top line. 

RUBS is definitely feasible. Just choose an allocation method and stick with it (# of bedrooms, # of bathrooms, # of tenants or unit sq ft). 

I'd look at renovating the units to see how much rents could increase. You'll have to do your research before you can determine if this makes sense, but it can be your biggest return on investment. 

 Yes, Phoenix is definitely our focus right now. We seem to have found a niche here and deal flow is actually picking up because of that. Feel free to reach out (email is best) if you want to compare/contrast markets. 

There's different levels we go through in our underwriting. 

First, for a high level view, we head to ApartmentGuide or ApartmentFinder, somewhere that our comps are advertising for their properties. Find a couple properties that you think your subject property could compete with after repositioning. If these numbers get you close to the asking price, then you can do a deeper dive. I like this method instead of CoStar and others. We tended to get properties that were nothing like what we were going after. 

Next, we'll ask our property manager for their opinion on projected rents. This is easier to do once you have a relationship with a PM, but still possible on your first property in the market. 

Lastly, like @Brian Burke said, you need boots on the ground. Go tour those comps. Can your subject property actually compete with these ones once you see everything in person? Can you do better? 

Got it. I do not. The closest I do to there would be Indianapolis. 

I'd still look at the IREM report if I were you. It breaks it down by building type (elevator, low rise, garden) and by property age. They survey thousands of units in the market and give you the averages of all of the income and all of the expenses. 

In Omaha, they surveyed about 6,000 units last year. For garden style apartments, average OpEx was $5,661 per unit per year. That's likely a lot more than the 40% guide you mentioned (depending on your rents). It's actually a really high OpEx number. Looking at the breakdown, Omaha's property taxes are double what we see here in Phoenix (average). Insurance is also double. 

Don't use percentage guidelines. You need $ figures for most OpEx, with R&M adjusting with the age of the building, property taxes being specific for the county. Property management is the only one that's a percentage of rents. 

If you want average per unit OpEx for a specific area, you need to buy the IREM report. It will give you everything you're looking for. 

Congrats @Holly Williams!

@Steve Sprowls, each deal is different. It sounds like you might be talking about a cumulative preferred return. If so, you would take your preferred return (say 8%), and multiply it by your investment (say $100K).  So you'd get $8K per year on your investment before the sponsor gets anything. 

It's important to note that a preferred return is NOT a guarantee of a return. It only states that you will get paid first. If the property never generates cash flow, or at least 8% of cash on cash return, you'll never get that entire 8% until the sale. 

Now, if you're not talking about a preferred return, there's simply no way to calculate how much money you'll be paid at a later date, because you don't know how much cash flow the property will generate. However, the sponsor should have provided you with their projections/estimates/forecast of the property's cash flows, and a sample return on your investment (by year). That would be the best place to get an idea of your future payments. 

Back to the preferred return structure for a minute. Most large syndicators/sponsors are now using online portals for investors to track their investment. If your's does, you can likely log in and it will show an up to the day calculation of how much you're owed from the preferred return. If your portal doesn't show this, I'd ask the sponsor to turn that metric on (it's almost a guarantee the portal is capable of showing it, the sponsor just hasn't enabled it). 

I agree with @Patrick Liska, key fob is the way to go. Changing the combo monthly would be a nightmare. 

There are some newer systems that use a cell phone, but not all tenants have smart phones. This works better for buildings aimed at a younger tenant base. 

This article might help you out some:

https://www.biggerpockets.com/renewsblog/invest-ho...

@Ray Rhoads, current prices have definitely made it harder for rental properties. It's not just South Florida. You can no longer buy decent cash flow. So, most large investors are doing what's called value-add, where you improve the property to raise rents. This increase is rents is now your cash flow. You have to create the cash flow instead of buy the cash flow.