3 Critical Areas to Evaluate When Walking Through Large Apartment Buildings [Video!]

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Hey, BP! The first time I walked through a 50+ unit apartment building, it was a bit overwhelming. Well, 10 years later (and having attended the School of Hard Knocks), I can tell you the evaluation process is not overwhelming and has become much simpler. I know what is important and not important to look for during these walk-throughs.

Related: The 3 Habits of Top-Performing Apartment Building Investors

During this video, I share three critical areas that I evaluate when I walk through a large apartment building, which include: 1) capital expenditures, 2) repositioning opportunity, and 3) reduction of expenses. I hope you find the video to be helpful as you prepare to walk through large apartment buildings!

Is there anything you’d add to my list?

Leave some comments, and let’s get a convo going!

About Author

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area. One of DeRosa’s mantras is “to make money while making a difference.”

32 Comments

    • Matt Faircloth

      Hey Patricia,
      Glad you enjoyed and thanks for the comment! I always try and speak to the tenants if I can. I once toured a converted factory with solid brick exterior walls and very little insulation. The windows were old factory style that looked great but you could feel the air leaking from them. On top of that the heaters were old style Heat Pumps which are fine in the south but not so efficient here in NJ. I bumped into a tenant and asked him how much he paid for his heating costs. He told me $500 per month! WOW! Right there I knew it would be hard to retain tenants and expensive to replace all those old heat pumps and windows. We ended up passing on that one. Glad I asked, LOL.
      Take care,
      Matt

  1. Roberto Escapita Jr

    Exquisite video! I’m a beginning REI and I can tell ya that your video was simply outside the box thinking. I really enjoyed it because it felt more personable and felt like you were my mentor/quarterback in our huddle before the play! Greetings from Texas!

    • Matt Faircloth

      Hey Mike,
      Glad you asked. The walkthrough went very well, it’s a great building with tons of untapped potential. It just needs a bunch of Capital Expenses up front, around $300,000 for a building priced at $3,400,000. Those Cap Ex’s include roof, patch and paint the entire exterior, redo the common areas, redo around 10 units, and replace around 15 non-functioning heating units. It’s worth it, for the right price of course. We are sending an LOI this week so wish us luck! If we get the deal I’m sure we will be sending out a TON of videos about the building LOL.
      Matt

    • Matt Faircloth

      Hey Mick,
      Thanks for watching! The repositioning doesn’t need to be much either. It could be the addition of a few amenities, some new marketing, or it could be a full reno of the units and the building (as it was in this case) to raise the building to a new echelon in the market.
      Matt

  2. Richard G.

    Hi Matt,

    You had me fooled, thought for a minute we were actually going with you inside the apartment building! lol I agree, cap Ex is key and can be applied at all levels, I tend to look at energy efficient double pane windows as well with the other things you mentioned. As far as your #2 Repositioning opportunity, this sounds like possibly visiting county officials for a face-to-face with the economic development office or the like? Is that something you do with respect to #2 — Thanks again, keep up the great BP service.

    • Matt Faircloth

      Hey Richard,
      Sorry to “tease” you guys like that! I didn’t think it as appropriate to film our walkthrough since we don’t own it yet, LOL. If we buy the building you can believe we will be putting a bunch of videos out from the site.
      When I spoke about repositioning I wasn’t talking about changing the use of the building, just changing the way the market views the property. It would still be a residential building so no need to get the local township involved.
      Thanks for the comment, always great to hear from you!
      Matt

  3. Joel Owens

    Regarding the older toilets yes you can change out to more efficient toilets but a lot of tenants hate those. They do not have great water pressure and you get calls for toilet clogs.

    If you are going to do new toilets check in your area for government offered rebate programs for upgrading your building. That will offset most of the cost with some of these rebates.

    Tenants hate the water saver shower heads as well. They do not give the pressure that tenants want so some will take them off.

    Of course dropping the water bill helps but I prefer the tenants pay water. Here in GA it is expensive. Tenants on average use 30% more water when they do not pay the bill directly to the water authority. Even with a bill back system not all tenants pay the total water bill due. The tenants also tend to not report water leaks from the sink, toilet, etc. because it’s not on their dime. I will never buy a building again where landlord covers water or bills it back unless I can change to a direct connection where if tenant do not pay the water authority their water to the unit is cut off.

    Here the lowest it gets is about 25 degrees for only a few months a year with no snow to speak of so hardly any heating issues like you are talking about.

    • Matt Faircloth

      Hey Joel,
      So it sounds like I’m moving to GA! I could use a break from the cold and the snow, LOL.
      In this part of the world it’s nearly impossible to get the water into the tenants name on a multi-family. The local township will only install one meter per tax parcel so the landlord has to pay it. The best you are going to do is submeter the building and bill it back to the tenants and I think it’s illegal to mark it up, you have to pass the expense directly to them. It sounds like that’s not the case by you so I’m having a little bit of landlord’s envy…
      I haven’t had a problem with the lower flow toilets clogging but that is a good point. They make a shower head that uses a venturi to integrate a bunch of high-pressure air into the water stream so the pressure isn’t that bad.
      Great input, thanks for the thoughtful comment! Make room for me in GA, LOL.
      Matt

  4. Mario Alexandrou on

    Hi Matt, great video and precise with some very important point for us all. I am in the process of renovating some units right now and have tried using these methods your teaching. In short we have completely renovated and re-positioned these units, going from a $500 to a $1000 rental. So in re-confirming what Matt has just said, this actually works, and thanks again Matt.

  5. David Yale

    Hi Matt, great videos! Thank you so much for the give-away, I can tell you have paid attention as you worked your way up. I have a gazillion questions as I move from the single family residence BRRR model into the multifamily model. One thing I want to learn more about is the under writing method you employ. I’m wondering if you use some kind of spreadsheet model or a particular evaluation tool that you would be willing to share. I have a hacked together one that I’m slowly tweaking but it sure would be nice to learn from a solid guy like yourself. Either way, thanks again for the videos: right up my alley!
    David

    • Matt Faircloth

      Hey David!

      Good to hear from you and I’m glad you like the videos. We have a lot of fun creating them I can assure you! For underwriting deals, there are a few calculators on BP that are free, you could start with them.
      I have been using one for years called Rental Software Analyzer which you can find at http://www.RentalSoftware.com. I use it for evaluating deals and I also have used it to present to investors and banks. I have used it for so many years and recommended it so frequently that I was able to negotiate a coupon code, LOL. Use “derosa” to get 10% off.
      I hope that helps!
      Matt

  6. Hey Matt, very informative video. I’m a complete novice, but I’m so ready to delve into multi-unit ownership. Now this maybe a silly question, but I could really use your help… In the video you discussed doing your homework before going to see any property. Where would someone very new to this process go to get information regarding the average rent in the area, average salaries, or how would I know if the property is in the path of growth??
    I’d appreciate any tip.
    Thanks Leigh

    • Matt Faircloth

      Hey Leigh,
      Thanks for the comment. Once you have decided on what geographic market you want to go after, you need to jump in with both feet and get immersed in it. Visit the local chamber of commerce, call every active multi family agent in that area (use Loopnet for this – you won’t find good deals there but you will find out who is active in that market), do a bunch of driving in the neighborhoods to make your own assessment, etc… Once you get a solid feel for the areas of opportunity you can use things like Craigslist and Rent-o-meter to determine the prices in certain areas. Maybe create a map showing the rent ranges by neighborhood? That way you can see where the bubble is “moving” and try and buy right on the edge.
      I hope that helps!
      Matt

        • Matt Faircloth

          Hey Sterling!

          Good to hear from you. This building was right on the geographical border of a B class (B + really) neighborhood and a Solid C neighborhood. Prime repositioning play. The owner ended up taking it off the market so we didn’t get to play ball. The plan to reposition was as follows:
          – rename the building, new sinage all over it, with lots of “under new management” signs. New website and E-marketing plan.
          – immediately handle the deferred maintenance – needed a roof and repointing of the exterior
          – Upgrade the common areas
          – Upgrade vacant units with new kitchens, baths, and finished hardwood floors
          – raise rents on all month to month tenants (Philly has a 3.5% rent control law so we would go to the max on increases)

          My projection was to shift the building from a C to a B with the plan above inside of 2 years. Unfortunately, as I said, the owner pulled the deal so we had to move on!

          BTW, thanks for all the knowledge YOU drop. Liz and I are fans.

          Take care,

          Matt

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