All Forum Posts by: Trent Currie

They do have a responsibility to maintain the property in the condition as noted during the inspection. Should property condition change it requires a little negotiation. Minimum go back over there and see what the condition is now so you can verify.

Hey we ran into a similar situation in another state. We called around to commercial brokers to find out what properties had done a RUBS system they knew of. We then called the property managers for those properties and asked them about their systems.

That really depends on the terms  you have with this lender. Why does your lender not prep their own paperwork to secure their position?

Is this for a specific deal or on going deals and you need a form for multiple deals?

Is the work of verifying then sending notices etc worth not installing dehumidifiers? 

Specifically the ones in Steven's post above. Remove the option from the tenants hands. Put in bath fans that run constantly on a low setting but when activated run on a high setting. This might reduce that workload.

@Donald Capwell

Hey Donald- Here is my most recent experience close to your scenario above. I won't go into extreme detail.

The deal was in my local market. Currently the market is very stable house prices are appreciating well. We have a local vacancy rate of 3.4%. The low vacancy rate coupled with the lack of available laborers has created a shortage of rentals and single family homes. Homes are moving quickly and even distressed buyers are being able to move properties through the MLS in what would have been a short sell scenario a few years ago. This market has made it difficult to find those value added deals on existing homes where we could go in rehab, rent and hold or flip.

With the lack of deals and shortage of inventory we were left with a few options. Most deals available had so much competition that it drove the asset price up way past our acquisition criteria. Pretty much any of your standard vetting processes such as the 50% or 2% rules would make a property fail. Most of the local investors are accepting sub par returns in order to keep making deals go it appears.

We knew our opportunity was only in new development for property that might reach our criteria. From spec homes we had our costs for per square foot already known for a variety of finishes. If you don't know your cost per square foot call up some of the local custom builders and just ask what they are able to do it for. They will give you some ball park numbers of what they can build a house for.

Unfortunately with the rising tides the raw land and land with services rose too. On lots that were previously 42.5k for a ready to develop lot we were seeing prices in the 62k range. It was time to get resourceful.

We set out into a older neighborhood to find something not on the market. Shortly after that there was a small lot in an older neighborhood that came up. Another developer had torn down the main house (rough cost of 5K) and left up some of the other structures. They wanted to get the property moved since they had other projects that were prioritizing. We were able to pick up the property for about 50% of what we would have for a lot in other areas of town.

The lot was cleaned up with the other structures torn down. It took about a week or two to get the site prepped. Construction is moving along swiftly and the project will meet all of our acquisition criteria, ROI expectations, and standards for units.

Negatives of the process:

• It does take more time (site prep and unknown factors. Could you do more deals by passing on this one?)
• There could be serious complications (You don't know what is below that dirt. For instance imagine if the site has some environmental contaminants below grade. Now you have a huge problem.)
• Every jurisdiction has its own regulations. In Houston we were restricted on tearing down a home due to its age.)
• It can take a significant amount of time doing a new construction process (spec sheets, meeting with contractors, etc.. It all depends on how you have it set up)

Positives:

• Personally I like the control factor. I know exactly what I am building. All the systems are designed to last for years.
• Customization to meet criteria
• Additional strategy in a crowded market (Flips are hard to come by right now)
• New construction is desirable by renters
• Lower Maintenance (It should be mostly care free after getting the initial bugs sorted out)

I am looking for different models to bill back utilities in multi-family complexes with centralized systems.

For example a 50 unit single building complex with a centralized boiler system. What are some models to bill back the utilities to units with different room mixtures and square footages. Some units may be a 3/2 with 1100 sf while others could be 2/2 with 800 sf.

We were planning on doing it by sf for each of the units using RUBS, but I was curious if there are any other models commonly used.

Robert the question being asked is far to vague for any real guidance. If I were you I would hone in on an actual investment where you have done the math and know it works. Then post your basic business plan for that investment and then others can help give advice on approaching people.

Taylor I think this deal is going to be a tough one for you. I am not sure what your management plan is for Indianapolis. Most larger management companies there charge first months rent plus a % every month. That has pushed our average expenses on properties in the area to about 55% of gross. Taking the expected gross income of $15,147....

$15,147 x.45 = 6,816 net per month

81,793 net annually

At your current purchase price you are going to be at about a 9% to a 10% cap rate. If your plan is to flip them to another investor there is little to no margin for you to make here. Especially when Indiana has so many opportunities.

If your plan is to flip them to owner occupants you may really want to consider looking hard at the 70% rule.....

More due diligence is needed. If I were you I would find out as much as possible about his motivations for selling. Then figure out your exit strategies for each of the properties....keep in mind DOM in Indy is still very high. Then you may be ready to start talking about some seller financing. Don't rush the deal.

Let's do a simple 50% rule calculation on this deal. Even though I agree with @Edward Burns and @Mehran K. that your expenses are going to be more. I would say if you are responsible for the grounds keeping, common area utilities, and the water/sewer you may be closer to 45% or 40%(the 60% expenses that Mehran quoted).

4050 x .5 = 2025 x12 = $24,300 net income before debt service

24,300 / 350,000= .069 or 6.9% cap rate

Keep in mind that 350,000 doesn't even include your inspections, loan origination, closing costs, or other costs associated with a typical transaction.

At 6.9% it could be a fair deal for the market. However it most certainly won't help you grow your business.

I would also add that reponsibilities for debt service have a huge impact on ownership. There are also structures to pay the investors first and the rest of the partnership second etc.