All Forum Posts by: David Turner

@Stephen Masek When the balloon comes due I may sell or I might refinance. If the value goes up enough it would be nice to sell and put the proceeds into a bigger apartment complex.

@David Beard Per the operational budget maintenance labor is $15 per hour. Now I am sure they have some extra profit built in with the cost of materials. And thats only for general repairs. Any capex is billed per job which is going to require more of the skilled laborers. I'm sure that the monthly PM cost comes into this too.

@Bryce Y. The bank did consider my lack of experience. I had actually pre-qualified with a couple of banks before I even started looking at apartments. This really helped me to show the broker that I was a serious buyer.

In my experience, small local banks are more flexible about these sorts of things. It helped that I have a good income and I had a good downpayment plus enough for closing costs and additional reserves. One of the big things that helped, though, was the property management company. Since they were able to see that I had knowledgable, experienced people on my team they felt a lot more comfortable lending to me.

@Tom Goans I don't know why you think this would be a price fixing issue. All @Jon Klaus is asking is how much they typically charge. It is only price fixing if multiple competing brokers get together and decide to charge the same commission. An individual brokerage can set rates all they want as long as they don't collude with other brokerages in doing so.

@David Beard Don't worry, I plan on making frequent visits to the complex. So far I have been real impressed with the company. They seem to know what they are doing. They have already giving me bids for all the work to be done. They have all their own tradesman on staff so they don't have to call in other companies often. Their labor rate is $15 per hour for maintenance. I feel this is pretty good because it includes licensed HVAC, electricians and plumbers.

The owner of the PM company has his own apartments that he owns so I am hoping that they take care of my property the same way they take care of his. They also come highly recommended.

@Paul Khazansky Yes, I agree that the property management is quite high. But this is due to the condition of the property. I talked to a bunch of PM companies, but most weren't interested due to the property size. Most I talked to only due single family/duplex/fourplex. The others manage complexes with hundreds of units. I only found two that were willing to do a property this size. One usually only does single family but they were willing to operate the facility as a single family and just show up as needed. The other (the company I went with) usually does larger properties, but was willing to do this because it was only a mile from their office.

I'm not paying a straight 10%, its just that the fees end up being about 10%. It is $925 per month to the PM company for their services along with $650 per month for the managers salary. I found out on Friday that the manager isn't planning on moving into one of the apartments, so I will actually be saving that expense.

@Josh Sterling The person who prepares the purchase agreement is negotiable. Some people like to save a bucks by having the other party prepare it, but you have to realize that the person who prepares it has the upper hand. They get to set the terms. If your wife can get a purchase agreement written by the local Real Estate association that could be a good starting point.

Here in Texas, the state puts out the standard 1-4 family purchase agreement, but do not have one for any property larger than 4. The Texas Association of Realtors (TAR), however, has put together a multifamily purchase agreement. Talking to brokers around here some a lot of them like to use the TAR form. I do know that one of the large brokerages around here has written their own that they use.

Pretty much all the brokers I have talked to don't want to have to deal with lawyers and so would prefer to use a standard form.

@Brandon Turner I had viewed some properties on the brokers website which had required me to sign up for an account. The broker saw that it fit my criteria and called me to see if I wanted to come take a look. The property was originally listed for $950k. I was a bit underwhelmed when I first looked at it due to the deferred maintenance I was looking for a value play so it didn't really bother me, I just felt it was way overpriced for the condition. Not to mention the pictures had made it look a lot nicer then it was.

Seller had bought the property as a foreclosure back in 2010 paying only $250k for it. A few months later he refinanced for $500k. According to the broker he had put about $150k into it. At the time it was only 25% occupied.

The broker stated that the seller was motivated and wanted to sell ASAP. Something about needing the cash for another deal. I told the broker I would be interested closer to $800k and he just laughed. Said the sell had already turned down multiple offers around $850k. A couple days later I checked in with the broker and he said it was under contract.

Spent the next few weeks looking for another deal. Ended up finding another I liked, but not as much. During negotiation on this building the broker called me up and said it was back on the market. I told him I would keep it in mind, but I was going to see where this other deal went. A couple weeks later we still didn't have a deal on this new building and I received a mailing list update showing a price reduction to $880k on the first building. I immediately called the broker and told him I was still interested. After some back and forth ended up settling on $850k.

The inspection then uncovered more issues I wasn't aware of: roof needed to be replaced, drainage clogged, some wood root in a few places, a lot of the exterior lighting was non functioning. One semi big thing I hadn't even thought of was the stair and balcony railings. When I started calling around for insurance I kept being asked how far apart the railings were. During the inspection I found out they were about 6 inches apart. Insurance companies are starting to require less than 4". Apparently this is a hot button issue, so now I have to spend $10k to fix this.

So once I found out all of this I went back to the seller asking for $75k back. The broker got a little angry saying I should of known the condition of the property and I should have assumed all these issues were there since it had fallen out of contract once already. I told him I knew there were some issues, but I didn't know the extent of it and that it required to much work for the price. The seller offered $30k back and I said no deal. Said the lowest I could accept $50k. Broker said $30k was the best I was gonna get so I told him I was going to have to walk. He then came back another 2 or 3 times until finally agreeing to the $50k. I didn't want to retrade like that, but after I got the inspection report I felt there was to much work for $850k.

@Brad Z. My closing costs were:

$206 Filing Fees

$7,100 Origination Fee

$3,500 Appraisal

$16.00 Flood Certificate

$1,810.32 Title Policy

$2,537.40 Lenders Attorney Fee's

$7,100 Mortgage Broker Fee's

$10,428 Tax Escrow

$10,036.74 Insurance

And I received $15,374.66 for tax proration.

@Joel Owens Gross is $221k with 5% vacancy (building averages one turn over per month but has a backlog of potential tenants due to the garages) and with concessions and write offs the effective gross is $194k which includes the loss of one unit to the manager. The seller had a higher NOI, but he had an onsite manager/maintenance guy who wasn't doing a great job taking care of the building.

Electric is individually metered with water, sewer and trash master metered. Water is the killer at about $2k per month, but apparently the city of Dallas has a program where they will provide free low flow toilets to apartments. Unfortunately it takes 4-6 months to get them, but that should help that cost.

Immediate capex is $36k which will take care of the needed issues. Future capex is dependent on the neighborhood. Once these issues are taken care of the complex will be about in line with the customer base in this local. If the neighborhood continues going up in the next few years I could see putting another $5k per door into it. But only if the neighborhood supports it. If not they around $10k capex per year for the entire building. The only other major things will be the remaining HVAC's and water heaters that will need to be replaced as needed.

The property management company went through every apartment during the due diligence phase and have estimated all needed repairs to the property. In addition to the $36k for capex they have estimated another $30k in minor repairs that will mostly be addressed during turn over which will take 2-3 years for the entire building.

The bank has full control over the option to extend the loan. They say that they usually do, but you know how that is. I figure that I can always shop the loan around which might give them some incentive to extend it.