All Forum Posts by: Matt Maurice

@James Peluso I assume by force appreciation you mean “value add”? There are a ton of ways to improve your property and increase the value.

Add a bedroom or bath

Garage

Curb appeal

Additional unit

All of these options cost money, of course.

@Deangelo Mccants first of all you aren’t selling this buyer the property, you don’t own the property. You would be selling the contract to purchase the home (assigning). Buyers often work with realtors to help protect their interests in what can be a complicated transaction, like trying to purchase a house from someone who doesn’t own it, for instance.

Without another buyer, you have no leverage... they will let your offer expire and purchase the property directly from the homeowner. Furthermore, what value are you adding to this transaction that you are due compensation? If you can justify the answer to that question to the homeowner, you can likely make a couple of bucks.

I ask the "have you caused delays" question purely as an internal exercise.  Sometimes investors tend to push very hard on price over anything else, which can lead to some unintended consequences.  In your case, it sounds as though this is definitely not the issue.

This time of year the inquiry to approved ratio skyrockets, here is an example of a property similar to yours:

•  724 inquiries / 217 showings / 18 applicants / 1 approved applicant

A quick point on the cost of property management, and I'll preface this by saying WHM likely is not the right fit for this property as we don't handle many MF buildings, particularly at that rent range.

The price of a common manager around town is 10% of rents.  At your $675 / month rent (per unit) it will be $67.50 / month (we will ignore other fees for now).  

Where the commoditization of a property manager takes over, is that we tend to assume as investors all managers are created equal.  In your current situation, you have 4 months of vacancy or a $2,700 expense on your hand.  Now let's say a diligent manger could have turned the unit in half the time, causing just 2 months of vacancy (very achievable).  That would result in just a $1,350 expense, saving you $1,350.  If you divide that $1,350 out over 12-months, your current manager is actually costing you $180 / month for this ONE unit in fees plus lack of diligence.  

The difference in a good and bad manager is not $40 / month, it's thousands of dollars to your investment (don't get me started on property preservation and related catastrophic events like tenant-related fires without coverage).  If you can't make the property cash flow with a good manager fee structure, I'd suggest considering a sale.  A fish thrown into boiling water will jump out immediately, a fish in water gradually heated up will ride out till the end.  

Welcome @Marcia Kreifels!  

Milwaukee has a ton of awesome resources including Brew City (Facebook Group), the Milwaukee REIA and Apartment Association. I'm part of all 3 and would be happy to help you get acquainted with a group. I house hacked my first 3 properties before the term was even coined! Definitely an efficient way to get the party started in REI.

Construction is one of the largest challenges these days in running your rental portfolio.  We've been looking to hire maintenance folks for 18 months with very little to show for it.  One of the adverse effects of high employment & an economic boom.  The folks we could hire 3 years ago for $12/hour now scoff at our offers for $20.  We have a team of 6 on staff, not because it is all that profitable, but because it allows us to control the process.  Our team is usually first in and last out, meaning we handle demo & scope, bring in the subs to do the trade work, then we handle finish work. 

A few questions prior to making any further assumptions...

1. Does your manager provide a weekly leasing summary of some sort?  Meaning, are you being provided with the data of inquiries, showings, and applications?
2. Have you reviewed the rental criteria they are using?  (Brown Deer tends to have a lot of applicants with credit concerns)
3. Was there anything during the renovation process that could be construed as a delay on your part?  (approval timeline, cost restrictions or of the like)

Property managers at the end of the day are often asked to do a lot for not a ton in return.  That 10% coordination fee you may think is exorbitant to "make a phone call", but in actuality they are acting as GC, often extending financial risk, visiting the property for QA and playing babysitter to unreliable contractors.  I'm not playing the martyr here, but $500 on a $5k rehab doesn't go far to covering the real challenges of managing a project.  

NOW.... all of that being said, it sounds like you have a problem.  Overworked, underpaid, at the end of the day what matters to you is that your property is being cared for, diligently managed and you don't have to question their performance on BP.  I suspect you'll be needing to make a change in management (which can be extremely daunting, I get it), but the timeline to renovate, and the (assumed) lack of feedback or answers to get the property leased are pretty big red flags unless there were legitimate delays on your part.  

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $163,000
Cash invested: $5,705

House hack and a BRRRR before the phrases were ever coined! Bought it at the peak of the market, built a garage, refinanced to pull out the mortgage PMI (garage put me over 20% equity... on paper anyway). Still own it to this day, it's not a cash cow but steady debt pay-down, it will be paid in full by my tenants within the next 6 years.

What made you interested in investing in this type of deal?

Needed to move out of my parents house!

How did you find this deal and how did you negotiate it?

Found on MLS, and back in 2006 there wasn't much negotiating to be done by buyers.

How did you finance this deal?

FHA owner-occupied loan

How did you add value to the deal?

Built a 2.5 car garage, then refinanced with 20%+ in equity and removed PMI from the loan

What was the outcome?

Still own it to this day, it's not a cash cow but it's true and steady

Lessons learned? Challenges?

When you buy long term, even at the peak of the market, deals still work

@Tone Mayfield reach out to Janet Ruffalo, she is an agent and works a ton of short sales.

@Tone Mayfield are you looking for an agent familiar with short sales? Or are you looking for someone to help you negotiate the short sale with the bank?

If you search the forums there are a bunch of posts about Milwaukee and getting started. Also check out the Brew City Group on Facebook, @Rebecca Knox runs the group and there are a TON of great providers pre-vetted waiting to help you out.

@Marcus Auerbach Is that like a soapbox, but when you are a little mad about the subject?