All Forum Posts by: Sunny D.

 my experience has been that with every tenant turnover or when a tenant is placed after you aquired the property, the rehab cost will not be insignificant relative to your rent. HW itemizes everything they do and no little thing comes for free.

 Yes,  the prices have gone up but the rents are still in a tight range. Need rents to go up before we can enter the market again. At this price point, the reward risk ratio is not in the buyers favor.I am ok to lose an offer as I am not ready to bid up to at a price point where #s don't make sense to me.
 

Still, the cash buyers still are able to negotiate with sellers who want a quick exit.

I have managed to find 2 homes this year at the same price point as last year. 

I brought a SFH below 45k this year in a C neighborhood (44111). The owner had just passed away and the kids who were out of state wanted a quick sale.

sfh analysis sheet

 Good to see a detailed response from @James Wise to @Sivakumar Ganapathy

Honestly it feels Siva just woke up to the realty of C class returns. Over the long term, the new PM after a while will no longer shine as well

Now if we want to dissect why investors start getting cold feet on a market, the combination of aggressive sales, expensive construction costs with rehab and a reduced communication quality is not helping. I am pretty sure OOS investors are a big factor in the growth of HW business and BP has helped them grow, so they can't appear arrogant and closed to the feedback.

My main learning experience is to completely discount the projected numbers. Below is what one of my favorite HW realtors sent just yesterday. He is claiming a 21% COC return.

So what is wrong with the #s. 

1. If the OOS investor goes to HWPG he should be prepared for a min 2k initial rehab expense despite the claim that property is in a ready to move condition. There will be some default costs around visual inspections and general cleaning but the small items in each room add up. In the pro-forma, the initial improvement is set as 0.

2. The vacancy loss is set as 5% and too low. If I assume tenant staying 4 years has a probability of 5%, 3 years a probability of 35%, 2 years  probability of 65% and 1 year with a probability of 95%. If with each turnover there is a 3 month time gap before my rent starts accruing, then the calculated outcome is that a tenant stays an average of 21 months following which I will have a 3 month rental loss. Even if I want to be aggressive in this estimation and assume tenant staying 4 years has a probability of 25%, 3 years has a probability of 50%, 2 years probability of 75% and 1 year with a probability of 100%, the outcome still reflects that a tenant stays 24 months on avg. followed by a 3 month rental loss. So I estimate a 11% vacancy rates than the 5% in the pro-forma. 

3. It is safer to assume now most get a 5.5% 30 year mortgage rate or 4.875% 15 yr mortgage right now.

4. Utilities are set as 0%. With owner being responsible for water/sewer, I would assume a 1000$ per year expense

5. Lawn care is set as 0. It should be 500$ per year

6. Maintenance and capex are low at 3%, $350 per year assumption. This is too low. We should assume at least 6% each per year.

7. For a financing assumption, I should also include loan costs which in my experience is a min of 2 to 2.5K.

From my own customized calculator, the coc returns are no where close to 21%. Also I like to do IRR calculations assuming a sale in 5 years with 10% selling cost

 thank fully i am sticking to parma and west side (44135 and 44111)

my sfrs are at 950 and each unit in my 2 duplexes around 700 pm

i still think HW has to balance its own growth goals and in making investors money

if you want to be the largest broker, property mgr and also aim for  the revenue growth coming from construction , then you cant meet investors expectations

the sales team is all about the numbers on 12 to 20 percent coc claims on paper, when it turns over to property mgmt the realty on numbers sets in and its true the rehab costs are not small if you look at it from a investors lens.

eventually people will move their business to pure PMs that are smaller and more boutique

 need more info to comment on your situation. did you buy a property with PM and then switch to HW.

what is the rent,  i dont understand the reduction of 125. owner paying water and sewer is standard practise for HW. if you want tenant to pay rent needs to be lower

I have 3 properties under HW management and would like to add my feedback.

@James Wise

Property management:

- So far they have been good with the tenants placed, no extraordinary maintenance requests and they have all renewed after year 1. Turnover is the biggest drag on returns, so as my tenants stay  longer, I will give HW all the credit.

- Communication: Overall happy, there have been a few instances where things took longer but in gen. they are good in getting back in a decent time. One thing I would say is that as you scale the volume, more staff is needed and it may take some time for the new staff to adjust to expectations. 

- Urgency/Alignment in ensuring investor returns: It has been  bit mixed.

  When the tenants that were placed at the time of my purchase vacated, my goal was to have minimum time without having no income. The time between unit getting vacant and rent kicking in in my experience is close to 3 moths. It could easily take 2 months before a tenant places a deposit and then the rent only starts kicking in after they move in within 30 days after they place the deposit. So if there is a 3 month gap before we again get the rent and there is a rehab cost of 2.5k for a unit renting for 750 then you already are in a state where your returns for that year are almost gone. So now for the conundrum, would you want good rehab so you get a better tenant so they will renew and stay for >2 years, the answer is absolutely yes. What if they stay only 1 year- :) So as long as my tenants stay >2 years which I am hoping is the case I don't mind the extra cost to get a better tenant.

Also folks need to keep in mind, rehab costs are going to be a large chunk whether the unit is 450pm or 900 pm. I wish  in hindsight no one OOS buys unit that rent for <650 PM as the chances you wont make any money are much higher. With the maintenance , PM, vacancy and utilities we have to pay there is zero room for anything going wrong.

Now coming to rehab costs, HW does a high quality job but also add a lot of default costs which they probably pick from a template (removing debris and et.al). So even if I bought a home from a flipper who did all the clean up and ensured it was rent ready I will still get a large bill. To create transparency , what would be nice would be for HW to put public stats on

- avg rehab bill for a property originally placed by HW when there is a vacancy (by unit type/SFH and neighborhood class)

- avg # of days between rent stopping and again getting accrued for investors 

- avg lease length and % renewing (by unit type/SFH and neighborhood class)

I don't want to create a digression to the thread around their sales practices but the pro forma numbers usually reduce the expected costs so they should take the data from their rentals and use it in all of their # projections.

Numbers don't lie.

does this apply even if reported net loss in my federal filing after accounting for mortgage interest, depreciation and  expenses for maintainence and when acquiring the property

i didnt file a city of cleveland return nor state as there was no net income

 Sharing my #s for my 2 duplexes

#1  Marmore ave, parma, 2140 sq ft duplex 100k purchase price

Rent: 1430$

Taxes: 231$ PM

Insurance coverage (cash value 107k 3k deductible 9k loss of rent coverage) : 85$ PM

Water :    28.3$ avg PM (net sum $340 last 12 months)

Sewer :  50.61$ avg PM(net sum $607 last 12 months)

Gas: tenants pay

Lawn: 33$ per cut, 14 cuts over last 12 months

#2 Fulton Pkway, old brooklyn 77k purchase price

Rent: 1300

Taxes: 139$ PM (filed for reduction using comparables)

Insurance coverage (cash value 90k 3k deductible 7.8k loss of rent coverage) : 72$ PM

Water: 62.8$ avg PM (net sum $754last 12 months), water bill higher than my parma duplex

Sewer : 65.35$ avg PM(net sum $784last 12 months)

Gas: tenants pay

Lawn: 33$ per cut, 14 cuts over last 12 months

@Don Petrasek, your insurance is lower, who is the provider and how is the coverage relative to mine.

Also folks, any ideas how to contest for taxes on my Parma duplex. The appraised value is 102k and the market value is higher, so don't know how to contest.

 Thanks Don

Yes prices have inched up and that is a great +ve. I was debating if should as tenants to pay water, sewer and reduce rent to 875 or continue to pay the utilities and charge 950.