All Forum Posts by: Adriel Hsu

A local credit union quoted me 20% down, 5.75%, 25 yr AM with 15 year balloon but 5 year ARM for a 14 unit I have under LOI. Seems to be the most competitive offer I have so far in terms of financing

Hello, 

I have a 14 unit deal I am looking to purchase, but a few things are making me hesitant so I’m reaching out to BP for opinions. 

See the 3 things after the financials 

Purchase price: $390,000 

I can get financing at 25% down, 5.5% amortized 25 years 

Per seller: 90% occupancy or higher since they owned in 2002 

8 - 1 bed/1 bath at $550 per month 

6 - 2 bed/1 bath at $650 per month 

*One of the 1 bed/1 bath has an onsite manager/handyman living for free so there is no property mgmt costs in the expenses* 

Owner pays water and trash 

2017: 

Total Operating Income: $79,989.50 

Expenses: 

- Lawn Maintenance: $1,800 

- Water: $6,816 

- Trash Collection: $1,740 

- Pest Control: $820 

- Supplies: $4,280 

- Repairs: $9,852

- Insurance: $4,153

- Property Taxes: $10,515

Total Expenses: $39,976.82

NOI: $40,012.68

2016: 

Total Operating Income: $83,154 

Expenses:

- Lawn Maintenance: $1,800

- Water: $5,820

- Trash Collection: $1,680

- Pest Control: $604

- Supplies: $6,639

- Repairs: $9,910

- Insurance: $4,153

- Property Taxes: $10,521

Total Expenses: $41,127

NOI: $42,027

So if I'm all in at $115k (down payment + closing costs), assuming 40k NOI, i'm looking at 16.4% cash on cash with one unit vacant at current rents (without anything set aside for capex however)

WHAT WORRIES ME: 

1) No washer/dryer connections AND no laundry facility on site (would have to build a new building and run new plumbing to add one). So tenants have to drive to a laundromat to do their laundry This wouldn’t be such a big issue until.. 

2) Rents are higher than nearby apartments. I comped 3 other larger apartment complexes in the same area that have amenities such as a pool, carports, and laundry facility on site, and their 1/1’s are at $500 and their 2/1 is at $600. Thats a large discrepancy considering the amenities they have. 

3) It’s a C class property in terms of location and building itself. Location wise, it’s one block away from the zip code zoned for the good schools, so it’s not in a dangerous and bad area and It’s very close to a popular small strip mall/shopping center and grocery stores, BUT it is zoned for the same terrible schools as the more dangerous parts of town. Appreciation/rent increase “as is” are not going to happen.

New underwriting at the same rents as the other apartments and assuming a 85% occupancy, and budgeting $300 per unit per year for CAPEX, my new cash on cash is 9%. Still good but for a C class? Maybe not worth it. Thoughts?

I was able to go through county records and saw they bought it for $220,000 in 2002. 

New roof out on in 2015. Run by a brother and sister who live 4 hours away so they aren’t the most efficient management even with the on site manager/handyman. I live 25 mins away

Hello, I have a 14 unit deal I am looking to purchase, but a few things are making me hesitant so I’m reaching out to BP for opinions. See the 3 things after the financials Purchase price: $390,000 I can get financing at 25% down, 5.5% amortized 25 years Per seller: 90% occupancy or higher since they owned in 2002 8 - 1 bed/1 bath at $550 per month 6 - 2 bed/1 bath at $650 per month *One of the 1 bed/1 bath has an onsite manager/handyman living for free so there is no property mgmt costs in the expenses* Owner pays water and trash 2017: Total Operating Income: $79,989.50 Expenses: - Lawn Maintenance: $1,800 - Water: $6,816 - Trash Collection: $1,740 - Pest Control: $820 - Supplies: $4,280 - Repairs: $9,852 - Insurance: $4,153 - Property Taxes: $10,515 Total Expenses: $39,976.82 NOI: $40,012.68 2016: Total Operating Income: $83,154 Expenses: - Lawn Maintenance: $1,800 - Water: $5,820 - Trash Collection: $1,680 - Pest Control: $604 - Supplies: $6,639 - Repairs: $9,910 - Insurance: $4,153 - Property Taxes: $10,521 Total Expenses: $41,127 NOI: $42,027 So if I’m all in at $115k (down payment + closing costs), assuming 40k NOI, i’m looking at 16.4% cash on cash with one unit vacant at current rents (without anything set aside for capex however) WHAT WORRIES ME: 1) No washer/dryer connections AND no laundry facility on site (would have to build a new building and run new plumbing to add one). So tenants have to drive to a laundromat to do their laundry This wouldn’t be such a big issue until.. 2) Rents are higher than nearby apartments. I comped 3 other larger apartment complexes in the same area that have amenities such as a pool, carports, and laundry facility on site, and their 1/1’s are at $500 and their 2/1 is at $600. Thats a large discrepancy considering the amenities they have. 3) It’s a C class property in terms of location and building itself. Location wise, it’s one block away from the zip code zoned for the good schools, so it’s not in a dangerous and bad area and It’s very close to a popular small strip mall/shopping center and grocery stores, BUT it is zoned for the same terrible schools as the more dangerous parts of town. Appreciation/rent increase “as is” are not going to happen. New underwriting at the same rents as the other apartments and assuming a 85% occupancy, and budgeting $300 per unit per year for CAPEX, my new cash on cash is 9%. Still good but for a C class? Maybe not worth it. Thoughts? I was able to go through county records and saw they bought it for $220,000 in 2002. New roof out on in 2015. Run by a brother and sister who live 4 hours away so they aren’t the most efficient management even with the on site manager/handyman. I live 25 mins away

@Charles Kennedy if the management fee is at 5.6% and the payroll is running at 9.7%, wouldnt that make my total property management at over 15%, and I should be around 10%?

@Bill F.

Current Vacancy on the unit is 5.8%, it was also at 5.8% vacancy a year ago
Competitor vacancy rate at 4.4%
Submarket vacancy rate at 7.8%

I still assumed a conservative 8% vacancy in my analysis

@Charles Kennedy It is a C class complex, so I wouldnt be surprised if it sits at 50% expenses. 
For 2017, under Admin, Accounting expenses was $8800, "Other professional fees" was $4600, Copier/Printer rental was $2000,  Payroll was $52,800, Management Fee was $27,700, Gardening & Landscape was $6900, Pest control was $8,200

Great ideas of calling up other apartments for occupancy, will do.  The bulk of that extra income is RUBS. Bill back on Pest control is $1500, Trash Bill Back $5000, Utility Bill back $2400, Water billback $38,000.  Also, late fees are $6700 of it. which isnt a promising sign

I was going to look at large CAPEX during due diligence phase more in depth for sure.

@Dave Chapa good tip on the electrical wiring. Will definitely keep in mind during due diligence

@Gagan P. Thanks for the insight. I will definitely be checking deferred maintenance during the due diligence period and most likely there will be some needed.

It's definitely not 100% turn key, there are most likely some renovations I can come in and value add, especially in the exterior and extra security to make the residents feel safe as it is a C class area.  Also a few reviews on google shows the mgmt company may need a shakeup I already budgeted about $250k for this, and the cash on cash returns can still hit 8-9%

Financials are from the actual 2017 P&L so that's not an issue on pro-formas. The actuals are showing 57% of gross income as expenses so I dont think they are fudging numbers either

Came across an off market apartment deal in North Austin, can't decide if I should do my first multi at a C-class complex.

52 units, (26 1/1 units and 26 2/2 units). 2 story buildings built in 1969.  Pool, playground, property mgmt on site.

From P&L:
Gross Rent Income  - $492k
Gross Total Income - $554k

Total Expenses - $320k

The owners will sell at $2.5M

Researching the area, it's definitely not the nicest area of town, but it isn't the worst in Austin either. C class for sure, surrounded by other apartment complexes next door on either side.

It's in North Lamar area of Austin if anyone is a local and can give me insight.

The only thing that scares me is that it last traded in 2015, which is pretty recent.

Price per unit at $48k seems really low even for the not as hot parts of Austin.

Am i just being too scared? Sellers are asking for LOI

Listen to @Sam B. He's the man! Shoutout to @Alex Saleeby as well haha

@Minh Le One thing I will tell you is don't expect contractor pricing out here in Beaumont/Port Arthur to be like Houston area.  Contractors charge a premium here compared to Houston because they have all the refineries/industry paying a lot more so many licensed contractors are too busy with commercial jobs.

I know I'm paying A LOT more here for sheetrock, painting, and flooring for a contractor that can get it done quick here than I would in Houston, but just budget it in when you purchase. I'm paying almost 3x for carpet here compared to my guy in Houston, but I also have a really cheap deal with the one in Houston.


Funny thing is I'm somewhat doing the opposite of you. I live out in the Beaumont area but I do deals here and in Houston.  Houston has way more inventory if you want to scale and some of my biggest deals have been in Houston area

@Kenneth Garrett Thank you for your input!

Hey BP, I need some advice.

I had done my first BRRRR deal, and I'm about $5500 out of pocket into the deal, and looking to get rid of the property within 5 years as I am trying to transition into multi-family eventually.

My Goal: Find an exit strategy for this property and recoup some cash now for another deal under contract.

I advertised it as a rent to own or a normal rental.

I have two potential tenants.

Tenant Option 1:

The first is a couple around 45 years old who have a small dog and no kids.  They are looking to rent-to-own and claim they really love the place. They have been renting at their current house for 3 years but it was too small for them.  Their combined income is overqualified, but The husband has a high 500 credit score due to a divorce and the wife a mid 500 score. I do understand low credit is a reason many do rent-to-own.  I would require to them to show me some plan to improve their credit, as I do want to sell the house.

They have clean background and criminal checks, but their landlord reference had mixed reviews:

No late payments the past 12 months, but there was an instance prior to that, but once she implemented a daily late fee, it stopped.  She also said they were a 4/10 on mowing the lawn and they weren't "as handy as a blue collar worker"so i'm guessing they call about repairs more than she liked.

However, she did say she would rent to them again if she had the choice., but it was a tad hesitant.

They are ok with my rent to own terms:

Sale price: $125,000

Lease option on a 2 year lease

Upfront, non refundable option payment of 5% of sales price

Monthly rent:
- $1275 with $5% rent credit towards purchase

Tenant option 2:

Two young adult (mid 20s) roommates. One is actually my co-worker so there is more of a trust factor of being a good person and I know she is overqualified on income and her roommate makes a decent wage as well.  No pets, no kids.

However they are simply looking to rent at $1250 a month and are looking for a maximum of a one year lease with renewal options.  Their current apartments, they only stayed for the 1 year and their previous apartments before that they only stayed the one year as well. They said they want to stay flexible in case they want to/need to move.

Still waiting on the credit and background report from the site to come in as I just sent it out a couple hours ago, but assuming they have great credit and a clean background and good landlord references, what should I do?

I like that Tenants #1 as they were in their last property for 3 years, and are very serious on rent to own, or at the very least a long term tenant and have the upfront cash for the lease option payment, however I don't want to be bothered with lots of phone calls and unsure if they can get their credit score high enough in 2 years to secure a loan.

I like that I personally know Tenant #2 and that they are just 2 roommates with no pets or kids and very qualified in income and on time rent payments.  However, I don't like the idea of them moving after a year, and having to show the house again and find new tenants (I absolutely hate showing houses).


What are your thoughts BP? Considering my end goals of exiting this property, Take a chance on Tenants #1 or go safe for the next year with Tenants #2?