All Forum Posts by: Bill Thompson

I offer my tenants the option of choosing a weekly, bi-weekly or monthly payment schedule.  I don't charge extra based on payment schedule... overall rent works out the same on an annual basis.  Some of my tenants find it easier to manage their finances if rent is collected on the date they get paid.  I use an ACH payment service to setup the schedules and collect payment.  The process is totally automated and surprisingly cost effective.

If your tenants are the type to drill out the coin drawer lock you may have bigger problems to worry about.  Perhaps a hidden surveillance system to catch the culprit will be money better spent.  Just saying...

@Brian Kehoe The process took about 18 months, which includes many delays at all phases.  Here is the rough timeline.

March 2014 - Make inquiries.  Select contractor.  Preliminary site plan and survey.

April 2014 - finalize design, layout and specs

May - July 2014 - Modular company draft plans (I was told this would take six weeks... it ended up taking 12 weeks)

Aug - Nov 2014 - 3rd party Engineering review / signoff (I was told this typically takes 3-4 weeks... ended up taking 16 weeks)

Begi. Dec 2015 - Modular house is built at factory... takes about 7 days

Dec 14- Jan 2015 - Building permit (process should have been 2 weeks; ended up being 2 months... good ol' Boston runaround and redtape)

Beg Jan 2015 - Foundation poured.. cure time

Jan 16, 2015 - House set post phoned due to forecasted snow.  RECORD SNOW delayed house set until April 15.

Mid April 2015 - House set

August 2015 - Construction complete (many delays... utility hookups, contractor slow to complete finish work)

I found my GC through the modular manufacturer.  They will only sell to you if you use one of their approved GCs or if your GC completes their training course. 

Modular entered the picture because I heard it was more cost effective and conducive to green building, two items near and dear to my heart.  Both claims turned out to be partially true.

I did four other major projects before this.  The first was a two story addition to my primary residence.... new construction but not modular.  I had a good GC... paid close attention to everything he did.  The others were gut rehabs of large, old multifamily houses.  The properties were foreclosures.  I'm not a construction guy but had to act as GC because my lead guy was undercapitalized, so I dealt with the subs directly.  There were many unknowns with the those jobs that required "on the fly" value engineering so it made sense to pay my lead guy and his people by the hour for work completed.  Over time I learned how to do basic things myself to contribute sweat equity and make the jobs go faster.  I did easy stuff like demo, framing, drywall, mudding, painting etc.  My lead guys worked with a day crew and I worked with a night crew (after my regular 9-5) to speed things along.

My units rent up almost immediately because they are beautifully renovated and I deliberately charge below market rent.  My niche is workforce housing... housing affordable to ordinary working folk... teachers, bus drivers, administrators, etc.  Lease up took about two weeks.  Unit #1 is two bedroom, two bath that rented for $1,600 per month... unit two is a duplex unit, 4 bedroom, three bath that rented for $2,400 per month.  Immediate lease-up and low turnover offset the low rent.  The nicer units always attract the best quality tenants.

It is not a horrible idea and you are not crazy.  What you are contemplating is ambitious but doable.  I know this from personal experience.  

I own several multifamily properties in what I would describe is an improving C level neighborhood in Boston.  I have seen great appreciation, strong cash flow, and deliberately charge 15-25% less rent so my units are affordable to working people.  I have not experienced any major issues with tenants, turnover is low, and my units are returned in good condition when it does occur.  I don't want to make this sound like utopia because it is not.  Acquiring and renovating properties can be risky business... being a landlord is "real" work if you self manage.  The point is your idea can work, it all depends upon circumstance.  Here are some things to consider...

1.  Set aside the fact your target area is low-income and evaluate the area from a "location, location, location" perspective.  How's the proximity to downtown?  Is it located near a major transit line?  Is there nearby shopping, parks or other amenities?  I'm  a native New Yorker and lived in long island, the south Bronx and the lower-east of Manhattan during the 70's.   The lower east side was the greatest ghetto of them all.  Look at it now.  The people can change, the location can not!  Your ideas works best for low income areas that have POTENTIAL based on location.

2. Think about your potential investment area in terms of filling an unmet need.  Does the area your considering really need more section 8 units? Does it have enough moderate rate / workforce housing?  In my opinion we have bad public policy in this country that leads to an over concentration of poor people in many urban areas, which then leads to high crime, substance abuse, poor schools, etc.  Why limit your pool of renters to section 8?  I renovate to an A/B+ level and have no problem finding good non-section 8 tenants in my C area.  My tenants are school teachers, bus drivers, court officers, landscapers... just regular working folk.  For me this is where the unmet need is in my investment area.

3.  Consider whether you are willing to commit the time and have the temperament to be a successful investor in a low-income communities.  It is imperative that you be very "hands-on" to make this work.  I screen all of my tenants personally.  I feel like I have a responsibility to bring good people to the neighborhood.  It is also important to make sure your unit is up to par.  A subpar unit will ultimately lead to compromises on tenant quality.  You need a good team and a system in place to deal with property management issues.  Because of the hands-on nature, you need to be comfortable in your investment area.  If you are afraid to go see your property or have "issues" with low income people or their circumstance, this is not the right fit for you.

4.  I believe it is possible to be a socially responsible investor in low-income communities and still make a decent profit.  Where I live the larger private investors are making a killing in these communities, it's the small "mom and pop" investors that have problems because of inexperience and no money to address deferred maintenance.  The problem with large investors is many of them do care about the communities in which they invest.  They do the bare minimum to maintain their property.  Some of them that bought cheap for speculation just board-up their properties and leave that way.  I believe positive change can occur one house at a time, one tenant at a time.  The foundation of a vital community is PRIDE in neighborhood, a concept lost on investors that are only "in it" for the money.  There is a right way and a wrong way to go about investing in these communities.  If you move forward, make sure you are part of the solution, not part of the problem.

The biggest problem with my project was cost overruns for site work.  Apparently, storm water recharge / runoff is a huge issue for the "powers that be" in Boston.  It was a pain to get the site plan approved.  The process caused a delay of several months.  The site plan itself was way over the top in m opinion, with an elaborate drain system that included several manholes on my property.  I literally had to pour $25,000 into the ground for this.  Neither my contractor or I saw it coming.

Regarding construction, all went well until the GC became over extended.  With modular the "button-up" work that is done in the three weeks after the house is set is very important.  The GC needs to be there to ensure everything goes smoothly.  My GC had previously scheduled a "house set" toward to end of my job.  He literally disappeared for three weeks!  I thought I was going to lose my mind.  The other thing that happened was my GC's subs started to bail on him... too much big construction luring the trades away... very difficult to find good people to work on small jobs.  Fortunately, I was able to take on a lot of this work using my own subs to minimize delays.  On the positive side my contractor was able to hold his price despite the fact my project was delayed for eight months.  We also share the same philosophy about the need for more "work-force" housing and green development in urban areas.  I would use him again.

Thanks Peter.  My modular is located in Roxbury.  I used Epoch homes, which is based out of New Hampshire.  I'm sold on the modular building process although I had my share of problems.

Dave,

I just finished building a 2 unit investment property in Boston in September 2015.  Like you, I concluded it was more cost effective to build a new MF property rather than buy an old one.  Fortunately for me I already owned the land - it came bundled with a MF property I purchased three years ago.  That definitely helped but I could have made the numbers work even I had to pay for the land by adding another unit or two to the property.  I choose a smaller scale project because I could proceed without needing a variance or being subject to design review by the City of Boston.  I am not a GC but have participated in the renovation in several of my rental properties, so this was not my first rodeo.  

I think your instincts are right on point with respect to realizing savings in both operating expense and cap ex over the long term.  I choose to build a modular home and was very impressed with the quality, durability, and energy efficiency of the final product.  The property got a HERS rating of 5+ (the highest possible) and we didn't really go out of our way to make the property energy efficient - it just turned out that way by virtue of the modular design process.  I expect to have really low operating and maintenance costs with this property.

Like New York, Boston is a high cost area so new construction is not cheap. By using modular I was able to achieve modest cost savings... what I got was better quality at a slightly lower price point. You will need to bring substantial cash to the table to pull off new construction. My project cost about $460,000 ($130 / sf). I used hard debt to finance $260,000 of the cost; the remaining $200,000 came from my pocket. When I refinanced (DTI constrained) I only got about $100,000 of my money back after paying off creditors. I can live with that because my cash flow is about $1,200 per month.

Overall, I'm pleased I went the new construction route.  In fact, I am looking to buy more land because I think I can develop more efficiently having been through the process once.  These are the takeaways from my experience...

1. Expect to come up with 20 - 40% of total development costs from your own funds, depending on who you use for construction financing.

2. Your experience will be determined by your local permitting process and how the building inspectors treat you.  There is the potential for a lot of delays, red tape, and needless hassle if you or your builder do not have connections in the right place.

3.  The big wild card from a cost perspective is site work, not construction of the building.

4. Modular construction can be a great way to go in the right circumstance.  If you are a novice at construction, hire a GC to deliver a turn key product.  Beware, some localities (like Boston) are extremely pro-union and will go out of their way to make your life miserable for choosing modular.

5. Make sure to choose a GC with a solid track record that can perform.  I've seen good ones get over extended and perform lousy on jobs.

Despite these concerns, I'm a fan of new construction for multifamily.  Here are some pictures of my recently completed project.

I think your charges are reasonable... but hey, I'm an investor.  Your tenants probably think you're a "big meanie"!  Don't expect them to cut you any slack if something goes wrong on your end lol.

@Christian Bors It's unfortunate you almost got attacked.  There is no excuse for that type of behavior, especially over something minor such as changing locks.

That being said, I don't understand what you expected to accomplish with the walkthrough given the facts you laid out.  You already had concluded you could not keep her deposit so why be petty about the locks?  All you had to do was accept the keys and keep moving.  

You introduced stress and conflict into the situation where there didn't need to be any.  Look at it from the tenant's perspective... she was probably thinking you're either being a jerk about a minor item or you're about to gouge her installing a new lock (yes, there are some landlords that will call a locksmith and deduct $300).   I might also add it's possible your former tenant was telling the truth about the locks... it's her word against the former owner... who knows?  Either way there was very little upside to this situation so no need to "go there". 

I hope you were joking when you said you "hate" your tenant.  This is business.  Never make it personal.  If you're going to invest in C/D areas the last thing you want to do is intentionally push the buttons of people who feel they have nothing to lose. That is asking for trouble and bad karma!