All Forum Posts by: Jonathan West

Hello fellow BP'ers.  We are a handful of months away from our annual insurance renewal and I'd like to shop around for better quotes than our current policy.  Do any of you Columbus, Ohio multifamily owners have recommendations for good insurers?  We are looking at ~50 occupied units spread across a handful of sites, plus another 10-20 that need serious rehabbing.

Thanks in advance!

In most cases on biggerpockets, the amount of reserve you hold is entirely a personal choice. There are exceptions - especially in commercial - where the bank demands a reserve fund, but let’s say that you have 100% control of how much reserve you keep. The choice is entirely a risk-reward trade off for you. Your heloc is a source of cheap cash, but it’s tied to your primary residence. You take a risk that if things really belly-up you will lose your house. The investments you make are somewhere on a risk spectrum which correlated to your risk of losing the house. There are other sources of cash: bank of Mom and Dad, begging money from friends and family, asking for salary advance from your employer, getting a second job, getting a mortgage, getting a personal loan, getting a hard money loan... all of them come with different economic, time, and psychological/emotional costs. Which of those costs are worth it to you are based on your own situation, and likely will change over your investment career. Personally, I don’t want to think about where my money will come from in the case of a catastrophe, so we are building to a year of PITI payments for each property. Almost certainly overkill, but I’m 100% happy to reduce our economic benefit thru lower return on equity for improved psychological benefit of reduced stress (“where will the money come from”) and more control over my free time (I don’t need to drop everything to hustle my butt to hard money lenders to get myself out of a ditch). Your time-and-stress value of money is guaranteed to be different than mine, though, so chart your own path. In your situation I would also be considering the stressed environment case. In 2007-2009 a lot of banks reduced or closed unused lines of credit to minimize their exposure. A reserve fund is only as good as its availability during a real catastrophe, so I would (PERSONALLY) never rely on a heloc for reserves. But as I said, unless the bank is telling you, your reserves are entirely based on your preferences.

It’s the principal remaining. The ~$145k in interest payments ($475k-$330k) is accrued over a 30 year period, and is not created on day 1 of your mortgage schedule. Note that you will still have a hefty interest accrual over a 5 year period. Don’t forget that we generally discuss income producing assets, so typically the property rents will cover these payments (and insurance, taxes, maintenance, vacancy, etc) which means cash in your pocket each month. When evaluating the value of a potential purchase you have to also include this life-of-investment income stream.

I’ve been where you are, with a property manager that seemed to let costs spiral out of control. It’s frustrating when you’ve put your financial livelihood in someone else’s hands and they appear to be dropping the ball. You have to determine what “success” looks like to you: do you want to just walk away and get a different manager (eg you are 6 months into a 12 month contract) or do you want to sue for damages? In either case, I would assume you are looking at a contractual dispute so I’d suggest talking with an attorney specializing in real estate contracts (for example maybe the one you used when you bought the house). The point of figuring out what you want, though, is to make sure you and the lawyer are on the same page from the very first interaction: lawyers are expensive and it is well worth some investment in your time by yourself to figure out what you want to happen rather than brainstorming it live with a $400/hr tab running. Best of luck. It’s stressful but you’ll get through it.

I can tell you based on my own experience that you can package up multiple duplexes on a single street and value them as commercial properties: we purchased 20 duplex buildings/40 doors all on one street as a commercial property. So it can be done. We are right now pursuing a strategy of buying 1-4 unit buildings on a single street from different owners using cash/traditional financing and then refinancing into a commercial portfolio loan valued based on income once the street ownership is material enough. Note that we are talking about 40, 50 doors at a time and not the six the original poster suggested, but it *can* be done.

Hello BiggerPockets community.  Thanks in advance for your time.

I’m looking for some expert advice as my wife and I navigate the turnaround of a 20-duplex (40 door) Class C Columbus neighborhood. We’ve been struggling with occupancy and the expense of getting units turned: we bought the property at 83% occupancy (7 vacants, none rent-ready) but now, five months later, we’re currently sitting at 72% occupancy (11 vacant or being evicted; 8 not rent-ready) with only four units turned and with tenants placed.  Note that we have a property management company managing this and are out-of-state investors.

Here’s where we need some outside advice. Your opinions on our experiences for the following would be super-helpful:

1. The units were badly abused by prior management, but the property management company is spending around $8k per door in getting units rent-ready. This roughly breaks down to $2k for painting, $2k for purchase of Allure flooring, $2k for install of Allure flooring, and $2k for everything else (fixing holes in walls, rehabbing bathrooms, etc).

2. Units are only getting rent-ready 1-2x per month. This feels slow to us, but we expect is a function of a) the growth trajectory of the property manager’s business; b) the materiality of the unit rehabs

3. Only four new tenants have been found in the five months we’ve owned the property. This has sped up, with two being placed in December, but the pre-December lull alarms us given how hot Columbus is

4. We’re at a crossroads. The (quite material) reserve fund we’d set aside to support this property’s turnaround is nearly exhausted. Do we slow down unit turns to let this self-fund or do we plow ahead and sink another $50k or $100k or $200k into our operating budget to turn units and risk leaving them vacant? (Note: the turned units are bringing in an extra $100/month in rent, which is +$12k in value at a 10-cap. The challenge, of course, is that the units need to be filled and the value is tied up in equity and not cash in our pockets).

To be clear, the property managers have done a fantastic job with the other aspects of property management: maintenance requests (and there have been a lot) have been responded to promptly, data is readily available, we’re able to jump on the phones often. But this is our first RE experience so we’d love the outside perspective on some of these more troubling aspects.