All Forum Posts by: Matt Leber

@Mary M. Thanks for the input Mary. If you read through a couple posts in the thread you will see that I already have a detailed spreadsheet set up showing that these properties are my low performers and that I am considering exchanging them into lesser quantity, higher quality units. Both of the things you mention.

My question is more about giving the properties a longer leash vs pulling the trigger to exchange them now. Or some other less obvious strategy.

@Jack Orthman just looked at this calculation and I’m sitting at 48% for 2021. But, 2021 has been the best year of the 3.

@Alex Forest we bought them from another mom and pop LL going retirement mode. He was collecting rents in person and giving the original tenants breaks…so when we took over and put it on a PM with firm rules basically all the original tenants skipped out (2 were evictions which stayed until the sheriff came). That was year 1, which we sort of expected. Year 2 came flukey covid 10 month free guy (eviction 3), and toward the end of the year one of the good paying tenants decided to move their family into a bigger place. Year 3 we have had the same tenants all year and all paying (finally!) but we got hurt by a re-pipe needed in one of the units. So the performance has been creeping up but it just has me wondering if I’ll ever truly outpace the capex that I know is coming with cast iron pipes and old electrical, etc.

The Pm taking 2 months is definitely too long. I have been trying to light a fire under their butts for this issue. They only get paid for collected rents so not getting paid while vacant in turnover. They do however get 75% of first month when they get a new tenant. They take about 2-3 weeks to fix up after tenant moves out. Then marketing starts and this neighborhood gets a lot of lower income folks who don’t qualify due to credit, past criminal history, etc. or they only submit partial paperwork. So finding the qualified tenant is taking 6 weeks bogged down by the number of disqualifications. If these units were closer to home I could turn them easily within the month.

Good point on the refi potential. Being 2018 they are my highest rates, but my fear is that if I pull out money and increase loan amount (even with lower rate) I will thin out the cash flow which is already thinner than I would like. And the loans are so small that getting a lower rate doesn't save me much, pulling cash out won't net me much either. I've done the math on some refi scenarios within the last year and none of it seemed worth it relative the refi costs. At that time I decided to refi the SFH rental in my portfolio that had the best combo of loan size, high rate instead.

@Joe Villeneuve yeah years 1 and 2 we had a vacancy in each of the buildings for at least 2 months. It takes my pm about 2 months to fix them up and get a qualified tenant. Which is too slow in my opinion but that’s a whole different discussion. I could turn and fill much faster if they were local.

Are you suggesting I look at trading into something that's likely to be more stable vacancy wise (SFH)? I feel like if I go multifamily again in my area I'm probably going to run into the same transient crowd if I'm still buying properties that are at a price I can cash flow. Places that are small and always have tenants wanting to upgrade out to something bigger and better. On the other hand, I think I can go the SFH route and get a higher quality product that I can hold for 30+ years, better tenant pool, and folks that want to stay longer so vacancy lower.

@Jack Orthman sorry I had it in my post to Joe but not you. I have 68k equity in each. So i think I could potentially 1031 exchange roughly 120k into other properties after selling costs. I was considering trading back into SFH class bc that has been where I have performed really well on the other rentals. If I went that route I would probably target newer than 2000s build closer to home bc I think that would increase the quality of my portfolio and vacancy would be lower.

The sad thing about the 8% vacancy allocation being a high reserve I would normally agree, but I have every bit matched or exceeded that on these duplexes so far. I mean, I had almost 100% vacancy on a unit last year due to having a guy who used covid to stop paying for 10 months. That is the worst type of vacancy…where they don’t leave. I get that it was a little flukey and could happen anywhere but still…

Most of my SFH are still on my first round of tenants (low vacancy). The MFH are small 2/1 units and get a more transient crowd, so they turn over more often. I could turn and market them quicker if they were close to home, but they are upstate on a PM and it usually takes about 2 months to refill them.

@Joe Villeneuve i will admit it has seemed a bit like Murphy’s law for the 3 years I’ve owned them putting a damper on returns. They have been in the black only bc I bought them pretty cheap and get almost 2% rule. Although not negative yet, I can totally understand why you say 100 cash flow per door per month is probably gonna bite me down the line since they will require lots of work being 60’s builds.

@Jack Orthman thanks for the reply. That could end up being a really long post if added numbers for my whole portfolio. Without getting into all the nitty gritty details, I’ve got a lot of data on my tracking spreadsheet that tells me I’m only really collecting about 55 percent of the cash flow I expected for the 4 underperforming units. I was anticipating $180 per door and currently running about $100 per door. Still in the black but not as good as I forecasted “on paper”. Mostly due to getting slammed by more capex items, vacancy, turnover costs than I predicted.

I bought each duplex for 80k. Probably a C- neighborhood. Current comps support value of $125k. I owe 57k on each. They are contributing to my overall portfolio but not quite to the extent of my SFH. They are not local so I have them on PM at 9% of rents (after other fees I estimate PM at closer to 12% and run my numbers as that's the case). I think I could 1031 each of the duplexes into a newer 2000s later build SFH in the 185-200k range and mitigate a lot of the vacancy/capex issues I've been having w the older duplex units. Cash flow could be a wash or slightly improve while appreciate potential would surly get better w the SFHs.

The other 4 of the 8 streams are my SFHs. Each of them make on avg 400+ per month on cash flow assuming the same reserve allocations as I added in the post above to Joe (Approx 12% capex, 8% vacancy, 8% miscellaneous repairs). They are in C+ to B+ neighborhoods. Bought for 95k, 100k, 112k, 145k at 20% down all since 2016 so pay down has been minimal. But each has appreciated nicely at 75k-100k a pop.

My homeowners insurance company asked me to have a tenant get rid of above ground pool that wasn’t being maintained properly. They asked for it to be gone and submit pics.

I asked the tenant to get rid of it. They did. I had my prop manager go take pics for the insurance company. I noticed in the far distance of one of the pics, a few houses down a similar looking above ground pool. I own that house too. On the same insurance company. Gave me a good chuckle. Tenants sold it down the street to my other tenants.

Btw…pool is now gone from both yards. Just adding so I don’t get grilled on here haha

@Joe Villeneuve thanks for the reply.

1- the 4 units are 2 duplexes. I owe 57k on each duplex. Recent sales in the neighborhood (of all similar duplexes) have gone to 125k. So I’ve got roughly 68k equity on each duplex.

2- 125k-130k based on recent comps in last 6 months and condition of my units.

3- I forecasted my cash flow for 2021 to be roughly $180 per door for the 4 units. This was based on the expectation I would set aside 12% of monthly rents for capex, plus 8% for vacancy, plus 8% for other miscellaneous repairs, plus Prop Mgmt 12% of rents. These are cash flow calculations I expected to be on the conservative side.

Cash flow for 2021 has been closer to $100 per door. Which I guess is still OK. But compared to my single families in better neighborhoods, my SFH are crushing that and have better appreciation potential as the cherry on top. Has me thinking…should I just 1031 into a couple more SFHs.

Hello BP. I have been thinking about how I can improve my rental property portfolio consisting of 8 unit streams. I have been tracking returns on my properties with a spreadsheet I created for myself, and I have identified that 4 of the 8 units I own have been consistently underperforming the rest of the portfolio for 3 years now. I am tracking my returns based on cash flow numbers only (for conservatism reasons - I look at appreciation as icing on the cake).

A little background:

The underperforming units are all part of a small multifamily compound in a lower income neighborhood that I purchased in 2018 that looked great “on paper” but after tracking their performance for a few years, experienced less than expected returns due to one issue or another that has cropped up (more capex up front, tenant that I couldn’t evict for 10 months through covid, multiple vacancies causing turnover costs). They are older units (1960) so I will likely see other capex items sooner rather than later if I kept them for 30+ years. They have very little appreciation potential, which I don’t mind if cash flowing well. These properties have strengths of being very low mortgage cost, room to grow rents over time (they are almost 2% rule), and in a affordable rental class that seems to have a major shortage in today’s world. They still make enough cash flow to allow me to hold them if I choose.

So my questions are for experienced investors who do this sort of purge analysis on their rentals, how long do you typically give underperforming properties a chance to meet potential? Is my 3 year “leash” too short sighted if I decided to cut bait and 1031 exchange into something else newer build in a better neighborhood?

I see both pros and cons to keeping the properties in my portfolio, and I always envisioned keeping everything for 30 plus years, but I am now wondering if I should tweak my expectations. Thanks for your opinions and advice!