12 unit value add deal - looking to make some changes

[Brandon Beatty]

Hey everyone! I have a 12 unit value add deal under contract. This is my first step up to real multi family. I currently have duplexes and single family rentals. About the deal: 725K purchase price 108K gross rent 6% cap C class building Currently the owner is out of state and country most of the time. The rent is under market, the owner pays for utilities, and a hefty management fee. I plan to either sub meter all utilities individually or just have the tenants start paying. I will also be managing the property myself to save the management fee and run the property more efficiently. With a slight increase in rent, tenants paying utilities, and me managing, it will be a 10% cap property in no time. I currently have a 75% LTV option given by a few different local lenders. The property is one of the only "C class" properties left in the area. It is located is a rapidly growing suburb of north dallas that was once a small county community when the property was built. QUESTIONS: 1. The property currently has window unit A/Cs. On a property this size (12 units), what is the typical cost to add Central heat and air to the building? I believe this will greatly increase curb appeal, tenant experience, and overall value of the property. 2. In textbook value add properties- what can I expect as far as a refinance in the future? I have the option to finance 50-75K of rehab money into the loan to start. I hope after 1-2 years to refinance the loan to pull out some of my initial investment. 3. Those who have initiated tenant paying their own utilities: what works best as far a time frame and rolling out this process? I have Construction experience as I own a construction company that does roofing, remodeling, and I do some flips. I have a few years of management experience and feel confident I can easily add this property to my portfolio. Thanks in advance for any input!

[Steven Gesis]

Originally posted by @Brandon Beatty:

Hey everyone!

I have a 12 unit value add deal under contract. This is my first step up to real multi family. I currently have duplexes and single family rentals.

About the deal: 725K purchase price 108K gross rent 6% cap C class building

Currently the owner is out of state and country most of the time. The rent is under market, the owner pays for utilities, and a hefty management fee. I plan to either sub meter all utilities individually or just have the tenants start paying. I will also be managing the property myself to save the management fee and run the property more efficiently. With a slight increase in rent, tenants paying utilities, and me managing, it will be a 10% cap property in no time. I currently have a 75% LTV option given by a few different local lenders. The property is one of the only "C class" properties left in the area. It is located is a rapidly growing suburb of north dallas that was once a small county community when the property was built.

QUESTIONS: 1. The property currently has window unit A/Cs. On a property this size (12 units), what is the typical cost to add Central heat and air to the building? I believe this will greatly increase curb appeal, tenant experience, and overall value of the property.

2. In textbook value add properties- what can I expect as far as a refinance in the future? I have the option to finance 50-75K of rehab money into the loan to start. I hope after 1-2 years to refinance the loan to pull out some of my initial investment.

3. Those who have initiated tenant paying their own utilities: what works best as far a time frame and rolling out this process?

I have Construction experience as I own a construction company that does roofing, remodeling, and I do some flips. I have a few years of management experience and feel confident I can easily add this property to my portfolio.

Thanks in advance for any input!

Congrats!

Upgrade units, make them better than any other unit in the area, raise rents substantially, maybe you will not have 1000 renters, but you will find 12 that will be willing to pay a premium to live in a better condition, I LOVE VALUE ADD (if you can find it) - seems like you found it. Sounds like you have the right experience to tackle this. 

Utilities - all my buildings are metered individually for min. electric - water, we have a monthly standard fee and mostly No Gas  (also the buildings with Gas Service are metered to the tenant)

You can also consider upgrading the through the wall untis to a nice new white sleeve and a new unit if necessary  - it will change the look and feel -  complete removal will require as you know substantially more exterior work - again have done this also on a building it came out ok, I improvised and infilled with Hardie board on exterior, insulated, etc and painted exterior (red brick color) - it was less expensive than doing a ton of masonry.

As you know you will need to bring some additional services to meet your HVAC need, it may outweigh the return. Perhaps a simple upgrade of all the sleeves and some in-unit amenities may be a better ROI (example: USB Outlets in all areas)

Here is a sample of a 40 Unit Building I am in the process of flipping over - meaning purchased this asset in a C area - average rent is $425/unit for a 500 sq. ft. apartment, with new renovations new rate $649/unit. -Existing tenants on month to month have an option to move to a new premium unit and sign a termed lease.

• New Flooring
• USB Outlets
• New Bathroom
• New Common Area
• Quality Vertical Blinds (Uniform look from exterior)
• New Concrete Driveway and Parking Area
• Garages Available
• New Tile Tub Surround
• New Light Schedule
• New AC Wall Unit Sleeves
• New Outlets and Switches
• All New Door Hardware
• New Kitchen Sink and Faucet
• Much More......

Common Area: BEFORE & AFTER

BEFORE & AFTER UNIT

Hope this helps - much luck with your investment