All Forum Posts by: Josh D.

@Benjamin Aaker Thank you!  It turned out really nice.  We actually still manage the property and have raised rents about 30% the last two years.  My only regret is selling it!  

Investment Info: Large multi-family (5+ units) fix & flip investment.

Purchase price: $1,060,000
Cash invested: $1,060,000
Sale price: $2,275,000

Purchased 100% vacant 16-unit (all 1/1s) apartment building with 4500 SF of office on the ground floor. Remodeled all of the interiors of the units, common areas, painted the entire building, upgraded the lobby and sold it.

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

A nonprofit owned the building and lost their county grant and needed a quick sale so we were able to acquire the property at a very attractive basis. The neighborhood is getting better and the building was 10 minutes from downtown St. Petersburg.

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

A local real estate broker we have a relationship brought us the deal prior to it hitting the market. We were paying cash and could offer a quick closing so we initially offered $1.1M. After we inspected the building we asked for a $40K concession and the seller agreed.

How did you finance this deal?

My partner and I funded the deal with our own cash.

How did you add value to the deal?

We remodeled the interiors of all the units: LVT flooring, new cabinets, light fixtures, paint, toilets, glazed tubs, tiled tub surrounds, new granite counter tops, door hardware. We painted the common areas and exterior of the building giving it a more modern attractive look. Overall we spent approximately $300K on the renovations.

What was the outcome?

We put the property on the market in 2020 listed at $2.425M. We ended up closing the deal at $2.375M.  We were happy to hold the property and refinance if we did not get close to our asking price but wanted to sell if possible prior to capital gains rates going up in 2021.

@Kevin Thomas You definitely want to nip this in the bud as rodents tend to multiply and their feces can cause health issues if it becomes an infestation.  As the others said, seal up any access point with steel wool or wire mesh.  You'd be surprised how small of a hole a rat can squeeze through.  Trim any limbs that are in contact or over the home.  I've been told by pest control professionals rats will not jump (unlike squirrels) but they will use branches to get on the roof if they are touching/close.  Set good old fashioned rat traps to get the rats already in the house and you should be good.  Stress to your tenant that they need to secure food and keep the home clean in order to remove food sources for pests.  It is nearly impossible to get rid of roaches or rats if tenants are total slobs.

@Alex Balan The reason I prefer using cap rates when comparing SFR investments is it represents the operating cash flow of a property relative to the price (assuming the advertised income and expenses are correct which they often are not and require adjustment). You can use a Monthly Rent/Purchase Price (1-2%) as @Jason V. suggested and that is not a bad place to start but it doesn't take expenses into account which can vary widely (insurance, taxes, maintenance costs on older properties, utilities, etc). Ultimately you need to determine NOI and what that income is going to cost you (cap rate). In making your investment decision you'll need to consider future appreciation (hard to predict), quality of neighborhood, quality of construction, financing available. I try to be very conservative on future appreciation and prefer to focus on what is readily determinable today, cash flow.

I'm not sure why cap rates wouldn't apply to single family investments like they do to multifamily.  No one will think you're a joke or easy target if you say "cap rate.".  The term simply refers to the unlevered return on a real estate investment.  A higher cap rate indicates a higher net cash flow.  Saying high cap rates is an indicator of risk assumes the market efficiently prices all real estate (which we know it doesn't otherwise great investment opportunities would not exist).  I've seen low quality properties trade at low cap rates.  It doesn't mean the property is less risky, someone could have overpaid for it and it is actually more risky. 

Typically lower cap rates are less risky because typically the market is efficient but not always.  Price is what you pay, value is what you get, there's a difference.  Using a cap rate to define risk is an investment approach that can get you into trouble.  Using it to refer to a property's unlevered yield is perfectly fine.

Hi Brooke, I don't know the law in WI but if they have an existing lease, it will likely survive the closing unless the lease states otherwise and there aren't statutes in WI that prevent a lease terminating when the property is sold.  You'll have to implement your new lease and rents as the existing leases expire.  Make sure to get an estoppel from the seller that the tenants sign stating any unpaid balances, prepaid rent and security deposits.  I've had multiple experiences where unscrupulous sellers get tenants to sign over security deposits for unpaid balances prior to closing, leaving you with no security deposits or disputed balances.  Good luck!

I would 15-day them after they pay you but it has to be 15 days before the end of the month or it would not be effective until the end of the following month (up to 45 days later). When they don't pay, 3-day and file to evict immediately.  Evictions are not that expensive (around $500-600 including court costs, writ, etc), dragging it out with a tenant that will eventually get evicted is more painful and costly.  Better to get them out and rent to someone that pays on time and probably a higher rent.   

I would not recommend having the tenant do work for you.  I tried to help one of my tenants that was always behind, he did some work refinishing some floors for me and then tried to charge me more than his written estimate.  I paid him what was owed and he accepted.  I eventually filed to evict him and he wrote the judge a letter claiming I had mistreated him, etc. The tenant didn't show to the hearing and I won but having a tenant do work gives them the opportunity to dispute the amount of rent owed which can screw up your case.

A $200 fee for posting a notice won't stand up in court and will make you look really bad to the judge.  If you included that amount on the 3-day you use to file the eviction a judge would likely rule it defective and make you start from square one.

Hi @Johanna Gutierrez, most notices can be given in regular mail or email and some need to be sent certified mail.  Other notices are required to be posted or served to the tenant like 7-day notices (notice tenant is in violation of lease) or 3-day notices to pay.  You can send 3-day notices regular mail but must give the tenant an extra 5-days (excluding weekends and holidays) so they turn into 8-day notices.  You really need to know and understand the law as the other posters mentioned (I'm not an attorney and don't give legal advice). The landlord/tenant law office I use provides a package of notices with some instruction on how to use them.  The Bay Area Apartment Association has a Landlord/Tenant legal seminar in Tampa later this month that might be worth attending.  I've attended before and it is well worth the $40-50 cost (and you ge CE credit if you're a RE professional).

As @kurt k said you can't take their word they're going to move out and you have the most leverage to collect while they're still living at the unit.  After they move out you will be just another unpaid bill with little chance to collect vs. a bill they must pay to keep a roof over their head and not severely damage their rental history.  I would let them know you intend to file an eviction if they do not pay immediately (per your state's laws).  They may come up with the money or not, worst case you'll have them out sooner than later so you can re-rent the unit.

Can you breakdown the $11300 in fees?  How many points are you paying?