All Forum Posts by: BOB CRANEY

@Marc Winter

I have 13 renters and about half are section 8 tenants. Not sure about other markets but in the class B- to C- these are the best rents you can get. Everyone seems to have a problem with having a property that will pass the inspection. The guidelines for the section 8 inspections are very reasonable and basic. Although I have sometimes found inspectors “Nitpicky” it was almost never something that couldn’t easily be fixed. Let’s not all act like market tenants are so much better and don’t cause wear and tear because they have full time jobs. My typical tenant profile for a section 8 tenant is the same as market tenants, single mother with 1-2 children and they all act like little children. I have taken to some design, material selections so they hold up better and last longer between turns.

The HUD system can be used against a tenant as they have guidelines they must abide by also, and when they break the rules they can get booted out of the program. This has happened to 3 of the previous tenants I had.

In the end the character of a tenant in a certain rental class is more general to that class than it is

Specifically section 8.

 Good point BRANDON. I see a lot of the benefits of scale in multifamily but the you can only overcome the substantially higher costs of overhead at a much higher unit count for it to make sense. 

Ian, 

Do you own any multi family now or part of any syndications? If so what kind of per unit price did you pay going in or were you only looking at the NOI bump from a value add rent increase? It just seems to me that even with some decent savings with scale efficiency that paying a price per unit that will net less than 1% rent ratio will leave a deal to skinny t weather any kind of slight down turn

Great thorough response. As a small player in a big pond my efforts to become efficient with the 13 units I own, have mainly been to renovate properties with an eye for the long game. By bringing a property up to modern condition with completely updated systems, structure and design. I am set for a 10-15 year run with nothing but turnover costs to account for.  

I have never seen a full blown budget breakdown for a good 100-250 unit deal so I have a hard time comparing that to my excel pro forma on my self managed 4 unit. 

I have been researching recent sales in the Baltimore area for Multi unit apartments from 20-200 units and it seems the per unit pricing is to really high compared to the rent. With properties built in the 1960-1970 that have seen some or all the units renovated, the per unit prices are $85-130,000 for an average size 2BR/1BA with 600-900 sq ft. These are mostly class C to B in older neighborhoods that are renting for 700-1100, usually with only water/sewer included.

Comparing that to the 1-4 units I have been able to find the average cost per unit is $60-85,000 and the sq ft of the units are 700-1200. These are renting for 700-$1200 on the higher end for big apartments with storage, parking and sometimes 2 full BA. Averages in the 900-1050 per month, nothing included.

With the additional costs to manage the higher turnover, larger multi unit buildings, how does it make sense to pay such a premium for a larger unit count? The few large deals I have seen that had much lower per unit costs had a ton of deferred maintenance or very low occupancy and were usually in class D-C areas. I have experience rehabbing and really upgrading properties for sale and rent but you cannot singlehandedly change the flavor of an area just by making it an Oasis in the desert.

What would be a conservative unit cost to rent ratio that would signal a good deal, using a safe 50% for expenses.

@Justin R.

I have no experience with them personally but I listen to the Old Capital Podcast and those guys even to know a lot of the players and other active lenders in the multi family space. I do believe they have the anbiliry to lend in Georgia or could recommend someone

@Tomiko Graves

There are retail contractors and there are more investor friendly guys. If you are totally hands off and not experienced enough to know how much materials and labor cost you will be at the mercy of a GC who will do it all for you and make more due to the fact that you don’t know any better and need to be hand held and coddled a lot more than a veteran of 15 rehabs.

I used to do a lot of work myself to save where I could. As I got better and more experienced I hired 3-4 specialists to speed up the process. You can hire a company that sends 2 guys who do everything in house but I can tell you that the Specialists move so much faster due to their experience and repetition.

You need a

Demo guy or handyman

Plumber

Painter/drywall guy

Handyman

Shop around and price the material yourself to get an idea of the material costs. Then all you have to figure is the labor. When you break out the labor from the materials then you will see what your costs really are and where they are out of line. If you picked a

Nice tile that’s 3.50 a sqft and you see the GC is quoting $9 sqft then you can save a lot. Talk to the distributors for material also and ask what a standard price for labor is for things to get a feel for the standard range.

If you just want a package deal from one guy, then call 4 more companies and see where they fall.

@Eric Jones

I have had about 60 tenants in various apartments and townhouse rentals over the last 10 years. Many started off well and then fell into a pattern of paying late and paying the late fee. Problem was the lateness would get progressively later and there would be months they didn’t pay till the last week of the month. Most were “Nice” people, sometimes going thru a hardship or other income changing event. I often tried to work out an arrangement to get them back on track. What I found they case after case is that people in the price range I rent to 900-1400 a month don’t have any extra money in their budget to catch up. If they did they could pay it to you. Tenants making less than $50k a year with families are truly living on the edge and any bump in the road usually derails them and they are not able to get back on track. Once they got behind it was always fingers crossed they didn’t get sick, have a car breakdown or accident, Xmas or other holiday was coming up etc.

Do yourself a favor an run your rental business more like a robot. Pay on time or find another rental. Paying on time is not a priority for them and you are enabling it. Eventually your acts of “kindness” will nite you in the ***. Turnovers suck but having to evict a late payer who drags you out an extra month or more sucks more. I don’t want to pay for my tenant to stay in my apartment and that’s what happens when they don’t pay. There are good tenants out there, so maybe raise your income guidelines to 3.5 times rent and find one with a little more capacity to catch up.

@Chris Murdien

Based on the questions your asking and the way you are asking them you are far from being ready to take a run at a 92 unit property.

Your seller would likely be keeping all your EMD when you can put the deal together because you have no team and you will not qualify to get the loan needed on this size property.

I could be off here but you need to go back to square one and start small as an LP on another sponsors deal or find someone to partner with who has taken down some deals full cycle. If you have the money to do a bigger deal on your own (50+ units) and not enough experience for the to buy and manage, guaranteed you will crash and burn and your equity will evaporate. A 5.3 million deal is no joke.

 Greg,

There may be some national manufacturer dealers in your area but the best is to Google search commercial flooring dealers. Your looking for dealers that commercial and builder residential work. The retailers that sell mostly to homeowners and thhe big box stores usually carry the value prices options but not always the best long term values. 

A good example of a big box product is the faucets they sell. Most are value engineered to hit a price point with cheaper plastic parts, valves, cartridges. When you find a better brand they don’t sell at the big box often times you get all brass construction with commercial grade parts meant to last 20-30 years for real. I just got a real nice Kraus commercial style faucet from Amazon for $200. This thing is built like a tank and will outlast my time in  the home.