**JUST BOUGHT A 10 UNIT APARTMENT BUILDING NOW WHAT???

[Mil Sanghvi]

Hi BP,

I JUST BOUGHT A 10 UNIT APARTMENT BUILDING!! NOW WHAT DO I DO TO TRANSITION??

I am closing on my biggest property yet (10 units) on October 15th. I am uncertain as to the exact steps to follow when you transition. My LLC will own the property and another of my LLC will manage the property. It cash flows well with the numbers below. Expenses are verified. 6 of 10 units are on section 8 with long term tenants and is 100% occupied. I only accept direct deposit, pay online or pay through pay pal. No mailed check or pick ups.

Purchase price 300k and owner is giving 20k towards upgrades/repairs etc  Plan is to install surveillance cameras, lights, paint doors and shutters, 2 water heaters and new signage and minor fixes etc. Pocket the rest ;) :P

What are the steps to follow to transition into new management.

What should I expect from the tenants?

Are my numbers realistic?

Step by step guide would be very helpful.

What do you wish you would have known when you were in my place?

Property Management software recommendations? I'll have 15 units total. 

.................................................Monthly               Annual             % of Income

Gross Income                           5250                   63000               100

Vacancy 5%                             262.50                3150                  5

Gross Scheduled Income         4987.50              59850                95

Expenses

Property Taxes                          275                     3300                  5  

Property Insurance                   275                     3300                  5

Electricity                                  150                     1800                  2.85

Water                                        150                     1800                  2.85

Waste Management                 100                      1200                 1.9

Lawn Care                                250                      3000                 4.76

Repairs/Maintenance               250                      3000                 4.76

Property Software                    200                      2400                 3.8

Property Management             262.50                 3150                 5

Total Expenses                       1862.50              22350               35.5%

NOI                                          3125                    37500               64.5%

Debt Service                          1466                    17596               27.9%

Cash Flow Before Taxes       1659                    19904               31.59%

Debt Service Ratio    2.13,        Cash on Cash return 26.5%    

At 10% cap the property is worth 375k

Thank you in advance.

[Christian Brodin]

Milan,

Congratulations on being a multifamily owner and closing on a deal! It means you are playing on the court, not sitting in the stands.

On the surface your numbers look great, but when I looked at your per unit cost your expenses seem very light. Our best run property in GA operates at $2,500/unit and we are using our leverage of managing over 1000 apartments in the same area to get great deals with vendors etc.. Your number is $1,490 which is very, very low. That said your expenses as a % of net revenue  is at 37% so not all too bad.

Vacancy seems low if this is a C asset, in a C location. More likely it will be 8-10%. If your 2 non section 8 units are vacant you are already at 86% occupancy!!

I would also factor in concessions, and bad debt. (there is a reason the property is cheap, and that's because you will probably put in a lot of sweat equity collecting rents and dealing with residents)

On to the actual management and what to expect .

As you are discovering that closing on the deal is just the beginning, now starts the real work: Getting the property to perform consistently and provide you with cash flow!

Since you are self-managing I will answer your question from there.

Here is what I would do after taking over a new property (not in any particular order):

0. Join the local landlord association (this is invaluable with access to their documents and services like legal advice etc.)

1. Re-key the office or common areas

2. Conduct lease audit and make sure all documents are there (application, lease, proof of income, proof of payments for security deposit etc.) Make sure that documents are signed by both parties. 

3. Market Research (you may have done this already before the purchase, but time to update your information!)

- what are market rents from your comps (call them, use craigslist and whatever other resource you have to get this)

- what is the condition of units for your competitors (shop them!)

- what amenities doe your comps have

- what floor plans does your comps have (size, number of bedrooms and bathrooms)

- do they offer concessions/move in specials

- what term leases do they offer (just 12 months, shorter or longer)

4. Create a Budget with actual numbers not just estimates

- 12 months (plan your work and work your plan!)

- CAPEX (what will be your needs 1,2,3,4,5 years down the road). Get prices now so you know.

- get actual bids from your vendors

5. Accounting

- Complete your acquisition accounting

- setup accounting in quickbooks or apt managment software

- bank accounts (separate for operations and security deposits)

6. Switching Master Utilities (meters) account to new owner 

- Will they notify you when residents switch over to their name

7. Establish list of critical vendors/services with summarized contract info and contact details:

- Pest control (termite bonds?)

- Trash Collection (did you assume a contract or will you start a new contract?)

- Insurance company (are you shopping for best rates and coverage)

- Unit Turn Vendors (Paint, Cleaning, Flooring, again are you shopping for best rates and quality?)

- Emergency Maintenance (Plumber, Electrician etc.)

- Lawyer specializing in landlord tenant law (again you can use your landlord association and get familiar with local laws for bad debt collection, evictions etc)

- Police department, do they have community outreach programs that you can join to decrease chances of crime (Cameras and lights are great, but prevention is best!)

- Accountant for tax filings

- Tax appeal lawyer (?)

8. Remove old management information 

- Signs, phone numbers, website etc.

9. Establish critical documents for operation:

- what lease agreements you will use 

- leasing/screening criteria you will have in place. You can get this from your local landlord association.  DO NOT  DISCRIMINATE! Have fair standards that you apply to all renters and applicants (income requirements, criminal background checks, identification and document needs, etc.). Charge an application fee if needed to cover your expenses for this.

- rental application

- promise to pay notice for residents that pay late

- notice letters

- eviction letters and legal documentation

- unit inventory sheets

- unit inspection forms

10. Letter to residents for change in management (your landlord association may have a template with information they will need like phone numbers, mailing addresses etc.)

11. Meet and greet all of your residents, (if you haven't done this already, combine it with a complete unit inspection to assess capex needs/maintenance needs/ smoke detector/ leaks etc). (You should walk your units at least twice every year. Or whenever you go to replace filters for HVAC.)

Im sure there is much more you could do, but this is just the basic things that I can think about when taking over the property. 

As for management software we use ResMan and we are extremely happy with their software and their customer service. (we use them on everything from duplexes to several hundred unit properties). I cant remember what we pay per unit now, but can find out if you are interested. 

I hope this helps.

Please let me know if I have missed something.

Christian