All Forum Posts by: Cedric Van Duyn

This is a great discussion, glad I found it!

What values are you seeing in the Midwest in 2024?

Looking for advice from those with experience: We manage a small multi-family property, and we have a strong suspicion of drug use in one unit. So far, there has been no disturbance to the community, but we want to get ahead of the issue. What are the legal options of landlords and property managers in this situation? How can we confirm that drugs are being used? Could there be chemical consequences to the neighboring units? Could the property be affected by the chemicals? If so, what is the remedy?

Anyone had any experience with Inclusive Properties for financing?

 Shoot me an inbox and I will be happy to pass along his contact info.

I managed to negotiate the same monthly percentage fee @ 7%, but with lower turnover fees ($250 flat fee for lease renewal and 1/2 month's rent for a new lease). The previous PM charged a full month's rent for a new lease - this actually makes a huge difference, especially if you already have a month of vacancy during turnover.

So since I changed property managers I have had almost zero issues, all 3 properties are currently stable and cash flowing. The new property manager just raised rent on one of the 3 properties and other tenants just signed lease renewal. Prior to this new PM, one of the 3 houses was vacant for 5 months and there was always a reason why they couldn’t find a tenant.

In short, property management makes all the difference!

@Jared Hauf, thanks for checking in... 2 of 3 properties are stable but the 3rd one has been empty now for 2 months, trying to find new Tenants. I understand that Thanksgiving to New Year is the slowest time of year, so hoping to get a solid Tenant in the next week or two. Once I have all 3 properties with Tenants we should be solid for a good while.

Just posting a modification & clarification here in this discussion so as to not leave a wrong impression, and to counter any negative associations my first post may have caused.

I must say that I deeply appreciate Marco's openness and true desire to see his investors succeed. He has established communication with me on this situation and we are currently working on strategies. I will continue to update as is appropriate. I would emphasise that my intention here was not to point fingers at either Norada or the local provider... Norada generously provided a goodwill credit (who does that??), and the local provider did also cut some of the re-leasing fees more than once.

My intention was simply to highlight the responsibility of the Investor in protecting themselves against unexpected losses that can occur along the way.

Based on my experience investing out-of-state, even though a property has been rehabbed, those Maintenance & Vacancy numbers are way too low. I would place both @ 10% each. And I wouldn't touch that money until I have a solid buffer for unexpected repairs. Typical Property Management turnover rate leaves the property vacant for 1 month before a new tenant is placed, leaving you with the PITI payment and no income. The following month (if you get a tenant) you also don't see the rent payment because of the re-leasing fee. So you have 2 months of paying the PITI with no income on the property. I have never seen a Turnkey provider put that in their underwriting. Simultaneously, whenever you have a Tenant Turnover, you also have a whack of Repairs & maintenance in the get-ready process. Typically I have not come out of a Turnover without at least several hundred $$$ R&M (can be over a thousand)... all while collecting NO RENT.

Add a 10% mark-up on all repairs for the Property Management Company and the expenses really add up in the end. (Fine-comb your PM's Schedule of Fees carefully... sometimes you can negotiate.)

These are the "reality factors" that kill the projected ROI. If you have enough other cash flow or savings that can cover for these times, then you should be fine, but if you don't have the depth in your pockets for these scenarios then you can easily get into trouble.

On my 3 properties in Kansas City I had a total of 5.5 months of vacancy over a 4 month period. I know that was about "worst-case-scenario" but it is what happened. In the process of securing new Tenants I was told that the market had softened and could not get the originally advertised Monthly Rent, thus leaving me with a thinner cash flow than originally calculated... Leaving me even more vulnerable. On that, be careful that you don't invest in a market that is hot right now but is about to soften.

While my PM did generously cut me some slack on the re-leasing fees more than once, even that accommodation did not salvage the situation into a positive ROI.

My primary takeaway is to make sure you prepare financially for the worst-case-scenario and only cherry-pick deals that have the biggest margins.

Another takeaway for me would be to perhaps consider blending financed deals and cash deals. With a cash deal you minimize losses when there is a vacancy, because you aren't paying a Mortgage, only Taxes & Insurance. That should add some safety to the portfolio.

All the best!

@Edwin L. The repair costs were definitely the biggest surprise for me. There has been a difference between theory and reality, and my takeaway would be to go in with bigger cash flow margins that can absorb the unexpected. Also, to save all cash flow until you have a substantial repair budget before using it on anything else, for the same reason. I did not put aside *enough* to cover the unexpected repairs. Turnovers and related repairs & re-leasing fees should also be baked into underwriting, which I did not have a proper handle on.

The local provider did cut me some slack a few times with some of the turnovers by either not charging the re-leasing fee, or cutting the fee in half because of my situation. So this is not meant to be a reflection on Norada or the local provider.