All Forum Posts by: Jason Turgeon

@Kenny Lundgren don't waste your time calling them. Instead, spend your time interviewing other property managers until you find a good one, then let your current PM know they are fired for poor performance and move along. 

@Cory Iannacone sounds like you are on the right track. Keep it up, and keep on posting about your deals! If you want access to that google sheet I made just PM me your email address and I can make you an editor.

BTW, if the @ links next to names don't turn blue we don't get notified that you tagged us. You have to click the little popup once you start typing.

We bought a 2-unit house with a 203k rehab loan in 2008 with 3% down. We were young and broke. Had a $35k rehab budget, went over it. Moved in, got a tenant, thought we were done with money out and could relax and have him pay half the mortgage.

Day 1 of heating season the shared furnace quit on us. Young and desperate and inexperienced, we paid $10k for a new furnace (about 2x what it should have cost). With our rehab budget exhausted and no money in the bank, I put that sucker on a charge card and made payments for years, shuffling it from promo balance to promo balance.

A couple of months later, the tenant was complaining nonstop about being too cold. Windows were functional but 25 years old and pretty drafty and not opening and closing well. Young and inexperienced and anxious to please the tenant, we put in new windows in his unit and ours. But we got overwhelmed with choices and ended up with Renewal by Anderson at $1000 per opening (aobut 3x what we should have paid). Had to take out a loan on those windows that I paid monthly for years. 

A month or two more go by, and our tenant has stopped paying rent and is badmouthing us to all the neighbors. I found out later he'd been kicked out of half the houses in the neighborhood. 5 trips to housing court later I finally got rid of him. Housing court arbitrator convinced us to agree to taking half the money he owed us, $50 a month, for 30 months. He had the gall to move right next door. I had to see him every day. You better believe he only made a few of those $50 payments before he stopped paying. I chased him for years but he still owes me money. I only gave up when he finally moved out of the neighborhood.

This business is HARD, especially when you are first getting started. And it can stay that way.

But on the bright side, we replaced him with a great tenant who stayed for 10 years with no issues. We hit the market well and were able to cash out refinance to buy a second, nicer property that we now live in. Then we waited and sold that first property earlier this year. We have turned that cruddy little 2-family with the blown furnace and the drafty windows and the nightmare tenant into 24 units of professionally managed housing in Texas. And those lessons I learned back then are serving me well now.

If you keep at it and you learn from your mistakes and you balance being a good landlord with not giving away the store, you will eventually do well in this business. It is absolutely not going to be easy.  But it is possible. Keep your chin up. 

I thought design was easy until I renovated two houses on my own. Now I have a whole new appreciation for your job. You have a very valuable skill and it will give you a huge leg up when you are getting started. I am currently rehabbing my 3rd property and buying a 4th, and almost every day I wish I had a really amazing designer I could partner with.

Look at every flipping show on HGTV. It's all about design. They show 2 minutes of buying the house/before shots, 1-2 minutes of demo, 1 minute of framing, 2 minutes of a manufactured "unforeseen problem" to overcome, and the entire rest of the show is design design design. And half the designers on HGTV are hacks with no formal training who paint the woodwork in old houses and stick fake "old" looking woodwork in new houses. If you've been doing this as long as you say, you can wipe the floor with them.

What I would do in your shoes is find a talented contractor to partner with. Contractors (most of them, anyway), are terrible at design, and at communicating design needs to clients. They want the design to be done as far in advance as possible and to be done by someone else so they can just get to work building and installing stuff. Ideally, the finish materials all show up just in time for them to install them, so all they have to do is order the building supplies. 

You are in a unique position to come into a house, figure out a design that will fetch top dollar and get it sold or rented in mere days, consult with the contractor to make sure what you want to do is constructible in your budget, and get on to your next project. They get to do what they do best - build stuff! - and you get to do what you do best - design stuff! - and you both can make a ton of money.

As far as whether to hold onto the houses for rentals or to flip them, I'd say @Lien Vuong is on the right track. Do both. Let your CPA help you with the nitty gritty of tax planning, and focus on building a business.

I would suggest you do a few singles or properties up to 4 units, then once you are comfortable with that (and you have found a contractor or two that you enjoy working with) you can start moving into bigger projects. There is a sizable group of people in this country who want to live in beautiful, modern, professionally-designed spaces and are willing to pay for quality work. They can spot shortcuts and big box knockoffs a mile away. Go make those people happy and take their money.

Update:

I decided to throw the info @Cory Iannacone provided into a spreadsheet (google doc link) just for fun. What, you don't make spreadsheets for fun? 

Since he didn't provide any data on expenses, seems to be self-managing, has recently renovated most units, and included taxes and insurance in his monthly payments, I'm just ballparking 30% of gross rents for vacancy and other expenses. It's a very general estimate but it would seem that he should be making ~$5k monthly cash flow. Taking a very conservative guess that he has added an average of ~$10k/unit in value (forced equity gain) through all the rehabs ($180k) and the $35k in equity gain on the parking lot, he's also added value of ~$215k to his portfolio. Not bad for 2 years' work!

Cory, the one thing that stands out is the single family. I understand that you had to buy it as part of a package deal, but it doesn't seem like it's worth holding onto. Is there any reason not to unload it and free up some cash for the next deal?

Congrats again. Definitely a motivating story!

Those are some great numbers. What kind of rehabs are you doing for $25k? Do you have a local lender who is refinancing you out of all these deals? Are they willing to keep funding more deals or are you reaching your limit? I'm assuming you self-manage - are you holding down a day job while you also do all these renovations and do all the property management?

Congrats!

Another week gone by, another update. 

Good news: got my additional credit squared away and was able to pay Adriel. My other 1031 exchange is finally set to close this week, so by next week I should be able to get the rest of my funds out of it.

Bad news: the painter has some sort of injury or illness (thankfully unrelated to my project) that has taken him off the job right when he was getting started. Scrambling to find backup painters. This will add both time and cost to the job. But hopefully we can still finish by the end of January and be in a position to start advertising to tenants for a February move in. 

@Stace Caseria If I could have found a building anywhere within driving distance of Boston that made good financial sense, I would happily get to know them and I would be at the property every so often to make sure it was being kept up. I try to take care of my Boston tenants the way you describe. But unfortunately this property is in Texas and I am unlikely to see it more than a couple of times in the years I will own it. 

I might send out an annual tenant satisfaction survey and offer a $25 gift card to anyone who completes one. It probably won't help with the really personal stuff like lilies, but it might let me find out about the electronic keypads and the screen doors.

Since this is the first time I'll be owning a professionally managed out-of-state property, a big part of this is learning what I can reasonably expect from the property management firm without becoming the client they want to fire. Things like planting lilies may be challenging, and even things like keypad entries may be a negotiation since it will change how they handle keys and they have to have a system that works uniformly for the dozens of properties they manage. But I can certainly make sure that requests for things like screen doors are approved.

Thanks!

Closing on a Class C 22 unit with average rents of about $700 in SE TX shortly and am looking for ideas for value add. Units are individually metered for gas/electric/cable. Building interiors are in good shape, I'm keeping the existing PM company on and they seem very good. Some minor cosmetics to fix up on the exteriors (painting handrails, resurface the parking area, fixing some fascia boards) but it's generally pretty turnkey, and was priced accordingly. My real upside is going to be in pushing rents up a bit and controlling expenses.

Hoping to be able to get rents to $750-$775, get the building qualified for housing vouchers/section 8 (average rents for Section 8 are in my target rent zone), and most importantly minimize turnover and vacancies. Lots of good stuff in this thread but many of the ideas either require lots of space (dog runs, etc.), lots of capital (installing carports), or lots of paid staff time (concierges, package services).

What have you all found works best for value add on these smaller, older properties? I'm thinking of putting in stainless steel appliance packages as units turn over wherever the existing appliances are old enough to justify it (5 years plus); resurfacing  and restriping the parking area and assigning spots to each unit; maybe doing some minor landscaping upgrades; freshening up the laundry room; maybe adding a small "tot lot" play area for kids under 5. I could also investigate some sort of secure package locker system.

Any other more basic strategies you all have found work on this type of property?

@William Walker Any reflections on this property 9 months after you got started? Did things go according to plan?