All Forum Posts by: Erich Rasch

Hi BP,

I have a 16 unit apartment building in a small town in Michigan with municipal water and sewer. The town charges a flat rate for water and sewer and does not offer the option to have them metered. The flat rate for an apartment is the same as any single family home. Given I have properties in other towns close by that are metered and have a lot of units rented by one person, I know I'm paying roughly double for water and sewer at this property compared to if it was metered.

I have gone to multiple City Council meetings over the past year and they keep on slow-walking me on this issue. Does anyone know of any State of Michigan or Federal court cases that require a municipality to offer water or sewer metering upon request? Are there any other avenues I can take to get this municipality to let me meter my water instead of paying the exorbitant flat rate?

Thanks!

Slowly building relationships with local landlords to obtain off market deals and partnering with municipalities to reduce operating expenses (e.g. taxes, water, sewer)

Great to hear you’ve had a solid year and even better to hear a shoutout for Durand, MI. My father has some apartments there and my brother and I are closing on a duplex there in the next week or so.

I bought a 10-unit (all 1 bed/1 bath) for 290k back in July. I had to put 25% down for the commercial loan (4.5% IR) and with closing costs came out to about 77k. I set aside 7k more for planned upgrades which included painting exterior and removing bushes out front and a few box elder trees and deferred maintenance that I knew existed. I was able to fill a few vacancies and raise the rents of the remaining tenants to increase avg. rents from $420/mo to $550/mo within 3 months. As I was able to do this 9 months sooner than anticipated, I ended up getting new windows as well for 14k. Since the deferred maintenance costed less than anticipated, I used part of the allotted 7k and the increase in cash flow to pay for the windows without investing more of my own money into the property. Along the way I also was able to get free insulation installed (~10k value) using the local utility energy efficiency initiatives as well as laid plastic sheeting in the bare crawl spaces to help with moisture and bring it up to code. 

All in I have 84k invested in the 290k property, or 29% of the purchase price. I also had 10k set aside as a reserve that I did not need to touch. Through the first 6 months at the end of 2020, I'll have netted 5k or 6% of my money invested. Going forward, I'll net 20k (24% cash on cash return) each year conservatively and can still bring 7 units to market rate (625/mo).

Based on what you're trying to get for a 12 unit, you're likely in a market that will not cash flow as well. With that being said, I hope some of the percentages I shared and the actions I took can help you strategize on this deal.

Posting for my father, George Rasch, who does not know what an internet forum is and I couldn't ask for a better father and mentor. My father owned 24 units in a rural/suburban town in Michigan. Next door there were an additional 48 units built using a USDA construction loan. During the real estate downturn, the former owner defaulted on the property. Knowing this, he showed up to the auction on the courthouse front steps and was the only person there. Opening bid was $150,000 so he offered $151,001 for the 48 units or ~3k per unit, which was promptly accepted. At the time, this felt like a big gamble to him since it was half occupied and the market was tumultuous. Now the occupancy is 100% and markets rents are $650 and $750 for 1 and 2 bedrooms, respectively. He sees it as the deal of his generation of our family.

@Daniel Lozowy In terms of the roof I look at whether or not there are visible ridges from the wood under the shingles as this can sometimes mean there's a moisture problem or is simply structurally old, which increases risk of a roof looking. In terms of the actually shingles themselves, if you start to see a lot of them deteriorating, as in the don't fully look rectangular anymore, or they are covered in moss of leaves from a tree above it usually means the roof is toward the ends of its life (<5 years of use).

A key indicator for me is the quality of the windows. If they are older or in poor shape, the owner likely does not care about their utility bill or the comfort of the tenants, which are both signs of poor management. 

Some other indicators for me are dirty or missing pieces of siding or facade, lots of tenant belongings in the yard and the quality of the property management company, if you'e familiar with the options in the area.

One additional piece to consider when you intend to raise rents is to communicate to the current landlord that you would prefer month-to-month or shorter leases of any new tenants they may sign up before you close on the deal. 

I had a landlord that was doing one year leases and had a new tenant before close. I asked him if he could sign them up month-to-month which he did and this gave me the opportunity to raise the rents on that unit I would have otherwise not had.

One additional option since it has not been mentioned is having your tenant set up direct deposit with their bank. Depending on the bank this could be marketed as automated "Bill Pay." I prefer a system like Cozy that is centralized and gives more functionality to the landlord/property manager, but I have some older tenants that do not have an email address or have not been able to set it up on their end. In these cases, this is my preferred method.

Pros

• - Great option for tenants without email or who are not tech-savvy
• - Requires no front end set up from your end as the landlord/property manager
• - Typically results in more on-time payments since it takes the human error out of bill paying
• - No fees for the tenant or landlord/property manager
  

Cons

• - Not all financial institutions offer this 
• - Does not allow you to configure late payments, fees, updated rent etc.
• - Requires slightly more time on the bookkeeping side to ensure the deposit hit your account and sometimes it difficult to tell at first who the deposit is for
• - Tenant at any time can stop the direct deposit from their end

Hi @Jonathan M.,

While I can't comment on what the effects of the furlough will have in your specific case, the rest of your scenario is very similar to the situation I am currently in. I received a commitment letter within the last month from a local bank for a commercial loan for a 10-unit apartment complex. I am putting 25% down too, and for reference when you're shopping around, my bank's interest rate floor at the time was 4.25%. While banks are still initiating loan approvals in my area, there's still a barrier for getting the bank-required appraisal, which they have currently halted for the time being. I did make sure to get the rate locked in for as long as I could (60 days) in order to have enough time to close given that barrier. One abnormal request the bank gave was proof of tenant payment during April and May given the current circumstances. I would make sure to communicate to the seller that the time to close will very likely be longer than usual given the circumstances.