All Forum Posts by: Jeff Bridges

I have a tenant with a lease ending July 31 and is breaking their lease to move somehwhere else instead of wait out the end of their lease. They just moved out early this past saturday .They've been there for 10 years. I explained they are on the hook for the full lease until the unit is re-rented. I've agreed to list it and get cooperation from tenant with showings and pointed out that feb is a slower month to get interest in applicants and that they would be on the hook for additional rent if I couldnt rent it by Feb 1. I've had several showings in jan and one applied, qualified and was approved for Early feb move in. New applicant now says shes available to move in March 1 and not feb 10 as she originally indicated.  If I accepted this new move-in date, I would use current tenants deposit to pay the feb rent. What are my obligations here? It's looking less likely I'll be able to do more showings and result in someone moving in Feb 1 at this point and I already dedicated alot of time grinding out pre-qualifying and coordinating showings in January. The easiest thing is to accept a march 1 move in and forfeit the existing tenants deposit, resulting in no out of pocket to me, but I also know I need to attempt to re-market for rent as quickly as possible, but it seems like I did that already, but just making sure I dont need to keep it listed when I can have this applicant put down a deposit ASAP which she has agreed to. Another thing I can do is try to compromise with the new applicant and see if they will consider a Feb 15 lease start date to hold the unit until they can move in march 1, but again its not my money since the deposit covers the month anyway. So I'd only be getting half the deposit back to the tenant off the back of the new tenant who really wants march 1. My gut says accept march 1 move in and existing tenant forfeits deposit to cover month of feb that was not rented out. Thoughts appreciated!

Quote from @Gina Cabell:

@Richard F. It had to be replaced - cost $360 for the new disposal and installation.  

Disposals can fail after 3 years due to no fault of the resident (especially the cheap insinkerator units from HD) You have to prove that it failed due to tenant negligence vs. from regular use or even just rusting out from the bottom. The really cheap ones use regular steel blades and materials that are prone to rust and or the motor could also easily crap out. The badger 1s only come with a 1 year warranty for good reason:) Were there obvious signs of foreign objects in the unit to suggest it wasnt wear and tear? Some of the nicer units come with 5 or 10 year warranties. Did yours have one that you might have been able to leverage for replacement? I wouldnt automatically deduct deposit without getting more feedback on the cause of failure from the contractor.

looks like they are selling you the business but not the real estate. it looks to be a multi tenant strip mall type property. Did you ask what the rent is and sq footage? a big problem with coin laundry where you rent is you are at the mercy of the landlord and remaining lease terms. So you'll have owner finance terms+ lease payment terms from the landlord + utilities + attendant/staffing costs. That's alot of costs going on. If they have 2 years remaining on their 5 year least then you could buy a business, then have the landlord not renew the lease and you still are responsible for your note terms. All that to say that there are alot of risks where you can have a hard time keeping your business (hard to move laundry appliances and utilities) and its a maturing market so there are fewer buildings being built without laundry included anymore. Also rent can go up making it hard for you to profit no matter how well you run your business. So you need to lock in Low rent at or under $12/sq foot if you want to survive in the coin laundry world. What is the average age of the machines in the business? A set of new machines can easily run you 300-400k if these are all end of life. Then you have to add machine payments on top of above. Just letting you know there are lots of hidden risks involved.

Quote from @Edward Roe:

My wife and I recently purchased our first Multifamily. This property came with large laundry appliances in the basement for each unit. None of which have any sort of payment system attached. I don’t necessarily want to install coin op because I don’t want the hassle of having to go to the property to exchange the quarters etc. Does anybody here have any experience with automatic systems like Shinepay or anything similar that can be paid without the use of coins? 

Thank you! 

You'd have to check with customer service on compatibility with your particular units but payrange has great bluetooth-enabled apps for laundry payment systems. easy to DIY install with youtube videos. no monthly fees and low upfront hardware acquisition cost. Shinepay has monthly fees and is very expensive up front cost that is prohibitive for a couple of units. https://www.payrange.com/laundry/ Also worst case you can work with a local laundry vendor and have them lease you machines for free and split revenue 50/50 and they are responsible for all maintenance. These wont be a profit center by any means (break-even at best) but you'll at least minimize your utility costs and also outsource laundry maintenance to a dedicated vendor.

Quote from @Stephen Milhoan Jr:

I am currently in dental school in Cleveland with the goal of getting my first deal this summer while on break. I am looking to get a duplex or triplex in the Cleveland area. I was wondering if I should set up a holding company/LLC prior to doing my first deal and if so what do you guys recommend I use to do so.

Thanks!!

You could just get an standard umbrella policy to cover your landlord liability/assets and buy under your own name esp as you are starting out. Benefits include being able to get conventional loans (favorable rates) and not having to pay fees/accounting fees for a LLC that isnt currently doing any business yet. Worry about LLC stuff later and consider that if you scale into more than 1 property. You can still scale to 10 and beyond with just an umbrella policy anyway and still have coverage.

Quote from @Marlia Stone:

I could also use some encouraging advice as well.

My encouraging advice is to move forward and take these as lessons learned. Get started on getting a insurance claim tonight/tomorrow. Then move forward with a restoration company or trusted contractor who can help you dry out the place starting tomorrow (or ask your existing contractor for recommendations). We're talking commercial dehumidifiers and fans. The longer you wait, the more likely mold starts to form and creates additional expenses and damage for your project. Then once things are dried out, you can work with your contractor to continue with your prior plan for renovation and also add in repairs from water damage. With luck, insurance should cover your damage restoration costs to get you back to the original pre-repaired state if you've been vacant less than 60 days (they are not going to pay for your renovations if they havent yet been completed). If longer, you might be stuck eating those costs. My rule is to always shut off water if its going to be vacant and I'm going to be out of town regardless of season. Other rule is always heat your house to the minimum 60-65 to avoid frozen/ burst pipes going forward (you've learned that lesson first hand). Even in summer, I try to prevent a vacant house from going over 80 with AC to prevent warping and other heat damage.

Quote from @Dave Rav:

Population decline is a key consideration when it comes to any multifamily investment.  I would look closely at this.  IMO, with SFRs you can likely fill it despite any of the macroeconomics of the area.  But with MF, it may be challenging to get that 100% occupancy.

Additionally, this one looks like it needs alot of work.  I think as you mentioned, alot of risk and unknown costs here on this one.

Thanks for the feedback. Agreed that population decline is of concern and not what successful investors look for as criteria. The population at 12k (just confirmed) is down from 13k in 2010, but up from 2000 at 10k. So its not been a long-term decline.

I just checked and there is a 10% total vacancy for the town, so that seems to suggest there is a housing shortage. but agreed, I underwrote my NOI proforma for 25% vacancy expecting not to fill the entire park.

Quote from @Frank Rolfe:

When you put the zip code in Bestplaces.net what is the metro or county population, what is the SF home price, what is the 2 bedroom apartment rent and what is the housing vacancy rate?

total population of the town is 12k. I get about $928/mo for a 2 bed. I see about 10% total housing vacancy rate in the town. about 56% renter vs. 44 owner occupied community.

Can you help with general feedback and guidance on considering this opportunity not yet under contract? I have a lead on a 36 lot mobile home park on 16 lots and each lot is accessible to the county roads and has its own driveway. Park infrastructure is 50 years old. Only 5 of the 36 are occupied. There are 24 trailers than need to be removed and 7 vacant lots. 24 need to be removed to make way for infill. Each lot is on septic and shared well. There is one active well serving the current residents and 2 others that are inactive that I imagine will need to be brought up to serve the remaining lots and/or provide redundancy/backup. Septic condition is unknown but trying to get more info from local servicers. The nearby City sewer does not go out this far so I wouldnt be able to hookup to municipal water/sewer.

Town is population 4000 and closest major city is Macon, GA. Population has seen a decrease of 13% in last decade.

Seller (flipper) states NOI of 8832/year (based on 5 units at lot rent of 200-250). Using 6% cap rate and 8832 NOI, I get 147k valuation. Seller wanted 210, but willing to accept 152k so far, but I have yet to break the 147k valuation based on current occupancy.


Work needed:
remove 24 old trailers
landscaping on vacant lots
upgrade infrastructure to connect lots to wells if leaks present (vacant lots make big unknowns)
infill with used single wides (figure 10 per year for 3 years to fill all 31 unoccupied lots)
pump or repair septic where needed (DD TBD)
bring online 2 additional wells for redundancy and connect to existing lots

Post infill NOI after 3 years is about $47,500 based on lot revenue of 81,000 (75% occupancy). If I go through with the deal, I'll use my own capital and offer 50k down, with 100k on 5 year note @ 6%. ($1933/mo). cashflow is $24300/year.
This doesnt include the capital to remove, buy, place, restore used single wides, and up front capital to address other deferred maintenance.

Does this plan have too many risks? Is the private well/water too risky given age of the property? Does it seem like alot of value-add work for a mediocre cashflow once stablized at year 3?

Thanks in advance!

Quote from @Tom S.:

@Jeff Bridges Just adding, check your 5% interest rate - is that for sure? Owner occupied SFH go for 5.25%ish currently, so that's low for a multi family commercial place. Of course, it's seller financing so definitely negotiable. One commercial loan I have is getting close to 7% these days :(

Oh I know:) thanks for noting.... i've negotiated seller financing before, and I'll present several options to include interest rate. I think if he wants a certain asking price, then he needs to be more flexible on other terms like interest rate. but yea. I need to know if its a non-starter first at any interest rate.