All Forum Posts by: Allen Tracy

Hey Gurjot, if that's a really solid PM it could be worth it.  Here's what I'm at for C class properties and management.

7% with $55/unit minimum

First month's rent for new lease

No least renewal fee

All work is marked up 10% (bills paid, service calls, rehabs, everything!)

Evictions range from $400-$600

Not sure on pet fees

 I would highly advise against this in C class neighborhoods at least in Columbus.  I would go off of what property managers say.  They're the ones that have dealt with thousands of tenants and problems in the different areas.  Some areas are street by street so one street could be a C, take a wrong turn and you'll end up on a D or F.  As an out of state investor I wasn't able to walk the streets, I had to rely on my agent and property manager.  Two years after owning properties I finally flew out.  I walked the streets during the middle of the day and was harassed and threatened.  Maybe you'd have better luck but I'd be cautious, at least don't go alone.

I have duplexes in Hilltop and South Linden.  The South Linden area is definitely sketchy, I'm having a hard time filling one of my vacant units and I see comments in Tenant Turner about the area being bad.  A fellow investor had squatters and had one of his tenants pull a gun on an inspector.  I had a tenant threaten to bust the jaw of a maintenance person and now that company won't send anyone to my property anymore.  I've also had many chain link gates stolen from the property multiple times.  Cops broke down the doors on one of my duplexes.  The Hilltop one has been doing ok and at least the street I'm on seems like it's not that bad.  I was driving around there one time and got surrounded by a group of teens with stun guns laughing at me.  Luckily I stayed in the car and they let me drive away.

The problem with some of these C class areas are that you're going to get high vacancy, evictions, and high turn costs with tenants damaging the property.  The numbers in these neighborhoods look really good on paper but in reality I'm wanting to get out of them.

 My properties are all C class not near the college so no OSU students, just C class tenants.  My PM manages 3,000 doors and says the majority of his C class tenants are only staying on average 1.5 years.  With C class tenants it's much more difficult to raise rents every year, better to raise them on new ones after one leaves on their own.  Even if I was to raise rents every year it wouldn't make up enough to cover turns since rents are so much lower in C class units.  

I raised rent on one and he asked the PM about other properties they managed because he couldn't afford the raised rent.  He was serious about leaving so we decided to roll his rent back to the previous price just to keep him in the unit and avoid the cost of a turn.  One of my section8 tenants I was able to get rents raised on which worked out well but he too has left now after 2.5 years and the turn was over $3k.  I have one tenant that I inherited with a duplex that's been there for 10 years.  His rent was at $400 when I purchased the property and after three years we now have him up to $700.  The other side of the duplex is paying $1,000.  To get his side up to that high of a rent it would cost over $10k to renovate his side.  If I was going to do a cash out refinance or sell the property it might be worth it but for now I'm leaving him at $700.  It would take me over 3 years to recover the cost of that rehab not to mention the possibility of getting tenants that move every 1.5 years.  I feel like stability wins in the long run.

It's definitely showing me that C class look good on paper but with tenants moving so often and turns costing so much the reality is they're just not working out.  The other investors in my mastermind group are all trying to get out of their C class properties.

It's the only state I'm in currently.

Paint is usually the biggest expense costing between $1.50-$2.00 sq/ft.  After two years of C class tenants the walls typically need to be painted.  Here are some typical costs for C class turns.  I think the B and A class turns would be able to avoid the majority of these items.  I think C class looks to cashflow better but in reality cashflows the same as higher class properties but with more headaches.

$1,200-$1,500 paint
$50-$100 hole patches
$200-$300 trash clean out/haul away
$150-$300 clean
$200 lock change
$50-$100 bathroom misc. (caulking, TP holder, shower rod/curtain)
$100-$200 blinds (not sure why blinds are always in bad shape)
$100-$300 misc (bulbs, smoke detector batteries, furnace filters, window screens)
10% market on job for PM to handle everything.

I'm curious what everyone is seeing for average turn costs and average amount of time tenants are staying in units.

For C class multi family in Columbus, OH I've been seeing tenants stay around 2 years with an average turn of $2,000.

I spoke to a PM who manages 3,000 doors in Columbus and he said on average for C class properties he's seeing tenants move every 1.5 years.  An agent in the area said about 2 years for multifamily in B and A neighborhoods and 3 years for B and A single family.

The PM said he can't believe the turn costs now but both material and labor prices are way up.

When running properties through the calculator I now add $100/mo for turn costs on top of vacancy/repairs/capex.

I've been investing there for three years now and meet up with a weekly mastermind group of out of state investors investing in Ohio.  I have 8 doors in Columbus, all C class neighborhoods.  I'm just now finding that the average turn cost is wiping out 2-3 years of profit per unit and making it not worth it other than appreciation so don't be fooled by cashflow projections.  I've been told that the average tenant is staying in a unit anywhere from 1.5 years for C class and 2-3 years in B and A class.  Average turn costs are anywhere from $1,500-$2,500.  Most of my C class tenants are on average staying for 2 years and turns are costing $2,000.  That's not including vacancy for the month they are out, turn, market, and place a new tenant.  These days you're lucky if you can place a new tenant within a month of an old one leaving.  Then there's first month's rent that goes to the property manager.  Not to mention eviction costs with C class properties (I've had three already).

All of us that are part of the mastermind group are wanting to for sure get out of C class properties and most of us are not the happiest investing in Columbus.

Good luck!

 That's what I'm really hoping for.  They've already screwed me out of tens of thousands of dollars.  I know investors that were leaving Columbus because of it.

 H.B. 126