All Forum Posts by: Jonathan West

@Lily Huang I have an amazing pm that handles our c-class properties in south linden. Message me and I’ll provide contact details

For what it’s worth, I always try to send these bills to collections if it comes at no $$ cost to you. I’ve had the random $1,500 or $2,500 check come in. Don’t bank on it, of course.

Folks - I'm looking at purchasing a 10-20 unit multifamily property based in the Cincinnati area.  Rents are in the 600-900 range per month.  What makes or breaks the deal is my ability to migrate water payments onto the tenants.

Question for this community: how common is it for landlords to pay the water bill for Cincinnati tenants at this price point?

Note that I'm familiar with and have my opinions on the benefits and tradeoffs of getting water meters installed or implementing a RUBS system.  Determining the best billback method in this instance will be a downstream consideration after landing on the fundamental question for whether tenants typically pay the water in this market.

Thanks!

@Audre Lopez King I want to start by saying I’m not in the industry at all - I’m squarely a residential investor. But I’ve been thinking about buying offices and coworking spaces, so I keep my ear to the ground. Here’s an article i read on a blog I follow, detailing the wework business model: https://wolfstreet.com/2018/05/16/wework-landlords-office-properties-bond-sale/ The tl;dr is that wework the master company is NOT your tenant: your tenant would be a single-purpose entity subsidiary to the wework mothership. In the same way we investors are encouraged to form entities to defend ourselves from risk, wework does the same. There is (apparently) substantial risk that your wework tenant - which will have $0 in assets - will stop paying the rent as soon as it’s financially expeditious. Best of luck collecting from an entity with no assets but the legal backing of a huge company. I reiterate: I have no first-hand experience, but this article turned me off of the business model personally.

General ideas: A property’s Cap Rate is a function of the NOI and the value A Market cap rate is the cap rate you would expect for a bunch of properties similar to the one you’re buying A market’s cap rate is generally fixed for a short time domain: it can change over the years but generally is fixed over the next few months A property’s NOI can change very fast. Especially when it goes from mis-managed to well-managed or vice versa. If a property is increasing the NOI, the market’s cap rate is fixed and so the property’s value goes up. So in the situation you describe where NOI is effectively zero but could be a lot higher, you have three choices: 1. Value it entirely on existing performance. Good luck, telling an owner breaking even that they should give you the property for free 2. Value it entirely on where you think performance could be under your management. In this case you will be taking on a bunch of risk on the assumption that your performance goals are met 3. Somewhere in between. Your lean to #1 or #2 is a function of your risk profile.

The Columbus taxes are a straight calculated percentage off of the appraised price. Rather than getting into the details - assuming I’ll screw something up - I just scale up: if I’m buying at 50% higher than the appraised price I assume taxes will grow by 50%. No clue how you’d predict the increase from the every-three-years assessment. And yeah it hits sfh and multis.

Originally posted by @Joseph T.:

@Jonathan West I'm actually looking to invest in columbus as well. Since I'm also an out-of-state investor, I completely agree with you that finding a good PM definitely the most important part of the deal. Do you have any recommendations for PM?

 Joseph T - I sent you a message.  Thanks

I’m no expert so don’t trust anything I say: this is my own experience in Columbus oh 1. All properties are all reassessed on a three-year basis, with 2017 being the latest. With the amount of growth Columbus has seen just about everywhere saw a pretty big hike. Note that this is a blunt neighborhood evaluation so it’s possible that a low-quality building in a great neighborhood also got its taxes raised. 2. The school boards monitor property sales closely: in your example of a house selling for materially more than an appraisal then the schools will request a tax reassessment. When I’m doing my due diligence I always assume that a) taxes won’t go down even if I buy at a discount; b) taxes will immediately reassess in the first year to the new price, which has happened to us on most purchases. Note there was someone on a bp podcast who created software that auto-populated the forms needed to challenge the assessment. I haven’t gone down this route but ymmv.

I am a Columbus investor and frequently am looking at zainesville when the c’bus craziness gets me sad. I’ve done no research on the fundamentals of the market because I don’t trust the ability to find a reliable property manager, which for me is a dealbreaker: 1. It’s ~55 miles away from the middle of Columbus. You can certainly find good PMs in Columbus - and I would and do recommend my guys all day - but their time is valuable: asking them to drive out there for maintenance, showings, etc will either be a rejected ask or come with a $$expense for their time and gas that quickly scuttles deal economics 2. There may be someone local but I would be reluctant to invest a ton of my money with them. Either they’re a official property management company which means they’re small and likely not capable of growing since the market is constrained; or they’re an individual who provides super/handyman support, which comes with administrative and people management burdens not worth the time investment. Btw- no offense to any wonderful zainseville property managers out there: the market just doesn’t pass my personal filters to be worth the time investment. Your situation may be different. You may have friends/family out there who could help out at a discounted rate. Or that could provide you with local knowledge that gives you an edge. Maybe your favorite Sunday brunch restaurant is in Zainesville so you’d be ok going with the family every other week to have a nice meal and then take care of any things the tenants need.

Originally posted by @Jay Helms:

@Kevin Larson - if you're goal is cash flow, then anything you can do to lower your monthly payments & expenses will help that. Go with the more points and lower interest rate. 

Jay - respectfully disagree.  Your statement is correct if the goal is cash flow *on this one property*, but there are other ways the cash could be deployed that could help the original poster make additional money.

The most financially pure way to evaluate this decision would be to build a cashflow projection and calculate the internal rate of return on your different options, which would be a function of how fast you expect rents/expenses to grow, how long you'll hold the property, the amount you'll sell it for, etc.  That's more complex than what you probably need though, so here are some other heuristics.

Going from 5.25% to 4.75% will cost you just under $1,000 and will save you $14/month in payments.  It'll take ~70 months or 6 years for you to break even ($14 * 70 ~ $1,000) and save money by paying points to reduce the monthly payment.  If you will be selling the property sooner than that you're better off holding onto the cash.

The above heuristic assumes you can make 0% return on your $1,000 today or your $14/month ongoing.  The breakeven point extends out if you think you can invest the money in something that will pay any sort of return, even if it's just a liquid savings account.  The higher the alternative rate of return the further out the breakeven period extends.  For simplicity sake, assume you could find a mythical 20% bank CD for your $1,000: you'd definitely keep the higher monthly mortgage payment because you'd be earning more in CD interest.

Finally, holding onto $1000 could accelerate to the next down payment for a new property or could be put aside a a reserve fund. I calculate your mortgage will be something like $48k which means at 75% LTV your down payment is $16k: if you don't buy the points then you're ~7% towards your next property, which isn't a lot but isn't nothing.

Contra to all of these points, if you don't trust yourself to wisely manage the $1,000 and you need the extra breathing room that the $14 adjustment in payments will grant you then psychologically you may be better off marginally increasing your cashflow, regardless of the numbers.  However you should take a really hard look at your choices if a $14 swing will make or break you.

This may seem like a lot of calculation for not a ton of money, so mentally I added a few zeroes to the calculations: those at a much larger scale should similarly be worried about whether paying an extra $1mm is worth reducing monthly payments by $14k: math is exactly the same but I bet we all feel different emotions about those bigger numbers.