All Forum Posts by: Kevin Danikowski

I'm looking for methods to improve an area / entire street to create a higher end pocket (particularly in C- / D+ areas). 

I have a collection of 4 buildings (still negotiating 3) on a D+ street that I believe some reasonable aesthetic improvement could attract a C- crowd. Currently the buildings have higher end tenants already with a solid leasing team which lives on premises. Buildings are all fitted with Cameras and live-in staff who cleans the hallways and yard areas daily. Currently the biggest problem is a single convenient store in the multi-use building at the center of the area that brings in 90% of the riffraff (overall building conditions are good through-out the area). It was bought by a contact I have a couple days ago. The area used to be a C area in 2005 which was when the current owner purchased the building. My guess is that it went down because of poor neighboring areas.

Potential Improvements: 

1. Signage - I've read some bigger pockets stories where signage increased the value. There isn't substantial signage, but the buildings are only between 12-18 units and aren't "identical", but it's a thought. 

2. Brick Pillars at the entrance and exit of the area creating a "private area" feel.

3. Putting a large piece of art in the center roundabout which is currently grass and concrete.

4. Adding landscaping that improves the overall feel.

5. Adding black steel/aluminum fencing to provide a sense of privacy

6. Find a new business to replace the convenient store. 

Does anyone have additional ideas?

There is a stockpile of reasons to suggest troubling times are ahead:

1. levels of forbearance on mortgages

2. high unemployment

3. the fed pumping trillions prop up the market for months

4. The expected massive jump in property taxes to pay for high local government COVID deficits 

5. Stagnant salaries

...other factors

Where could multi family (particularly D-B class) be headed?

It's known that during a down turn with high levels of forbearance there will be high numbers of foreclosures, downsizing of families from homes to rentals, and a reduction in A class tenancy. But there is little insight on what significant levels of inflation, such as that caused by COVID, do to these trends during economic depression/recession in the united states. 

It's not hard to find data supporting the flux of families from A and B class homes to B and C class rental apartments, respectively. It's also not hard to understand that inflation tends to lead to an increase in rental values, as they are tangible assets. But, could the mix of strong inflation, increased unemployment, and all time high rents actually lead to a downward trend in D-B class multi-family rental values? And what does this mean for the impending values of multi family in the commercial realm (5+ units) which are based off cash flow? Could rents actually go down because people can't afford the rent?

Some insights can be found from Argentina (https://www.globalpropertyguide.com/Latin-America/Argentina/Price-History) which is going through a terrible economic crises with astronomical inflation paired with a crash and the worst financial year they've experienced in history in 2019 (non-covid related). Although in some areas (specifically buenos aires) where real estate increased by 20%, after adjusting for inflation, the real value reduced by over 20%. 

There isn't great data on how these strong factors intersect because inflation has never been as high as it's expected to be, all thoughts are welcome.

Some additional data:

In 2008, a real estate crash without rampant inflation, properties of all varieties suffered, including foreclosures on commercial multi-family despite what many people may expect considering rents tend to increase during a crash (https://www.chicagofed.org/~/m...). 

There is a proven positive relationship between inflation increasing real estate, however, the opposite relationship is present for loan interest rates and real estate pricing (https://www.um.edu.mo/fba/irer/papers/current/vol18n2_pdf/03.pdf and https://web.stanford.edu/~piazzesi/inflationAP.pdf).

Fed pumped 2.3 trillion into market by end of April (https://www.washingtonpost.com/business/2020/04/29/federal-reserve-has-pumped-23-trillion-into-us-economy-its-just-getting-started/). Further trillions were proposed (https://www.cnbc.com/2020/04/13/coronavirus-update-here-is-everything-the-fed-has-done-to-save-the-economy.html). 

In Summary, what do you expect to happen to D-B class multi family? 

 I like that solution more than what I suggested, great idea. I think we could extrapolate this for the other situation as well, if either partner expresses need to leave the partnership, they can voluntarily sell ownership at a specific discount perhaps. Maybe this way it would entice the other partner to buy them out so that if they're in a bad situation, they can get what ever relief is necessary. And in the event of passing, then all deciding rights of the company are left to the remaining partner. Just throwing out some ideas. 

Great links for insights of the starting portion, but it doesn't answer any of my questions of leaving the partnership and issues that may come up, this is why I posted the discussion, the questions I listed I have not found an answer to yet.  

@kennethgarrett I definitely will have a lawyer work this out, but just to prepare myself and not just take them at their word, I was looking for some insight before hand. But you are totally right, the OA is very important to structure correctly. 

My partner and I are going to purchase a buy and hold 10 unit where everything is divided 50/50 (money, work, etc.) and a management company holding it. I would like to know what are main safe guards which 50/50 LLC partnerships typically put into place.

Lets say all goes well and then an unforeseen event occurs to one partner...

1. What should happen if more money is required and one partner can't pay up? (maybe a 10% penalty to a certain point?)

2. What should happen when one partner needs to leave/exit? Or one wants to sell and one wants to hold? (Maybe a 20-30% penalty for early exist or early buyout policy)

3. What should happen if one partner gets a divorce and needs to liquidate? (penalty again?)

4. What is one partner goes into bankruptcy? (no idea...)

5. What is one partner dies and new agreements can't be made from the heirs?

6. What is the area turns to crap because of something unforeseen and we can't agree on changing or keeping the plan?

7. What is one partner feels the other isn't putting in the work?

Any legal advice or past experience is appreciated. 

@John Warren I am considering the same thing and for this reason it may not be worth it. However, I could see this renting for an extra 800 per month should I do this and the AirBnB aspect goes away, and I think it would be more attractive to potential buyers. But there is limited guarantee on the resale value which is why I don't know if it's worth it unless I can build this cheaply. Typically I want to add a unit at 30-50k, but this addition would likely require much more than that so I'm still not sold on it yet. 

Maybe there is a different value add I'm not thinking of that would be highly beneficial for the tenants? Such as some patio set up or something ? It's not commercially zoned so I don't think I could do storage. 

Or maybe it's possible to do a parking spot share relationship with a new SFH that would be built?

It's a large piece of land in a decent area so I know there is some potential.

Thanks for the reply @Jonathan Klemm and @John Warren .

The lot is buildable, but it's currently a grandfathered 3 unit on a single family zoning. So the best I can do is what i'm considering doing, expanding the 3 unit to have a walk way to a standalone extension which is essentially a mirror of that unit. I would then AirBnB both of them, and when I go to sell it, it can be a two tenant dwelling or a single large unit of 4 bedroom 2 bath. 

I got a rough estimation of ~100k to build a 1,000sf unit (if I keep costs slim). At 2k/mo in airbnb profitable income (could be more if it was on north side of forest park), that's a 24% return. That return, to me, is not attractive enough for me to consider unless I can get a loan on it. The IRR doesn't get much greater either considering it's resale value for the 100k extension I would guess is 1.2-1.3x the cost I put into it (assuming market doesn't crash). If I can get a loan for this 100k renovation I would be very interested since it could put my return at 30-40%, but i'm maxing my personal loans and personal line of credits to do other purchases, any recommendations on options for this?

John I appreciate that note, I didn't know that. If I decide to do this extension above, I would add another 2 parking spots and probably a nice patio for an extra 5k. 

Hello All, I'd like to revitalize this forum. @Ethan Cooke , I was planning to do exactly what you stated at the end, one of my units are currently airBnB'd and I was thinking of adding a detached unit, considering them as "together" and AirBnBing the second one as its own unit even though the lease is technically for both units (lease to my own building by my own company that is). Any thoughts on Insurance or liability issues that may occur? 

Also, @John Einarsen , did you have any luck finding out more information about this?

Thanks in advance for any info.

I have a building that has 2 lots. I'm considering selling it, and the land is worth about $50,000-60k (located in forest park).

Currently, there are 5 spots lined next to eachother on the short end of the property which crosses the two 25' x 125' lots. So If I broke this off and sold it, I would lose 2.5 spots (so 3), but try to get them back by extending my parking lot which would now be 40' x 25' instead of its current 20' x 25'. One of my tenants would lose a spot in the process and now the cars would be stacked potentially causing an issue with entering and exiting. This would likely lower the value of my building as a result as well. 

Is it worth it? 

Other option to use this 25'x125' lot... Lay down asphalt or concrete for $3,000-13k (depending on material) and have 3 new spots I could potentially find people to sell it to. I would guess I could get $50-100/mo for it (so return is low). It's in a residential district so not sure if I could do much else.

@Patricia Steiner True, the price drives the deal for me, but when it comes to putting a down payment, I only have so many funds available, and if I can go from a lower LTV to a higher one, I can get more favorable terms and thus increased cashflow, this is the reason behind my ask.

@Chris Mason Excellent point, I may be able to cash out refinance a small amount next year, just focused on reducing the net down payment for now though.