All Forum Posts by: Giovanni Isaksen

@Justin Escajeda is this a new acquisition? Or a new facility? Have you shopped your competition within a ten or fifteen minute drive of your location? Are they offering move in specials? On a specific unit size? It could be that the local market is saturated with units or that there's an oversupply of a particular size of unit. I would want to find out if there is a unit size that is in higher demand.

Are units in your area climate controlled? Do they provide 24 hour access? Do they have kiosks? Do they have pods? Provide a truck rental or 'free' to customers?

What about location; visibility and accessibility? What are the traffic counts and how easy is it to get onto the property from the other direction? Does rush hour affect accessibility?

Once you have this info in hand it will be much easier to develop a marketing strategy that highlights your properties advantages.

If the market for your size units is pretty vacant and there are other sizes that have higher occupancy maybe consider remodeling to create units in higher demand. Since the apartments are doing well, is there room and feasibility to convert some of the storage area to new apartments?

Good hunting-

Sorry about that @Roy N. I had quite the D'oh! facepalm moment this morning when I reread it. #-o

@Wendell De Guzman I hear you re single families. Pretty much they're 100% occupied or zero but the but the bills don't care. If a house is empty two months that's a 16.67% vacancy which is a big bite.

It sounds like you're measuring the difference between physical vacancy and financial impact of vacancy which includes a number of the factors that make up economic vacancy and impact expenses.

The 10% vacancy 'rule' seems to be another one of those things that everyone talks about but few really dig down and analyze, clearly you're doing the heavy lifting.

One other is have the windows been replaced? Especially if the HVAC is central, with single pane windows the owner is paying to 'heat the whole neighborhood!' as my dad used to say.

BOMA (CRE Building Owners and Managers Association) has a report on the benefits of upgrading HVAC and lighting systems here: https://www.bomaseattle.org/filerepository/docman/GM%20docs/BOMA%20Presentation%203%2024%2014.pdf

Note this report is focused on the Seattle CRE market so your results may vary but check with your local BOMA chapter to see if they have a similar report. They would also be a good resource for different energy reduction programs and benefits.

Seattle tends to be thought of as a fairly green city but there's still a lot of room for improvement. Most of the low lying fruit like double pane windows, cfl lighting and upgraded insulation has already been picked because of statewide energy codes in place (but always being upgraded) since the 1980s

If your market doesn't have energy codes as strict as Seattle's there's probably some nice low hanging fruit waiting to show up in your NOI.

Disregard my bad math in the example of physical vacancy in my earlier post.

The correct calculation is:

Example: 12 unit building, 10% turnover, 1 month average turns. A twelve unit has 144 rental months (12 units x 12 months); 10% turnover is 1.2 units per year; 1.2 units turning over annually is 1.2 units x 1 month average turn = 1.2 vacant months; 1.2 vacant months / 144 total rental months = .83%, call it one percent physical vacancy.

I have a physical vacancy calculator (that I should have used earlier!) that calculates both the number of turns given a vacancy rate and the vacancy rate given the number of turns. Here's an example from it (The numbers in blue are entered by the user):

In this example of an 18 unit building, given a 5% vacancy rate and 2 month average turns, the number of turns per year is 5.4. This is shown in the upper section.

In the lower section, using a projected 5 turns per year and 2 month average turn time, the calculated vacancy rate is 4.63%.

If you would like a free copy of the vacancy calculator send a message with 'Vacancy Calculator' in the subject either on here or through the Contact Us page on our website. The response will be faster through the website because we monitor it constantly during the work day.

Knowing the number of annual turns at a property is important because they are so expensive. First the unit is not producing any revenue while it's being turned over but in addition that unit is incurring costs; Management time to handle the departure of the old tenant as well as managing the actual turnover work and handling the onboarding of the new tenant. Then there's the cost of physically preparing the unit to be rerented and the marketing and leasing costs of finding a new tenant. If that work is done with in house employees there is the added cost of payroll burden and processing.

A rule of thumb used on large properties says the average turnover cost is equal to about four or five months of rent on the unit. That assumes there is a dedicated team in place that can turn the unit around in 30 days too.

Breaking out the unit turn costs from the general maintenance and repair expense will allow an owner to see the real impact of unit turns on their bottom line.

Knowing the difference between a property's physical and economic vacancy is very important because most of the difference is from issues that can be improved by management; Getting market rents on lease renewals, making sure concessions are as competitive as possible, reducing credit losses and turnover with better screening, etc.

@Josiah Halverson if property managers are too busy to answer the phone that's probably a sign that the market is well into its expansion phase and it's time to get really selective on acquisitions. Otherwise you're prone to following the herd and buying at the top... which is OK for a long term hold (2+ cycles) but not if the anticipated hold is shorter.

Very in-depth analysis @Wendell De Guzman. To take it a step further consider that there are two types of vacancy; physical and economic.

Physical vacancy is easy to measure, Number of Units X 12 Months - Months of Vacancy. For every month a unit is vacant the loss is 8.333%% of the total rental months for that unit in a year.

Example: 12 unit building, 10% turnover, 1 month average turns. A twelve unit has 144 rental months (12 units x 12 months); 10% turnover is 1.2 units per year; 1.2 units turning over annually is 1.2 units x 12 months = 14.4 vacant months; 14.4 vacant months / 144 total rental months = 10% physical vacancy.

Economic vacancy measures the difference between Gross Potential Rent; Number of Units X Market Rents X 12 Months and the Effective Rental Income which is what the property actually produced over the trailing twelve months. These differences can be attributed to a number of factors; Physical Vacancy, 'Loss to Lease' which is the amount missing because units are leased at below market rents (Longer term tenants typically), Units in Turnover or otherwise out of service, Concessions and Credit Loss.

Most professional property managers will break out all these economic vacancy factors in their monthly reports so that the owner can see where the slippage is occurring. With these factors in hand they can be compared to the property's competitors and adjustments made accordingly.

Good hunting-

Good hunting @Ming Lim looking forward to your success!

@Ming Lim It varies from lender to lender. Some will accept any qualified engineer, some will have a list to choose from and some will have a specific company that they essentially assign. This is one of the things you want to find out as you are establishing a relationship with your lender.

You also want to establish who pays for the inspection, whether it's you or if the lender will include that in their fee. No sense in paying for an inspection that your lender will charge you for doing over again.

To your last point; Yes on larger properties fewer things are left to chance and even if it costs 2x or 3x what a resi inspection would cost don't be thrown off, think of it as cheap insurance since finding out later tends to be very expensive.

Good hunting-