Update on our 20-Unit Apartment

[Tony Castronovo]

Not sure I have updated y'all in awhile, so here goes.

- Closed on the property at the beginning of August 2018

- Completed exterior and mechanical improvements, including new TPO roof, new HVAC systems, several concrete balcony/landing replacements, and new paint (HVAC systems and roof were at the end of their useful life.  Negotiated 50% of the combined costs at purchase).

- Completed 7 of 20 interior renovations, with 2 more planned to be completed at the end of the month.

- Cleaned up the property, including overgrown bushes and trash.

- Removed all undesirable tenants.  All tenants were/are on month-to-month leases.  We can remove any tenant with just a 30-day notice.  We did have to evict one tenant who just would not leave.

- Placed our first tenant this month into one of our newly renovated units.  $200/month increase from the prior rents.

We originally planned to take about 15-18 months to renovate the property, keeping occupancy high during the process.  But a few things we learned right off the bat:

- Repairs and maintenance were killing us as the previous owner never did a thing and was the "king of cob" as the tenants pointed out.

- We had a rough crowd at the community.  Tons of smokers, loitering, cussing in public, and even a couple situations that made the local news (tenant through a TV off the second-story balcony, then the next week drove his car into one of our contractors trucks and threatened him with physical violence...4 police cars on the scene).

- New desirable tenants do not want to move into an apartment complex and pay market rents when it's still a dump

So we accelerated the entire process.  The downside is that occupancy is really low right now.  But our loan has 12 months interest only, so we figure it's a little easier to manage the lower occupancy now, get the place cleaned up, and hopefully see that proverbial hockey stick kick in soon.  Our big goal now is to fill units....but we are at the slow time of the year.  We may need to drop our rents a bit until we get past the winter months.

PM me if you'd like a link to our website to check out some of the finished units.  If interested I can share some of the before photos as this place was a train wreck, including a hoarder who took two full size dumpsters to clean out trash from her unit. Ceiling was caved in due to roof leaks, etc.

Here are a couple teaser before/after photos:

[Tony Castronovo]

Hey @Cody L. thanks for your comment.  

@Bjorn Ahlblad yes, we did exterior improvements (see second bullet of original post).  It's all one building, 2 stories, organized by 4-unit quads.

@Daniel Brown this was actually a rebound property.  We had another deal that was starting to fall apart and were reaching the identification timeline on our 1031 exchange.  My broker found this one for me and we jumped on it.

@David Walkotten congrats on your success!  It's tough to put an estimate to duration per unit.  We broke up the project in phases.  Phase 1 had only 2 units.  Phase 2 had 5 units.  We are in Phase 3 now.  Each phase is 1 month.  Phase 1 we just wanted to start with vacant units.  By Phase 2 we had freed up units by our giving notice to tenants.  We were aggressive because we wanted to "remove the cancer" so to speak.  My contractor got familiar with the units and their hidden nuances during Phase 1.  By Phase 2 he was able to go faster because a lot of the unknowns were apparent, we had our materials sourced, etc.

Regarding rehab costs, we are spending more than what I hear most investors spending at approximately $9500/unit.  A little justification...first, you have to understand the condition this building was in...50 years old with a previous owner who was 82-yrs old and self-managing.  We literally had appliances catching fire and shocking the tenants.  Second, I believe in keeping repairs & maint costs down by doing solid rehabs.  Emergency calls on a weekend for a leaking sink or broken garbage disposal can really add up.  Lastly, while I think we got a fair price from our contractor I'm really pleased with the relationship.  He also handles any repairs and has really taken ownership of the property.  He keeps the property clean when we have tenants piling up trash upon move out, he shows up nights and Sundays if necessary to help winterize or address any tenant issues.  He's been great!

Our rehab includes new appliances (basic, not over the top), all new flooring (vinyl plank throughout except carpet in the bedrooms), new plumbing and electrical fixtures (including ceiling fans), cabinet repair and painting, sheetrock repairs, new shower/tub plumbing and tile surround, bathroom vanity top and sink, new toilets, paint, and backsplash.  We saved some money by resurfacing the kitchen countertops and refinishing sinks and tubs as necessary.  Some units require a handful of interior doors that were damaged.  And some hot water heaters need to be replaced.  All units get a new metal front door and hardware (previous exterior doors were hollow core with hw falling apart).