All Forum Posts by: Kush Patel

 Very helpful, thank you!

I found Jordan Property Solutions (based in Marlborough, MA) via Google search. I'm looking for a strong property manager in MetroWest and Central Massachusetts and am close to hiring them.

Does anyone here have experience or anecdotal information regarding them?

@Ann Bellamy Do you know of any good REI groups off the top of your head in the Boston and surrounding area?

Hey Rob,

I'm trying to do something similar right now with an apartment complex I own. Do you mind messaging me the name of the firm you found that submeters?

@Nick B.

 So if I'm understanding this correctly, it would approx cost:

Mgmt @ 4% of Gross Rent: ~$20K

Salaried Personnel (Admin, Maint, Janitorial) @ $1K/unit: $60K

so $80K all-in to manage this 60 unit property?

Hi All,

I'm working on a 60 unit deal and was reviewing the financials and noticed the previous owners were paying $21K for a property management company to manage the property (they manage ~500-600 units in the area), as well as $13K for admin salaries/benefits and $14K for maintenance salaries/benefits, in addition to using one of the units ($600/mo in rent) as an office despite only being on-site twice per week. This seems pretty wasteful to me but seeing as how this is my first multifamily deal, I was wondering if I'm correct in this line of thinking? To level set these numbers, annual gross potential rent for the apartment is ~$500k.

When I pressed the owners as to what the admin and maintenance salaries/benefits are for, they claimed they chose to pay benefits (such as healthcare) to these individuals because they are from out of town and rarely visit the property. They wanted to be sure the property was cared for and so they spent extra in compensation. 

I always thought if you hire a property management company, they have their own employees and the owner of the building would not be paying benefits/any additional salary to their admin and/or maintenance personnel? And all you (as the owner) would be on the hook for is the 3-5% management fee? Anyone have any color on this?

Thanks!

Hey Rob,

This is the same deal. I was actually asking about submetering electric for the whole building to the tenants, perhaps using a RUBS system if it's allowed? Currently the property is master metered and electric/water is included in rent. I'd like to pass these costs on to the tenants. Any idea if/how I can do this?

Thanks!

 Hey Rob,

This deal came back to life recently and I was wondering if you looked into RUBS/submetering for electricity in MA? It seems a lot of properties in MA have water included in the rent and so metering that would make it difficult to compete. Electricity, on the other hand, seems like it could be an opportunity but I have no idea about the MA state laws about this,..any thoughts?

@Paul Timmons

Are you finding multifamily properties with those CoC, DCR, and cap rates? I've been looking but haven't seen any...Are you getting those returns with rehabs/renovations or are you finding that with stabilized properties?

The numbers look like this:

Going-In (no changes): 6.4% CoC, 1.3x DCR, 6.2% Cap Rate

Pro Forma (rent out studio, make rents market): 10.7% CoC, 1.5x DCR, 7.2% Cap Rate

If I keep vacancy @ 5% or even have it at 7.5% rather than 10% the returns jump significantly. Only 2 of the 60 tenants are government subsidized, the property manager generally requires 3x monthly rent in income. I appreciate the suggestion about calling other property managers to substantiate the numbers, I will be sure to do that.

@Ann Bellamy

Thanks for the occupancy suggestion, I will be sure to check receipts/bank statements. There are some instances of late payment per the property manager, but they've only had 2 evictions over the past 4 years, and in general across the 600 units they manage in the area (Gardner, Leominster, Fitchburg) they've only had a handful over that period of time (less than 5). In general regarding cap rates, wouldn't you expect cap rates to be compressed for larger properties like this? The financing is substantially better for a $3mn property (as is the case here) than a $300k property (where I was quoted it at ~5.7%, 7 year term, 20 year amort for an 8.4% loan constant), meaning I can pay multiples of NOI higher (and thus a lower cap rate) while still achieving the same CoC and DCR numbers.

Is RUBS legal in MA? How much does it cost to implement? Do you think I could get away with charging tenants when most apts in the area the landlord pays? 

@Will Wu

Thanks for the warning on vacancy. I wouldn't say this is necessarily low income, as only 2 tenants are section 8 and the rest have been screened based on good credit scores, 3x income to rent, etc. They also have told me they generally only have 2-3 vacancies at a time (~5%), wouldn't I be able to see pretty easily if they're lying in the diligence period looking at receipts/bank statements/historical rent roll? I'm just assuming it would be evident and therefore have no reason to stretch the truth, but I could be wrong? Also, they apparently got over 70 responses in 2 weeks regarding an apartment opening recently and have a waitlist of 14 people so it seems there is a lot of demand for these apartments.

One thing that did concern me was the population size of Gardner, but you apparently you have a lot of people living here that work in adjacent cities as well because of the affordability. 

Hi all,

I am working on my first multifamily deal and would appreciate any advice you can offer. I have experience owning and operating other forms of RE (SFH, Industrial) but have decided I'd like to go the multifamily route long-term. My strategy (which I'm still working on) is to buy and hold large multifamily's that can be or are professionally managed (so that I'd be managing the manager, rather than tenants) and have a value-add component. Return on time is very important to me, but I know the first few years several improvements/adjustments will need to be made to make this a good deal.

Here are the details:

60 unit apartment complex (2 buildings, 48 2BR, 10 1BR, 2 Studio apartments) in Central Massachusetts (Gardner, MA - Worcester County) built in 1974 

Asking Price: $3.8mn, the owners want to sell and would take $3.4-$3.5mn

Rent Roll: ~$490k/yr 

Vacancy: Will be 100% occupied as of January. Seems they have 2-3 vacancies (~5%) on average, will assume 10% of Gross to be conservative ($49k/yr)

Property Management: Currently professionally managed at ~$22k/yr

RE Taxes: $44k/yr

Insurance: $22k/yr

Water/Sewer: $32k/yr

Heat (Gas): $46k/yr

Common Electricity: $5k/yr

Snow and Trash Removal: $12k/yr

Repairs & Maintenance: $25k/yr

Reserves: $20k/yr

Total OPEX: $277k/yr (~57% of Gross Rent)

NOI: $213k (going-in cap rate 6.2% @ $3.4mn purchase price)

Financing: Have an LOI @ 4.5% rate, 10 year term, 30 year amort with first 3 years at interest-only (loan constant is 6.1%), 80% LTV. So Years 1-3 ~$120k interest/only per year, then ~$166k thereafter.

Other notes: Heat and Water are landlord responsibilities and it is typical for the area for those utilities to be included in rent. Electric is separately metered. The apartment complex is a short walk from a grocery store and other retail amenities (restaurants, etc.). The current owners are/have been absentee and are not real estate professionals, they seem to have been cutting a lot of corners in managing/investing in the building but have kept it filled (albeit barely raising rents) for the past few years.

My strategy:

1. Reduce vacancy/keep it at 5% (this would lead to ~$25k improvement in NOI). I plan to do this by improving the cosmetics and functionality of the building (new windows, repairing fence outside, providing locked entrance door with intercom system, etc.)

2. Reduce operating expenses, particularly heat and water (new windows and insulating the building better should help with energy costs, it seems the previous owners have invested $0 in this). Any other suggestions on how I can do this?

3. Raising rents to be in-line with market. On average, rents should be able to be raise ~$35/unit, which I plan to do over the first 3 years during the interest only period. Thereafter, I plan to continue raising rent $10-$15/year based on utility costs, improvements, etc.

4. Potentially rent the on-site management office (which is in 1 of the 2 studio apartments), which would add ~$7k/year to the rent roll. 

5. Add vending machine. There is already on-site coin-op laundry machines (which are through a 3rd party operator, unsure what the income from these are). Any other creative ways to add income streams?

Questions/Concerns:

1. Do increases in rent typically 100% fall to NOI/cash flow? It seems a large % of incremental rent would but I'm not sure if I'm missing something.

2. The tenant base is largely blue collar and/or low wage earning individuals. The tenant screening process is pretty strict based on the what the property management company told me (5 year landlord history, high credit score, etc.), but I am concerned as utility costs rise that I will be unable to keep passing on the 2-3% yearly increases to tenants once we hit the ~$800/unit rent mark. This concern is mitigated somewhat by the fact that the competition also includes utilities and that I'm in Massachusetts, which is progressive (and aggressive) on raising min wages.

3. Regarding the on-site management office, the property manager seems to think it helps get the rent on time and keep the place operating well. I would like to rent the studio and move management off-site, does anyone have experience in doing this? I would think management would still make visits a few times per week and they could set up a rent slot box attached the boiler room door or something of the like. Perhaps could install cameras (dummy cameras?) in common areas to make people think big brother is still watching

I know this is a bold first step but I am confident I can handle it, I just want to make sure the deal makes sense. Thanks!