All Forum Posts by: Andy Crooks

Andy,

I think it’s possible (but not probable) to find good deals on the mls if you move and act quickly but I will concur that there is more to be found off market and it seems like a high percentage of local Madison deals happen off market. 

I am also a broker-realtor and I think there is value if someone wants to do a considerable about of buying/selling, as well as access the MLS. There a decent amount of IDX broker sites that link to the MLS (think Zillow, realtor.com, Broker websites such as trmckenzie.com -shameless plug) where you could do a search yourself, but obviously each has different functionality.

As it relates to new construction, just because something is zoned for a handful of units, doesn’t necessarily mean it is ready to build. Depending on the municipality you will need other approvals of planning and common council or town boards. In Madison many projects need the approval of the Urban design commission which will nit pick all aspects of your design. If you close based on density without a building permit, the pro forma could be askew very quickly. 

Mount Horeb is notorious for rocky soil which can increase the cost of construction. You may consider some soil work if it hasn’t been done, but then you are talking A couple hundred per boring. 

I tell anyone remotely interested in buying a home that they should meet with a couple mortgage providers and understand that side of things. I think it would be advantageous to start the relationships with local banks prior to being ready to pull the trigger on and try your first new construction deal. This is a key component to the process and different banks have different appetites. It would be good to have a preferred lender or 2 lined up and ready to go. 

Holler if you would like to grab coffee and further the convo. Lots to chew on  

Andy

Madison Property Management has a large presence especially downtown. 

Forward Management primarily manages newer and larger buildings for investors. 

CCL Management & Caribou Management appears to focuse on the SFR space.

Prima Management does lots of condos and also smaller multi units. This is the only one of the above that I know well (Ben Vezzetti is the owner of this franchise and is a really good guy).

My company TR McKenzie does larger complexes primarily on the west side. 

I am a firm believer that proximity plays a big role in a property manager. The further a company has to go out of their way to show a property the more it will cost them to do so and the less likely they are to be on top of it. 

Many deals get done off market around here especially for MF. 

@Shaidah K. yes we were able to increase the rents upon some of our initial work and we continue to increase them 2-3% annually. I believe the value is higher than it was when we bought because of the rent increases and improvements we have made, but value can be subjective depending on the metric you are using (or more specifically what metric potential buyers would use), whether or not that be using comparable sales, cap rates, cash on cash return, the 1% rule, etc... We did refinance in 2017 and added $500/month to the NOI based on a lower interest rate. We are currently fixed through 2022.

Investment Info:

Large multi-family (5+ units) buy & hold investment in Madison.

Purchase price: $670,000
Cash invested: $134,000

6 Unit Town home on Madison's near west side, off McKee Rd.

What made you interested in investing in this type of deal?

It was adjacent to some other properties that we manage, so the efficiencies and economies of scale were attractive. Also we could offer amenities (pool, gym, etc) at a minimal cost to help justify an increase in rents.

How did you find this deal and how did you negotiate it?

MLS.

How did you finance this deal?

Conventional Loan with local institution.

How did you add value to the deal?

New Roof (when hailstorms work in your favor), new appliances, new carpet and paint in common entry ways. Landscaping done in 2018, and patio doors replacement planned in 2019. Kitchen remodels and replacing outdated linoleoum with LVT.

Lessons learned? Challenges?

This was my wife and my first purchase of an existing rental property. We probably could have negotiated more efficiently to reduce the purchase price based on some deferred maintenance.

I am looking to refi a 6 unit. I currently have a 5 year fixed/25 amor, with a balloon payment coming up in 19. There are no pre-payment penalties so I want to lock in rates now before interest rates climb too much. Probably 35% LTV, so some decent equity especially since we have been able to increase rents and got a new roof from an insurance claim. I am not looking to pull out cash, just take advantage of low rates.

What I am finding is that Fannie and Freddie want no part of this.  I have been able to find up to 7 year fixed/25 amor again with no prepayment penalties from a bank I do a lot of business with but I would love a 15+ year fixed on this asset.

I am considering bundling this with some other assets to potentially hit the secondary market/life insurance companies/etc, but does anyone have any other suggestions on financing options?

What's up @Chris Adamski? Welcome Bro. I am also a licensed Realtor here in WI. I live outside of Madison (town of Middleton) and I love it here. The market is still pretty hot on both the MF and SF space. Anything under $300K is selling quick. I am seeing lots of offers in that "entry level" space come in with minimum contingencies, even often without appraisal contingencies where the buyers are willing to cover the difference with cash. Also the construction trades are swamped meaning it is hard to find qualified contractors do work. They are so busy that many will throw out higher bids for projects since they don't NEED the work. With all that being said, my two cents is that it is a tough market for flips. Rental vacancies are below 5% basically across the board which is great for current owners, but it also means that if MF buildings come up for sale on the MLS, I would question as to why the owner is selling... There are something like 3,000 approved apartment projects on the East Side/Sun Prairie so eventually the vacancies will start to push higher. With that being said all of new construction is also pushing the rental rates up and there is a niche for the mid-range/older properties if you can find them and improve them.

Madison didn't get hit as hard in the last recession as other communities around the state because of the employment drivers (State Government, the University, Epic in Verona, plus some of the others like American Family, QBE, etc.). 

My company does single family land development and large apartment construction, but our bread and butter is property management.  We have approximately 1,500 units under management (trmckenzie.com) in the greater Madison area, primarily on the West side. In the last 3-4 years we have brought 88 single family lots online (8 lots remaining of the 88) and we have constructed 250 new construction apartment units in the Madison area with our in house construction manager.  I am also active with the government affairs committee of MABA (Madison Area Builders Association).

Personally I am pretty interested in learning more about other Wisconsin markets like the greater Milwaukee area, the Fox Valley, Eau Claire, Etc.  @chela O'Connor can you include me in any Madison meet ups I would appreciate it.

Thanks!

-Andy

Do any of you guys use hdsupplysolutions.com for your PM supplies? We don't get everything there, but their prices are very competitive on certain items. For example, I haven't found a better resource for blinds.

Don't forget that taxes will probably go up if you pay 1.1 which is likely higher than the assessed value. Find out the mill rate in your local area and use that to find an updated future tax projection.

In Wi it costs a couple hundred bucks to get the license and about a grand a year to keep it active. If you are fairly active you can probably post your license with most brokerages. However know that the commission terms are negotiable like everything. What percentage of the commission does the broker want? Do they want a flat fee per month (probably a higher amount for big earners). They could reasonably ask for 30% of the commission percentage to help with their operating costs, so take that into consideration when looking at your Also in my state you can't accept a commission for something you personally own (different if it is in a LLC with joint ownership). You CAN take the commission as a credit at closing if you word your documents right. I got my license first, and for me it is worth the access to information. Also you can learn more about the standardized forms which can help you structure better deals. But then again I have never been without it so I can't speak into that. Lastly not all deals make it to the MLS. Get familiar with your local register deeds for land and other off market sales. My county has digital software that costs $20 per month to access remotely for up to 150 minutes . You don't need to be a realtor to use, but you need to know what you are looking for. This has both MLS and non MLS comps but it not nearly as easy to use as MLS.

Do the real estate agents own other properties in their LLC? I am assuming so. Ask them to explain how having it in the LLC is a tax benefit for the property. Most LLC (that are not S-corp) I believe are flow through entities for tax purposes. Owning properties in them is more for limiting the liabilities of the members so that if they go bankrupt, the courts/bank can't come after your other assets. I would ask to see the operating agreement and financials of the LLC that owns the property. That should give you a better idea what you are in for. I think the title companies would ask for operating agreement before closing to make sure that the signers are legally allowed to sign, so they should be readily available. setting up an operating agreement is expensive but try to set it up with a formula you can use again to echo the above comments. Also it worries me in this situation that they may not be incentivized to be thorough on the rehab. The less the "other" partners spend on the fix up, maybe the better their ROI, which may be contradictory to your return... all the fine details to be ironed out in pro forma/budget. They spend X on rehab, their brokerage services are worth X. Projected sale/rent, projected ROI, etc.