All Forum Posts by: Bryan Hartlen

@Drew Sygit & @Adam Bartomeo,  we're experienced investors and I don't believe our expectations are out of whack.  We don't buy in warzones and we explicitly verify that the PM is experienced with Class C/D properties and tenants and Sec8.  

We've had issues with bad tenants where we've had to evict.  That's not on the PM but how they handle the eviction process is.  Every next step of the process gets executed days or weeks after it's supposed to.  When we follow up it takes multiple business days and sometimes more than a week to get a response. 

The latest example, we had a set out (Sheriff watches over as old tenant's stuff is removed from the property) on Dec 13th.  We're still waiting for the PM company to provide an inspection report on the setout & a rehab estimate for the turn. Even with a week off for Christmas and New Years, there's no reason for this delay. 

@Travis Biziorek: self management isn't something that we're willing to undertake.  We'll sell the properties if we can't find a PM company that works. 

We're out of state investors that have 3 properties in Birmingham.  Class C/D neighborhoods with both Section 8 and private payer tenants. Managing the PM's is becoming a problem. I'm assuming that they're either understaffed and/or we're small potatoes for them.  Wondering is anyone here has had better than mediocre experience with their PM company. 

We've recently received term sheets for hard money from Conventus that are quite competitive.  I'd like to hear any good and bad recent experiences you have had with this lender.  Thanks. 

@Steven Catudal

- LLC with detailed operating agreement

- Bham has tons of Sec8 opportunities. Note that Sec8 comes with added costs & issues due to bureaucracy and state of the HUD departments in the area. As an example, our request for rent increase that was submitted in Sep 2023 has not been processed and may never be processed. So we either sit tight or we don't renew the tenant so that we can place a new tenant at current rates. Investing in Bham Sec8 properties requires somebody with street by street knowledge. It's not an area that you can say this zip code or this neighborhood is good or bad. Appreciation in most Sec8 neighborhoods is very low so it's a cash flow play.

- I would highly suggest you plan on using a property management company. This seems counter-intuitive as I doubt you’ll ever find a really good PM company but the headaches of managing any kind of a problem remotely overshadows the ongoing concern that a PM company is inefficient and expensive (at least it does for us).

Personally, we would not do that deal.  Return is too low.  Risk is too high - $85k rehab is more than lipstick.  High probability that you’ll uncover an oh-$**** issue that will reduce or eliminate your projected profit. 

@Shayan Sameer, we use the 70% rule to decide if we’re going to spend the time to fully underwrite the property. If it’s at or near 70% we dig into the full cost model that accounts for financing costs (hard money and GAP), acquisition costs, holding costs and selling costs. For lower value flips, 200 - 300k, we stick to that range as the projected profits doesn’t have much room for an inevitable rehab oh-$hit. On higher value we are willing to stretch if need be as there’s more room to cover unknown issues.

Depending on how long it will take to complete the remaining work and get the property sold, you could also try to find a larger general contractor; one that could self fund the work in return for a higher payday at closing.  Eg if they quote $40k for the work pay them $60k.  It looks like you might have enough room to do this. 

I didn’t mean to imply that every increase results in turnover. Just that some increases might. And that sometimes as an operator you trade off market rent increases to improve the probability for a quality tenant renewal. You may still be increasing rents but at rates that you believe will keep the tenant.

Maximizing cashflow becomes a strategy choice that accounts for your market and tenants. Some will increase to market rates at every opportunity without being concerned about turnover. Others will increase moderately until they get to a certain threshold (eg > 10% below mkt). The success of either will depend on the market demand for the class of property. 

Could be a business decision based on keeping long-term high quality tenants rather than risk the costs on turnover. The turn will typically cost at least one 1 month rent and then the freshening/repair costs. In most cases you will loss money (in the current year) if you need to turn a unit for a 10% rent increase. The operator may trade off the longer term benefits to keep a high quality tenant in place.