Pushing all Chips In

[Jaryn Pierson]

Link to NumbersHello BP!

I first just want to say thank you all for being here. Although I am an avid BP content consumer, I am not one to post very often on the forums. So far to date I own a duplex which I bought last year and have had great success with. I also manage five additional STR's for other people. New to the real estate game, but like all of us I've caught the bug. With that said . . .

I am rounding the corner on my next deal. Pushing all my chips in to an 8 unit apartment building down the street from my first duplex, in the western part of Massachusetts, a very tenant friendly state. Deal is seller financed, $400k purchase price, 15% down, amortized over 20 years with a 5 year balloon at 5% fixed for the duration of the loan. The seller and I are about 24 hours out on having a signed purchase and sale. Last pieces of the puzzle are getting sign off from an architect that the building will (hopefully) not need a sprinkler system and will be completely up to code. The building is technically zoned as a rooming house, as two of the apartments share a bathroom. Aside from that its basically all one bedroom one bath studios with their own kitchens in each unit. All CAPEX is in really great shape. Each unit will need a refresh on turnover but out of the gate things are running smoothly. The plan for the property will be to short term / mid term rent the downstairs three units if / when the tenants vacate while having the upper five units on long term leases. Lastly, I am planning on living in the vacant downstairs units while STR'ing it on the weekends as I'm out of town Friday - Sunday so that helps ease some of the negative cash flow off the start as it is essentially my 'rent', at least that's how I'm justifying it for now.

My knees are currently shaking as we get to signing as the biggest 'fix' I have to do with the property is raise the rents.  They are all at about 50% of market rate.  I do not need to dramatically raise everybody right out of the gate, but I do need to consistently bump them over time to get things to cash flow how I'd like.  Of the 8 units 7 are currently rented and up to date on rent, with 5 of them being significantly under market value.  The seller has had the property paid off for decades and in his words 'just hasn't needed to raise them'.  So, my question to you all is, how in the world am I going to have the conversation with these tenants that their rent needs to go up, significantly, even though I'm not planning on doing major repairs / updates to the building because it doesn't need them.  I've attached my numbers below at three different stages of the deal.  Basically as is, after small rent hikes, and down the road where i'd like it to be.

Thank you all to any feedback.  75% of me says 'Just do it dude !' while that little voice on my other side says, 'ARE YOU FREAKING CRAZY!'.  

Lastly, all the numbers are in the viewable link below.  Thank you sooo much to BP for the new book about analyzing deals, although I haven't gotten the book quite yet the spreadsheets made available are awesome!