18 unit multi family - Advice Please

[John Pflederer]

Hello All!

I purchased a 18 unit building 2 1/2 years ago in Central Illinois.   Prior to purchasing, I did as much research as possible and did my best as a new investor on the due diligence.   I am struggling to see cash flow and any profitability.  Definitely made some mistakes in my first deal, but chalk those up as learning.  At this point the property is doing pretty well, but the property manager is killing me with expenses.  For example last month i was charged $250 to put salt on the steps and sidewalks.  It just seems like there is always some big expenses that kill my profitability.  I feel stuck with the property manager because there are not many options in this area and they have been able to keep it leased up (with some turnover) Some details about the property:

• 18 Unit / 12- 1bd and 6 - studio 
• C+ property in C ish area
• Safe area 500ft away from largest employer in area (hospital)
• Hospital owns the land in front of my building and behind the building.  Possible exit strategy is the hospital will purchase.  However, i am not counting on that as my goal is to build my business / cash flow. 
• When purchased rents where in the $430-$445 Range on the 1 bedroom.   Rents on the studios were $395 and have remained at that price.  I have raised half of the units to market value of $495.  The ones that have are still at the lower range are long term tenants that my property manager doesn't think we should raise. (10+ years)
  • The units that have turned get new vinyl plank flooring and paint.  I think this has helped rent and justify higher price as they show well.   
• I have put about 30 - 40K in improvements and structural improvements in over the last couple years.  
  • New ceiling in carport
  • Inspector suggested some vapor barrier in the crawlspace of one building.
  • new railing on balconies
  • some new appliances and water heaters
  • New laundry machines

At the end of the day, I am still learning, but I am struggling to see what to do to make this thing profitable.  This year was better than last year because most of the repairs and things came out of cash flow.  I should have just enough for taxes.  Which i was able to get reduced 2k after purchase.  I have to be missing something here and would love to get some experienced advice in this space and size of building.  I can provide owners statements and any other info for anyone that might be willing to help me analyze this property.  

I believe in this way of investing, but simply not seeing the fruits of my labor in terms of returns.  

Thank you all in advance!

[Jason Stubblefield]

@John Pflederer What is your expense ratio?  It's not uncommon to see expenses near 55%-60% on a C class building.  If you're expense are above that it sounds like you may be suffering from some mismanagement.  Here are some ideas:   

1) Override your property manager's decision about not raising rents.  We've offered to upgrade tenant units while they still lived there to justify the additional rent  

2)  Look into self managing the property yourself.  This isn't as easy but it's also not that hard.  There are companies that will handle all of financials remotely (you will need to give them copies of leases and rental checks).  Then you can hire a part time leasing agent and/or maintenance person at an hourly rate.  

3) You could shop the PM to other management companies and see how there bids align against your current company. 

4)  Find another owner and offer to share in their management cost.  Management fees get cheaper the larger the property is.  

Hope this helps.