All Forum Posts by: Guy Azta

Hi all BP,

I own a small apartment building in Cincinnati, OH, and currently with my 2nd management company. While to be candid, I do feel like they are doing many things right, I also feel like they are mishandling other very critical things.

Does anyone here have a really great property manager or management company to recommend?

To be honest, I'm pretty desperate at this point, been losing money for the 2nd year straight and just exhausted from this.

ps, don't contact me about selling to you. I really don't appreciate these messages

Thank you

Hi - I'm a bit like you, possibly one step ahead. I own SFRs, some small multi families (3-plex, 4-plex) and a 12-unit. The 12-unit has been losing money and been a real terrible experience. So I'm going to share a bit from my current experience and realizations:

- the people who told me to stay away from the small "cheap" multi families were right (by cheap I mean under $500K). It's hard to get a management company to care about it and do a good work at a low cost. I have not been successful with it. In contrast, my SFRs have been great (including management) and my 3-plex/4-plex buildings have been ok. So the point is that doing well with SFRs doesn't necessarily translate to successful switch to cheap apartment buildings

- at this point I would rather buy new properties in markets I already know and under a management company I work with and like. Since apartment buildings are more difficult to manage overall (some say the opposite, good for them), the need for a really good and responsible company is very important. And if you plan on managing it yourself, it just seems like death by thousand cuts and surefire path to misery

- if you venture to new markets, as others say, pay attention to demographic trends. Stay away from cities that are posting year over year population declines. The market will most likely keep deteriorating forcing you to lower your rents and deal with lesser tenant pool

- many of the good markets right now are overpriced. With SFRs and even small residential multi-units, things don't often go very bad. with apartments they certainly can. You want to ensure you have enough margin left at the end of every month

I hope this helps.

@Paul Sian @Hadar Orkibi @Joseph Cornwell thank you for your replies. Granted, I am relatively new to the small commercial buildings, and my experience has been in the residential, where things are relatively easier.

To clarify a few points, the management company have their own maintenance teams as well, so it's not a function of them stalling services because they don't make money. I've requested lock boxes several times, and they've implemented them. I would say that the pattern is it takes up to 2 weeks for things to happen, and it all compounds, esp when dealing with vacant units. 

I don't know if it's reasonable to expect any company to provide same or next day service, and I am well aware of the major disadvantage in the building being too small to have an on-site manager & maintenance person, but those delays in my opinion are dragging the performance down.

I doubt I overpaid for this. The property is set to make money even after re-assessment. In fact, I believe that if I reconfigured it to its original layout (previous owner merged some apartments for no good reason) and got all rents up to market, it could become a very profitable one. The situation is more complex and nuanced and I only shared some details.

I think I'll hang on to it for now, with the goal of selling and trading into something bigger or better where I feel like I can have stronger options in terms of management.

Thanks for the advice.

I didn't exactly know how to frame the subject header. In short, I am mostly an SFR and small multi unit investor (triplex, fourplex) and have about 10 of them in different markets, managed by different property management companies. For the most part, I am very happy with the service, some are better than others, but overall it's been working well. I bought last year my first commercial building, a 12 unit, and it has been very difficult since inception.

First year I had a management company that wasted a lot of money and caused me some large losses. I then switched to another one, which is orders of magnitude better. However, they still are not overly responsive and it's hard to actually get quick enough service. I feel like I have to beg for attention and walk on eggshells. I just entered the second year. Building was reassessed, so taxes went up, eating away at my non-existent to negative profit margin, and making this financially more precarious. It is a C class building - good and nice location for what it is, but primarily caters to lower income residents. It's all good, but they do tend to be cavalier about breaking leases and moving out whenever they feel like. Not trying to generalize here, simply talking from experience.

I actually bought the building for a reasonable price. Won't call it a deal, but the seller wanted out and we agreed on a fair price. It's in Cincinnati, and seems like the market got a lot hotter for apartments over there. My broker keeps telling me that if I want to sell, now would be a great time. Of course, he wants the commission, but according to what I'm seeing, I don't believe he's not being candid. 

Also, I think in the mid run, like 3-5 years from now, there could be a real upside to this building in terms of rents. So I'm not necessarily 100% set on selling, but I have to admit that I'm getting tired of how things are going. I actually found a contractor that seems reasonable to work with, but even getting him access to any unit that has become vacant, seems like a chore, and sometimes there could be a 2 week delay before things happen. I am not interested in managing the building myself from afar, and I want to give this management company a chance, esp since they are far better than the former, yet at the same time I am tired of losing money every month, while everyone else makes something.

I'd love to know how anyone who found themselves in such scenario, have dealt with it. To be clear, I'm not here to bash prop management companies. I'm actually a big fan, and as mentioned above, have mostly very positive experiences. This is my outlier situation. Sorry if it sounds like a rant/vent. 

Also, I'd appreciate if snide comments could be avoided. If you think I'm a terrible operator and I should sell to you, then I can assure you it will not happen, and you don't need to post it. Based on past experience here ;-)

Hi Oleg,

Read some of the replies. Seem like you are kind of committed no matter what. Let me go over a few aspects:

1. I know in BP there's a little hype of those 20-something kids buying 3 million dollar large apartment buildings as their first deal and similar larger than life success stories, but I personally don't know if I would buy an 8 unit as my first deal. There's something to be said about experience, resolve and knowledge.

2. The quality of your 8 unit really matters. If it's a true A / B type building with A / B type tenants, then you have less risk, but if you are looking at B- / C type building, the risk is much higher

3. Also the age and condition of the building really matters. What I found with old owners near retirement is that while you can get great deals from them, they "checked out" in many cases long time ago and there could be an ample amount of deferred maintenance. The deferred maintenance could kill you on expenses

4. The $7,200 in rent figure - is that factoring in vacancies? You need to factor in at least 5-10%. also, factor in what your property management will charge for procurement (first month) and lease renewals. That would affect your income. Also, is that number realistic for the area, building and economy? Is it based on pro forma only? Have you verified those rents?

5. When you factor in your mortgage cost, you include both your HELOC and your seller finance, right? I did a quick calculation and seems like you're at around 5% on both for 30 years. From what I know about HELOC, they need to be renewed every once in a while - you should look into that. About the seller finance, does that include a balloon? What if he wants his money in 5 years? Does he have the option to call the loan? Are any of your loans have looked rates or are they adjustable, and if so, by how much?

6. The income vs expenses ratio seems very tight to me. What if you have a series of expensive expenses? 

7. Did you factor in your taxes AFTER you bought the property? I have to say that the $1,333/mo seems a bit high

8. how well do you know the management company?

9. Have you seen the seller schedule Es and P&Ls for the last few years? Those numbers could be very telling

10. 30 years is considered to be a long time for commercial properties mortgages. Doesn't make it bad, but something you should know

And here is another equation for you - can you absorb having multiple months of losses and vacancies? 8 unit buildings could be expensive to manage. They are too small for you to hire your own rental agent or maintenance person

From my experience, real estate looks great on paper. The reality is not as pretty. There are always expenses, and in multifamily buildings there are typically more issues. I have a 12 unit building with a wider monthly NOI spread than yours (around $2,000/mo or so) and it's been losing money like crazy. I have another 4-unit with a similar monthly NOI spread to your 8-unit and it just got stabilized again. I have also lost on it thousands of dollars in the last few months. I can float this from cash flow from other properties I own for the most part, and even then it's getting very annoying at this point. If I had this going on my first property, I may have been out of real estate by now. Who knows.

I look at off market deals on occasion and not all of them are good. Off market does not automatically mean good, on deal on market does not always mean bad.

Last point, if you are looking to sell it for more eventually, and you've done your research and believe that the higher price you established can truly support it for a buyer down the line, then just know you are taking a gamble here. It may work out for you and that would be great. But you need to be prepared for if it fails.

All in all, this seems to be a transaction for someone who got some pockets to absorb short term and even mid term losses, as well as a case where you may be stuck with it for a while. Always protect your downside. 

Looks like you already got a few replies. I can share from my experience, which you will probably notice won;t necessarily conclude in yay or nay. One multifamily I got, came in with 2 occupied units, tenants were paying what I call "recession rate rents" (what most people call under market rent). They have been both longterm tenants and been paying every single month with no hiccups. Another multifamily I got, the seller filled it up with tenants at market rate prior to the sale. They were not good tenants and within a year all broke their leases or were evicted. Then I bought another one that came mostly occupied. some of the tenants are again longterm recession rate tenants and some are market rate. some of them proved to be weak and incapable of paying and have since broke their leases and moved out, or were asked to be moved out by us.

Now on the flip side, those above mentioned properties, tenants placed by the property manager have been a hit or miss either. Some had to be evicted as well.

So you know, there is really no one straight answer. It depends on so many factors. If this is your first multifamily, how do you know that you have the experience to chose the best candidates? In my humble opinion, the best approaches are the "it depends" or "it varies" answers, that consider both sides of the equation.

Having said all that, if you could get involved and at least provide another perspective and there's no pushback from the seller, it probably wouldn't hurt.

George, that's a pretty broad question. May be worth separating "most affordable" from "return and income". Affordable doesn't always and necessarily equates with return and income. This is too complicated of a matter to address on a quick forum. Seems like different people here have successes with several different markets. From my experience, a few years ago markets like Nevada, Oregon, Florida, Texas etc were fantastic. Now they are not as affordable. Then you have Midwest markets that are more affordable, meaning they have higher cap rates, but there may be different reasons for that, which will affect the actual return. For example, some markets have higher cap rates, but have negative migration or very little growth. Or the demographics are not as good, with higher poverty and unemployment. Demographic and jobs growth are very critical in long term real estate investments. You also want to factor possible appreciation. If you buy in CA for example, the cap rates are extremely low, however, the appreciation potential is far higher. If you buy in OH, the cap rates are lower, but appreciation would be lower as well.

What I sometimes do is conduct a statewide search on Loopnet.com. You can enter the parameters you are looking at, and then go state by state and see what you find. If you like what you see - nice building at a reasonable size for the # of units, at a reasonable cap rate and price, and at an area that is relatively close to an employment area, that would be a good place to look. If you see a few of those, even better.  Regularly do search for "fastest growing cities / towns / suburbs" "best towns for retirement / families / jobs / millennials / baby boomers" "most affordable cities" etc and see which cities come across the list which are both affordable to you and attractive. From there you can start zoning in and talk to some local pros and BP members.

But remember - high cap rate can come at a high price and does not guarantee high returns. Also, pay attention to "fire sale" situations. There are waterfront areas in Florida for example that are selling at very attractive prices. We are going through massive climate change and the last thing you want is to be stuck with a property nobody wants 5-10 years from now

Seems like you got good amount of replies. I have a 12 unit in Cincinnati, which is probably a similar concept. the previous owner placed electric baseboards in each unit, and since the electric is separate, they effectively transferred the heating commitment and costs onto the tenants. Now, there are some advantages and disadvantages. Let me count a few:

Advantages: you don't pay for heating; tenants would presumably be more judicious and responsible with usage

Disadvantages: based on what i'm told, baseboards are the lease effective heating method; if your building is low income, that is another cost your tenants have to absorb, which may stretch them; it may cap your rent and may you a bit less competitive vs a similar unit with free heat

Also, there may be more efficient furnaces in the market. If you change them over time and the costs make sense to do so, it may slowly trim your expenses.

I would say that the baseboards seem to work based on my very limited knowledge. You can get newer ones with digital thermostats and that could make them more accurate. They are also pretty cheap to replace.

Hi all,

Looking for recommendations of good property managers / companies for small apartment buildings in Cincinnati, OH. This is a 12 unit.

Would appreciate any referrals.

Also, if you have or know of a good maintenance person who is good and efficient with handling smaller buildings, would love to get their info.

Thanks so much!

@Omar Khan you wouldn't have known where to stash in those bags of money you would have made. Yeah, too bad indeed.

The point is well taken. I'll research it more. The funny thing is from all my investments, those that can benefit from cost segregation are those that have been negative cash flow, but I do foresee the situation changing next year, at which point I'd be like "oh my god, what am I gonna do with all this money???". Call Omar Khan of course!