Currently negotiating first multi family deal and have questions

[Rich Somers]

So I'm currently in negotiations for my first multi family property (5 units & up). I wrote an offer yesterday, and today the seller countered. Before I counter the seller, I am trying to more accurately nail down my pro-forma numbers. Right now the owner pays the majority of the tenants' utilities (gas & electric/water & sewer). When the current tenants' lease agreements expire I plan on implementing RUBS to push those utility costs on to the tenants. Currently tenants go off site to do their laundry, I plan on cleaning out the basement and adding coin operated laundry and installing storage cages for the tenants to rent if needed. I also plan on installing key phob entry for the lobby, and some security cameras in the common areas to better secure the property and help the tenants feel safe. I also plan on swapping out all the units older appliances for brand new appliances when I take over the property. All of the lease agreements expire within 60 days of our scheduled close date so with these minor upgrades and savings it looks like I can conservatively increase the NOI by 30-35%. Have any of you guys implemented RUBS when you took over a property, and if so could you tell me about your experience using it? Also, has anyone used any of these other techniques mentioned above personally and if so any feedback would be awesome! Thanks guys!

[Zachary Rall]

Hey Rich,

Couple comments on your questions/ideas below:

- RUBS are a great way to have tenants help with some utility costs, but I would say that it's entirely market dependent. I don't know where you're buying at, but try and do some research to see 1) if it's market to charge RUBS where you're at, and 2) how much your nearest comps are charging for RUBS.

- Depending on size of the property, scope of the work, and how much rehab you're willing to do, you can always consider individually submetering each unit. That way you can fully push electricity (and water if you wanted to submeter that as well), and then charge lesser RUBS for gas, sewer, trash, etc. 

- On-site laundry is better than off-site laundry, and in-unit washer/dryer is better than on-site. Depends on your CapEx budget and what the market standard is. In certain markets, it's common for tenants to rent or bring their own w/d. In others, it's almost expected to have in-unit w/d (so installing them gets an automatic rent bump). Things to keep in mind.

- Key FOB and extra security are always huge. I don't know that they directly correlate to X% increase in rent, but you're going to expand your renter pool if they feel safe.

Hopefully some of this was helpful!

Zack