All Forum Posts by: Tom Lafferty

I guess all situations have different factors to consider.  Ours is completely full all the time, upgraded or not, so it's a matter of what it does to rents.  I do factor in keeping tenants longer as well.  Can't really measure that, but if we take care of the tenants, and are a little nicer than the neighboring properties without going overboard, it seems like it would matter.   

We'll probably sell in five years, and if the cap rate is similar then to what it is now, that $50 in rent adds $7500 in value.  Multiply that by 32 units.  That's the logic I've been using, but wanted to hear other views, so thanks!

I am looking for input on what other experienced apartment investors look for when making upgrade decisions.  In other words, when you're considering investing in some kind of additional expense, how quickly do you want the upgraded items to pay for themselves in increased rents?  I've talked to people that won't do it if it doesn't pay for itself in one year, and others who say three years.  Obviously its a personal or organizational thing, but I'd love to hear the thought process others use.

As an example, I'm dealing with units that have some pretty bad kitchen and bath cabinets.  In some cases they're still functional, but the doors don't close right, they've got 10 coats of paint on the hinges, etc.  New ones are about $800-1000, which would take a long time to pay for themselves if I get $25 more rent.  On the other hand, I've got a much nicer product that looks great when its time to sell, and makes for a quicker unit turn due to not needing paint.

Many items we're replacing are much less expensive, but I still have a tough time figuring out if they're worth doing.  New lights, faucets, bathroom fixtures, etc.  We're increasing rents quite a bit, but they rent so fast that I don't think the upgrades have much to do with it. 

As always, thanks for any input!!

oops, the 2/1 rent was left off.....2/1, 800sf $665.  There's also a 3/2.5 for $875.

I didn't see any A or B there.  This one is a solid C/C+

As far as rents, it really depends on the property.  I do not feel comfortable using avg rents for the area, or anything like that.  I have to go into the offices at the other properties nearby, and talking at length with the on site managers.  As an example, we found 2/2's at several properties varying by hundreds of dollars. Some were nice, some were terrible.  So if you go by avg's, you may get burned, or you may be underestimating, who knows?  All that to say that I don't think it would mean much to say what the rents are, but here are a few:  1/1 600sf, $550.  2/1 800sf. 

On this one we offered about $35,000/door.  It was in very good condition and had good tenants.  We weren't the highest bid but hopefully we are still in the running...

Does anyone have experience there?  Its in Del City/Midwest City, which I read a lot of negative things about, but we toured it yesterday and it seems like a great property.  

Would love to hear positives/negatives of the area...

Yes, payroll includes your manager and maintenance people.  Even if you have 3rd party management, payroll will still be a line item on your P&L.  Your management fee would be separate from that.  

In my situation, I have payroll expenses, but no management fee because I'm functioning as the management co.  I decided to do so in order to learn the business, and better prepare myself to oversee the management company on the next one.  

It is very much a class C property, but we've had very little turnover, and as I have gradually given more and more control to the on site people, it gets easier and easier.  I would NOT recommend this to someone that didn't have a lot of time or was far away.   On the other hand, the owner of the 44 unit next to ours, as well as the 32 a few doors down, and two or three other properties around DFW lives in Chicago, trains his own managers, and has no management company, so what do I know??

@Ben Leybovich maybe I'm misunderstanding what you mean, but I completely disagree that payroll is out of the question for anything less than 80.  We have payroll on a 32, its around $30,000/year, and it works great.  I know dozens of owners on properties smaller than 80 that all have payroll.  

As I mentioned before, I've spoken with 3 companies whose bread and butter is multifamily units up to around 45 units, all done without on site personnel.  I don't think its as good as having someone there, but a 20 unit stable property with good tenants just doesn't make sense to have someone there.  

@Diem Tran , I wish I had 1/100th the experience that @Joel Owens @Steve Olafson and @Jeremiah B.  seem to have, so take this with a grain of salt!  I agree with everything they said.  I cannot imagine buying a 60+ unit out of state as your first one.  There are so many ways it can turn out badly that its not even funny.  Starting smaller sounds great, and its what I did (32 units), but its true that they're almost more difficult than larger.  Very tough to come up with good management options that don't involve a lot of your time that aren't really expensive.  

I wrestle with the out of state dilemma all the time, as I know there are people on BP that do it successfully all the time.  I'm looking in OKC while I'm in DFW, but only because I've studied this junk for two years now, and have self managed a property for almost a year so I feel better prepared to watch over a PM company.  Plus I can drive there fairly easily.  I probably shouldn't have used the word junk......

@Dick Rosen I can only speak to my ONE experience, but I did a LOT of research on the matter before taking on a 32 unit apartment.  As a matter of fact, I continue to look into options in the event that we need to make a change later.  The other caveat is that this is the DFW market, so I have no idea what goes on in AZ.  Finally, ours was a very stable property, and we bought at a fair but not great price, so efficiency of management was a top priority.  If you're getting a great price on a strong value add deal, you may be able to afford much more, at least until the property is stable.  

Anyway........  I spoke to a lot of pro's, and got ALL KINDS of different answers!!  Regarding professional, 3rd party, on-site management (of which most companies would only begin to talk about at around 60 units, said 80 was much better, and 100+ was what they really wanted),  all of them suggested 12-20 hrs per week of someone being on site.  I got bids as low as 5%, but only because I was part of a network of other owners that they were already working for.  Normal price was upwards of 10%.  At 60+ units, their fee was around 3.75-4%, plus payroll of course.  Our budget for year 1 was $15k/year for part time leasing, and $15k/year for part time maintenance.  We're ten months in, and it looks like both will end up being a little less than expected.  

The other common option was off-site management.  There are 3 companies I interviewed for this, and their fee was 6-7% of gross collections, but I would have no payroll expense, so those two basically cancel each other out.  The deal-breaker was the 50% of first months rent for each new lease, and $100 for each renewal.  I had no idea what turnover would be, so I used the 50-60% that many say is avg for the industry, and it was a big number.  Turns out our turnover has been MUCH less, so it may have worked.  These companies were comfortable up to about 45 units.  One goes up to 100 units with the off site setup, but I can't imagine that working.

My problem with that solution was that many experienced people told me it was a terrible idea to NOT have a manager on site at least sometimes.  I do know people who are using it successfully though, so who knows?  

There is a post on here somewhere in which I asked for management options on a 32 unit" or something to that effect.  It may have a few good suggestions, but all I remember is getting blasted for even thinking about self-management, and that I had no business doing it, which is what I've been doing for 10 months.  

Bottom line for me is that if you're looking at a 20-40 unit property, and you're already a PM  on 15 unit apts, then you're definitely capable of running them!  Having at least a handyman on site would be great, but I will tell you that all the off-site companies I talk with have a network of contractors that they use, and just call them as needed.  Most had two or three of each just to keep them honest and bidding against each other.  They do leverage an onsite handyman as well if the option presents itself.  

Another thing that may help you is to train the tenants to do everything online, which would cut down your phone calls.  I thought our tenants would never do so, the the company who does our PM software (ResMan - highly recommended!!) said they have heard that over and over, and every time they get the lowest income tenants to get on board with it.  When I said I had NEVER seen a PC in any of our apartments, their comment to me was, "They may only have a mattress and a lamp, but I guarantee you they have a smartphone!"  So far, absolutely true!  

Wow, sorry for rambling, but this was a topic I could not resist answering because I STRESSED BADLY over it!  Hope there's at least a few good pieces of info you can use!  I'd love to hear how your out of state client feels about owning a small property out of state, as I'm looking at a 100+ in OKC, which is 3 hours away.  Major stressing going on again.....