Can't raise rents, roofs leaking, people not paying rent -YIKES!

[Emily N.]

Hey BP friends!

I'm looking for some advice on a property in our portfolio. 

It's 150+ units in Oklahoma. Built in the 70s. Flat roofs. C+ property.

We purchased this property thinking we could reinvest all of its cash flow for the first few years into renovating apartments and bumping rents, eventually bringing it up to a B property or higher.

Instead, 13 out out of the 16 roofs are leaking beyond repair (we've already replaced 8 at ~$25k/roof), and we are seeing that even if we do renovate an apartment it sits vacant without any interest at even a small increase in price. (Yes, we did have a roof inspector look at all the roofs before closing, and yes he did say all of them were in GREAT condition!)

Residents also routinely skip out on rent and have no problem taking hits to their credit or with being sent to collections. Most applicants come in with credit scores in the 400s-500s with several evictions, criminal records, and/or money in collections from other debts.

Due to our loan terms, we can't sell this property for another 5 years without taking a crippling hit.

We are more than willing to put $ into this property, but not if it's just an endless sinkhole without any return...

Can anybody offer any tips/or suggestions for this situation we have found ourselves in? Or does anybody have any experience with this kind of market? Any help is welcome!

Thank you,

Emily

[Joe G.]

A few thoughts:

Are managing remotely or do you have a property management company that can give you some insight to what may work in the area to improve rents? Where are the good tenants renting in the area and why do they go there? You might have a neighborhood stigma issue. 

In properties which there are many tenant problems I have heard the suggestion to get some local boots on the ground to understand exactly what the issues are that can be fixed. It sounds like this property is the go-to for folks that are bad tenants. Where are the good tenants? Why are they somewhere else? This might help you to figure out what improvements are appropriate for the property.

Maybe focus on one building at a time to get them out, make improvements (that are appropriate for the market), then get them rented at the higher price. I have used this approach by painting the exterior of the building, changing signage (including telephone number), and improving landscaping at that building only so when new folks come by they understand they are getting the "premium" building and that is why it is a little more costly than their friend that lives in the soon to be improved building. First item is moving the rental office setting the stage for all residents that there "is a new sheriff in town". Time to double down on energy on the property and review your property management plan. Sounds like a lot of work --- but doesn't it sound so exciting!?!

Good Luck!