All Forum Posts by: James Kojo

Hey, BP'ers. I need some advice.

I'm in contract for some units within a community. Each building within the community is a row of 6 attached townhouses, all identical with the exception of the end-units only sharing 1 wall, while the other share 2. The interior layouts are pretty much all the same.

I'm not quite done with inspections yet, so I don't know the condition of the electrical and mechanicals, but I do know the that the interiors all need updating (floors, cabinets, counters, sinks, paint, etc.)

The problem is is that I'm out of state. How would suggest I manage the rehab? A couple of options that I can think of, but please feel free to suggest others.

1) My local PM who will manage this property has an in-house maintenance crew. He says he can use them for cabinets, floors, etc, and then subs-out trades (hvac, electrical, plumbing, etc.) We have a good working relationship, and they have my trust, but it's a relatively smalls shop and I haven't worked with them that long, much less used them to rehab.

2) Find a GC myself, and pay my PM to oversee the project.

3) Ask the PM to sub-out all of the work to specialists, and have them to act as GC.

or some combination of the above.

Advice and experiences would be appreciated.

Thanks!

James

@Steve S. I'm not so pessimistic. 

From what I hear, much of Florida is a seller's market. The real problem is that so is Texas. :)

I 1031'd properties from Northern CA (hot) to Austin (slightly less hot.) 

I think @Dave Foster's scenario (a) is a good one. The market is hot enough, that you probably won't have to provide a huge discount on your portfolio.

An alternative is to vacate all of the units, and try to sell them to end-users (depending where they are in the lease cycle.) Check out your local days-on-market statistics, or talk to a good Realtor.

Regardless of what strategy you take for the disposition, I would actually recommend you identify the replacement (20 unit apartment) property first. If your experience is anything like mine, that part of the transaction will actually be the long-pole. Also, It's not uncommon for commercial properties to have a 90 day closing period, so if you can dispose your SFR's in 90 days, you'll be good. If you have enough cash, you can actually close the apartment first, then close SFR's. I did that on one transaction.

Just make sure you have a stud/stud-ette as your 1031 QI. I haven't actually worked with Dave, but he's adding a ton of value here on BP, so he's probably worth a phone-call.

Good luck and let us know how it goes!

James

@John Casmon I've never asked a broker for a co-star report. Great tip!

I'm curious: what would be their incentive for sharing one with you? Is the implied understanding that you'd use them on your next deal? It seems that they'd be giving out some pretty valuable information. Is there a quid-pro-quo expected?

Thanks

James

@Michael Hahn I sent you a PM and a colleague request. Let's connect up. I love talking shop!

James

@Jordan Decuir : be careful what you wish for. I tried to follow Todd into Cincinnati, and he bought the entire town before I even got there. :)

Back to cap rates: the rates I posted are averages, but are not what most would consider "good." (who wants to be average?) If you're looking for yield, you should be trying to beat those averages by a pretty good margin. If you are looking for overall IRR, then cap rate is not as important as the value-add opportunity.

Hope that helps!

James

@Michael Hahn : 

For SFR and smaller MFR, I've been working with David at Panzera Realty. They are a quality shop, and are super responsive. However, they are somewhat selective about which properties they take on, so your mileage may vary.

Another PM that I interviewed was Mitch from Solutions for Real Estate. He seemed quite good as well, and is willing to take on more C neighborhoods, but I haven't had the opportunity to work with him in a PM capacity yet.

If you call either one, tell them I sent you! :)

I would recommend calling a few and have a set of interview questions. Have a set of interview questions that you like to complete over the phone for the first round. Then follow up with them via email or call for a few follow-on details. It doesn't really matter what. You're just testing for how they do after the initial "pitch". I've interviewed a few PMs that sounded perfect on the first call, but where too busy to return my follow-up calls or emails. Even worse, there are a few that can't even take your first call even when you have a property in-hand. Avoid those.

Hope that helps!

James

@Alex Tobias : 

the answers already provided are excellent. To add a bit about smaller buildings (esp. 2-4 units), it's not uncommon to have really poor record keeping. In the extreme case, it's just the landlord collecting rents by knocking on the door and taking cash based on a verbal agreement. :)

Usually, the bigger the deal, the more sophisticated the operator is, and thus better records.

So if you're doing more smaller deals, you may have to settle for less, but you can try and get creative during due diligence to verify your underwriting assumptions, like knocking on those same doors and getting a signed estoppel. :)

James

@Paul Bryzek  If you plan to use a property manager for the "hold" phase of your strategy, many PMs are willing to project-manage a rehab for you. Pricing structures differ quite a bit. 

There are turnkey providers who's business model is to either find and rehab, or help you rehab after you've purchased. I'm guessing those are better for more involved rehabs vs pure cosmetics.

Some PMs will simply charge you an hourly rate, and some will charge you a markup, and some will use their internal (paid) employees to do most of the work and charge you for their time. Some will do some combination of any of the above. :)

Anyways, in many cases, rehabbing at a distance is going to cost you a bit more. 

I'd love to hear how you end up doing it, so please keep us updated!

Hope that helps.

James

@Nick Mauldin : You simply ask for a T12 (YTD for 2017), Current rent roll, and a PNL for 2016 and 2015 (schedule E will suffice.)

If this is a deal you sourced yourself by calling the primary, then they may be a little cagey about providing ALL of the above, but will often provide some of it. If the property is on the market, it's not uncommon to have most of it already available (sometimes requiring an NDA.)

It's not uncommon for sellers to want to agree on price and terms before "opening the books" as it were. At that point, you'll have to get gross numbers like total monthly rent and current NOI, and base your offer on that. In the worst case, they will give you only a pro-forma (i.e. wishful thinking and lies.) Just make sure that they understand that your offer can only be as accurate as the information they provide. If they still won't open the books, then do your best, submit the offer, and re-trade if you need to during due-diligence.

Let us know if you don't know what any of those terms mean.

Hope that helps!

James

The above was lifted from the 2017 H1 CBRE cap-rate survey.