All Forum Posts by: David Troup

RUBS is (if I remember correctly) Residential Utility Billing System, it's basically a scheme for figuring out how much of the utility bills should be allocated to each apartment unit, based on factors like unit size, occupancy, etc. Billings are based on the actual utility bills each month with a certain percentage typically deducted for "house" (common area) usage and the rest allocated among the units.

There are third-party companies that will do all of the allocation and send out the bills each month.

Very good comments and food for thought. My existing buildings are not upside down, I have a lot of equity (and I've been using the opportunity of the past few years and their record-low interest rates to pay down principal as fast as possible. I'm that seemingly-rare guy who wants to see his loans paid off some day.)

So far as I know, the lead paint rules don't really kick in so long as you don't start tearing out walls and disturbing the original paint buried under layers of newer stuff. Of course, if you need to replace windows and the like, you'll undoubtedly have to use lead-certified contractor and pay a pretty penny for it. Because I'm not local to the property and haven't seen it in person yet, I'm not sure about the nitty-gritty details of the condition now. If I decide to put in an offer and end up in escrow, I'll fly out for a detailed inspection.

I am 100% agreed on seller-paid utilities; I don't do them anywhere. Even in my buildings that only have separate electric meters I now do RUBS billing for water, gas and trash. It's not as good as actually having submetering, but it helps a lot. Now I've never owned a building that wasn't separately metered for electricity (this building is master metered only) but it seems to me that doing the RUBS billing largely overcomes the problem.

Yes, this is a smaller bank. I still need more details on the financing they are offering. (They say "5% interest and 95% financing" and I think "30 years at 5%" but I'll bet that isn't what they are thinking...)

Good point about the C buildings becoming Ds over time. I think you can stave off a lot of functional obsolescence with good maintenance and upgrades over time, but eventually the bones of the building start to fail, and then you really need to gut the building for new infrastructure (plumbing, etc.) or tear it down and start over. On the other hand, it's gotta be better economy to keep a building humming and producing income than to spend the money to tear it down and start over.

Rob: Yeah, I thought about the recourse on the loan. I don't yet know whether the bank will agree to a non-recourse loan. But it's something I will bring up.

I just realized that I was excluding (accidentally) the revenue from the utilities bill-out (RUBS) which is quite significant, about $40,000 per year. Although it's my experience that you don't always collect all of that (particularly on moveouts and evictions), including that income totally swings the numbers into the "jump on it" category - a cap rate of nearly 17. Of course I'll need to make sure the asbestos isn't a show-stopper.

That's a good thought about the asbestos, I will look into that. Of course, if I go forward I will have a full inspection done to turn up any issues like that during escrow, but that's a potential big one if it hasn't previously been addressed.

Here's the purported breakdown of expenses, I'll note where I disagree:

Administrative: $6400
Advertising: $5344
Repairs & Maint: $30,400 (might be low, at least initially)
Management fee 5%: $12,097 (probably low if onsite manager is also required)
Utilities: $43,744
Contracted Services: $6,400 (not sure what this is: yard service & pest control, pool service, etc. I think)
Real Estate Taxes: $20,990 (should be less initially due to reduced value on sale)
Insurance: $7,800
Replacement Reserves: $10,400
Total expenses: $143,575

I estimated with higher expenses and higher reserves, as I anticipate a lot of rehab expenses over time. But the reality is probably somewhere in between my estimate and theirs.

Hi everyone,

I'm a newbie here, I just discovered these forums for the first time, and what a great resource it is. Thank you to all who participate here and offer the benefit of your experience to others.

I am not a new investor, I have owned a number of small to medium-sized multifamily properties over the years. I currently own two properties in Texas, a 20-unit and a 23-unit, both of which have been generally profitable (I've had them for about 10 years each.)

I recently became aware of a buying opportunity in the same city. It seems pretty good to me, but I'm looking for some other points of view before I get in too deep.

The property I'm looking at is bank owned. It looks as if perhaps the former owner was overleveraged on other properties and simply pulled out all the money and didn't pay his bills. The property does not seem to have any of the problems (trashed units, missing appliances, etc.) that you often see with REO properties. It's more or less completely full and, although it's not going to win any beauty pageants, seems to be a solid C/C+ property in a good location. No major deferred maintenance is obvious except perhaps a good paint job.

The property is 32 units (11-2/1, 20-1/1, 1-Efficiency) with monthly gross income of about $19,000. They are estimating expenses + reserves at about $12,000 per month; I think this may be low, at least for a while, and I'm using $13,500 for expenses for now. That means net income of about $5,500 per month before debt service.

The bank (a smaller local bank) is willing to finance 95% at 5% to a competent operator (that's where I'd come in.) So I think very conservatively I should be able to cash flow about $2,000 per month after all expenses, reserves, and debt service, which is a pretty nice cash-on-cash return considering the low downpayment. I don't normally believe in leveraging myself that much -- I'm conservative and would rather put down more money -- but in this case, I think it makes sense if the bank is really willing to finance most of the price.

Oh, the price -- $675,000. I'm thinking I'd like to get them down a little lower – around $625K would bring the cap rate up to 10.5, which seems appropriate for this sort of property – but it doesn't seem bad regardless, especially with the attractive financing.

So my question - am I missing anything that's going to make me sorry if I jump into this? There will undoubtedly be some surprise maintenance issues; it's a 1960 building and it's always something with these old buildings. But I think I've been conservative enough in my planning to account for much of that.

I already have a property management company that I am happy with in this city (they have taken over managing the property for the bank) and they seem to think it's going to be a great property.

I haven't done a new acquisition in quite a while so I feel a little rusty in my evaluating here. Any comments, criticism, or thoughts would be welcome. Thanks!

EDIT: Other useful info: average unit size around 725 sq. ft. There is a pool. Roofs about 5 years old. Some of the bathrooms a bit ugly, but I don't mind rehabbing units as they become vacant.