All Forum Posts by: Dan O'Neill

Good Morning Everyone. I'm more than a bit frustrated with my current lender. Five years ago, I purchased a 16 Unit apartment complex for 472k put about 150k into it. Raised the rents from $500 to $800. Reduced vacancy from 25% to essentially zero. The balloon payment came due this November so I worked with the bank in an attempt to do the following: 1) put in place a loan modification to refinance; and 2) open a significant equity line (to fund the purchase of my next investment). The Bank's appraisal for the loan mod came back at 910k which I feel is at least 200k too low but whatever. The response I got back from the bank was that they would not provide an equity line (citing current economic conditions). I pushed and pushed to get an equity line but got nowhere. Using the Bank's value of 910k I have roughly 560k of equity. How is this possible that the bank wouldn't be interested in giving me an equity line on at least 1/2 of that? Here's the kicker, they send over the loan mod with a prepayment penalty addendum (3% year 1; 2% year 2; 1% year 3; goes away after that). I signed the loan but did not sign the addendum. The bank has since accepted my payments but someone at the bank finally realized there was no addendum and they are now asking me to sign it. I'm frustrated because I already went through a prepayment penalty period with the original loan. So, in my mind they have recouped their costs of getting my business and are now making money from me. So, there's no need for another prepayment period (in my mind - a loan mod should be a low-cost effort for the bank especially since I paid for their appraisal).

Taken separately I think I could move past not getting an equity line or having to agree to another prepayment penalty but the combination of the two I find infuriating. Essentially, they are holding me and my equity captive for three years. While in the end the outstanding loan balance is pretty low so any prepayment penalty wouldn't be that much, its more the principle that really gets me. So, in order to make my next investment in the next three years, I would need to sell the property which I'm not really interested in doing and pay a prepayment penalty. I told the bank over the phone I wasn't signing the prepayment penalty form and they have since sent me an email requesting a formal response.

Any and all thoughts, comments or suggestions welcome. Thanks in advance.

Thank you everyone for the replies. Yes, indeed financials, property condition play a key role. The seller has already provided 4 years of P&Ls and a history of updates/upgrades. Sellers are ready to retire and enjoy their golden years. Good points on triple checking the local ordinances which I will do to dot that "i" but the local economy is highly dependent upon tourism and given its rather remote location there aren't many hotels but there are similar STR businesses in the area. On another thread someone suggested involving my CPA on the front end to ensure that both real and non-real estate assets that are transferred are given appropriate values as this will impact depreciation expense of the real estate assets. Keep the info coming, the Bigger Pockets never community is great!

Good Morning Everyone, I'm currently evaluating a potential purchase of a portfolio of vacation rental units all of which reside on the same property (single owner).  What are some of the things I'll need to consider when structuring the deal as I'm not just buying the real estate but, in essence, the business itself and all the comes with it. Here are some the things of which I'm aware that I'll need to consider: 1) business property (non-real) such as lawn care equipment, furniture, appliances (large and small), dishes, linens, tools used in the care of the property; 2) transition of internet presence and accounts (website hosting, domain name, social media, 3rd party booking sites - anything else); 3) deposits already received for future bookings; 4) a listing of contractors they use who are already familiar with the property; 5) a listing of any contracts that would carry over to the new owner; 6) details and copies of any existing property management software. What else? Any general advice?

Hello Kim,

Thank you for your passionate reply!  Please know that I'm not complaining, I'm just trying to understand what the norm is in the business.  I truly appreciate the information.

-Dan

Hello Everyone,

What is the standard practice for applying (or not) both of the following in the first month of a new tenant placement: 1) the monthly property management fee; and 2) the leasing fee (1/2 of the monthly rate)?

For simplicity's sake we'll say:

- $1000/monthly rental rate

- 10% PM Fee to rents collected

- 1/2 Monthly Rental Rate for placing new tenant

- Move in date 1st day of the month

Which of the below fee calculations is the general practice in PM industry?

Scenario A - both fees collected (double dip)

$500 Leasing Fee + $100 PM Fee = $600 PM fees 1st Month

Scenario B - both fees collected (but prorated PM Fee)

$500 Leasing Fee + (10% of the remaining rent not applied to Leasing fee - or $50) = $550 total PM Fees 1st Month

Scenario C - only the leasing fee applied 1st month

$500 Leasing + $0 PM Fee = $500

Scenario D ???

Hello Everyone, 

I am under contract to purchase an apartment complex with 16 units. Given the complex's current state and a discussion I had with the current management company, I feel a change in management companies is in order.  Any suggestions for finding a new management company?  Below is an outline on the selection process I was thinking of using.

1) Create a property profile to include a brief property description and revitalization plan

2) Create a survey of questions for PM companies to complete (borrow heavily from Elizabeth Colegrive -->

http://www.biggerpockets.com/renewsblog/2015/10/09/questions-ask-property-management/)

3) Send an email with documents attached to property management firms servicing the area surrounding the apartments

4) Follow-up with a call to ensure receipt and obtain an initial impression.

I have actually already created the property profile and survey but don't see a mechanism to them to this forum post.

Best Regards,

Dan O'Neill (Charlotte, NC)

@Reuben Stone, perhaps I've missed something, but I can't figure out the numbers.  It's seems that your cash flow went up after adjusting for higher expenses?  Are the two sets of numbers based on different financing scenarios - or perhaps purchase prices?

Dan

@Steve Vaughan, 

Lots of good info!  Thanks a bunch for sharing your experience.  

Dan

Hey Folks, 

I'm new to RE investing and currently in the process of developing my business plan.  I've decided that multifamily is the market for me and currently working through the criteria I want to use to identify the right investments for me.  Looking to buy and hold for cash flow.

@Michael Worley recently commented on BP podcast with Jeff Greenberg.  In the discussion that ensued he laid out property condition spectrum with three distinct points of reference: Fully Performing; Value Add and Rehibilitation Condition.  While fully performing seems to be perferred by lenders my take is that there isn't enough "up-side" for my taste.  From looking at a Rehibilitiion Condition property in my area the cost of the upfits (~20k per door) seem to make this investment a poor one.  This leaves the Value Add classification as the place to be.  My thought, however, is that the "sweet spot" on the spectrum is really at the lower end of Value Add (approaching rehibilitation but not there).

I'm thinking the sweet spots for my first investment should be:

1) 20 Units in Value Add 

2) 5-10 Units in Rehab

Both of these conditions would be coupled with some quick financial measure to identify properties that warrent further research, perhaps by applying the 2% rule to the sum of purchase cost + upfit cost

Questions for those of you with experience in this space

1) What is your Sweet Spot and why?

2) What other criteria contribute to the "Sweet Spot"?  Perhaps age of the property?

3) What criteria would you recommend for a first time investor in MF?  (With a full time job I'm going to be heavily reliant on a team of professionals to assist - Prop Mgr, Contractor etc)

Thanks!