All Forum Posts by: Michael Randle

@Eric Van Deman,

Congratulations!

Quick question for you, when you first started reaching out to property managers what was your initial questions and approach? Did you let them know you where 'tire kicking' and just looking for information? How did you decide on which manager to go with? Did you ask the property manager about cap rates and areas to invest or did you identify an area and see if the property manager had any experience in that field?

@Nick B.,

If the majority of expenses are dollars vs % then each property, and each location/market would have different dollars assigned to a property. Class A in Miami would be considerably different than a class D in Chicago. That would lend me to believe that you focus on one market, (very reasonable) but you would very early run out of deals to analyze, especially in medium sized markets. As for what I am missing etc, most of the places I am generally looking at are small enough to not need those expenses, (self admin, insurance already added into formula etc) or command that type of premium.

But I would classify 'contract' and 'make ready' to fall under either CapEx or Repairs depending on what exactly is being done. Which is another reason I went with more of a % based formula vs just numbers. But I also have money set aside for 6 month reserve.

@Greg Dickerson, Thank you for the advise. What really brought this to my attention was analyzing and actual expenses supplied by the seller. He has listed about ~$3,000 per year in repairs for a 12 unit apartment build in 1923. Given his expenses the property would be a decent buy but in my mind if that little money is being spent on repairs a year it would seem that there might be more delayed maintenance and eventually I would have to pay it. That is why I was leaning towards my numbers to get a more accurate financial picture on what to expect on CoC ROI Cash Flow etc.

I am not totally sold on interest only loans but I can see how that would allow you to be more aggressive.

Good Afternoon BP,

I am currently working on getting a feel for underwriting and I am crunching numbers on multiple properties. The wife and I closed out or real estate and we are look to re-invest in the first to mid point of 2020.

The issue I am having is in underwriting and I am wondering if I am being too conservative. My underwriting is as follows:

Rent
-10% for VacRate (changes depending on the market)
-10% PM (changes on size of property or what is stated in the OM)
-10% Repairs
-10% CapEx
-P&I/Taxes

= Cashflow

This is the basic building blocks of my underwriting and I expand upon these.

Such as looking for ~1.25 DSCR for bank underwriting purposes and time to 6 months worth of reserve.

The issue is that most properties listed are not reaching the very basic 1.25 DSCR that would be required by lending institutions with current asking price and NOI. Because of this I am questioning that my underwriting might be too conservative and I am really pricing myself out of some deals.

So my question to the community is as follows, given the above information am I too conservative with my underwriting? If I am what numbers do you use?

If I am not being overly cautious and it is the seller who has unreasonable expectations. What do you successful buyers do to get the property more in line with lending standard or your own personal standards? At what time during the process do you start to nudge that price down etc?

@Matthew McNeil this is my 2c.

According to @Nathan Gesner the terms "Additional Insured" and "Additional Interest" are two completely different things and you need to clarify which your PM is asking for. The following are based on my interpretation of the above article and my reading of it.

If your PM is asking to be placed on "Additional Interest", this seems to be more of a notification process. The PM receives copy of your policy and is notified if your policy laps. This should not incur a cost and should be fairly straight forward. The article uses the example of a Condo HOA as being listed as an Additional Interest because they have an Interest in the property. So a PM that manages your property would have an Interest in the owner having proper coverage.

"Additional Insured" means the PM is covered under your Insurance for any liability. This will most likely incur a cost increase since your insurer isn't just covering your liability, but also a third party liability. Being named Additional Insured will probably bring down the operating cost of the PM since they will be able to carry less insurance since YOU will be carrying more for them. Again, as the article states Additional Insured is for parties that have Co-Ownership, Lending institutions, investors etc.

You would have a hard time making the case your PM has an "Ownership" in the property they are managing. Therefor Additional Interest would be appropriate where as Additional Insured WOULD NOT. At least from a home owners point of view. From a business being named as an Additional Insured would be great, since it lowers operational costs and liability overall.

So in the end, unless it is a 1-unit expect a process much longer than 60 days to close on a property?

Thank you both for the explanation and the article.

Not to get too far into the weeds and feel free to drop out of the thread. But if the tenants can sell their TOPA rights to a third party, why wouldn't some savvy investor buy those rights and swoop in to pick up good deals etc? I mean that is a vast oversimplification of what the process would look like I assume, but if I was back in Denver and I could potentially get a decent deal on every multifamily by buying TOPA rights it seems like at least another avenue of attack.

@Russell Brazil,

Quick questions since I generally refer to you as the DC expert on here. I am looking at buying a 4-plex right now in DC. Before I can buy it, the current renters have right to buy the property first? (This is kind of what I assumed looking into the market before hand). At what rate do the tenants have to purchase the property, list price, contract price, some random price the LL decides? And Generally how long does the TOPA process take, is there a 'if no response in 60 days then rights are forfeited'? And does this apply to all size properties, a 100-unit building would need TOPA from them all?

Hello Norma,

Most of your questions are very situational to a) Your State/County/Town and b) your lease.

First is the showing of property. Does your lease say anything when it comes to showing property? If it doesn't then check with your local laws. Now if it DOES say that she can show the property, and did give you proper notice, and the lease states such. There isn't much you can do, regardless of people being over or not. If this is the case I would text and email asking for an eta, something like "Hey I know you have people coming over to see the house...in order to not be in the way if I can get a time frame so I can be gone to help the showing that would be greatly appreciated bla bla bla". Something along the lines of "Let me know when, so I can help you". This probably isn't what you wanted to hear but will at least give you some sort of heads up.

Now the deposit is going to depend on your lease. There is probably something in there about locks, cleaning, painting etc that will be taken out of your rent regardless. Locks need to be changed, some landlords want a professional cleaning service before handing over to a new tenant etc. If she tries to overstep with the smoking, I would keep records of Emails mentioning the smoke, or text messages (printed from your wireless carrier) stating you brought up this (and any other) issues well before you moved out. That way if she tries to take more out of your deposit, you can point to the fact you have mentioned the issues well before moving out and she didn't try to fix.

What Patricia said about photos etc is a great idea so she cannot claim you trashed the apartment.

Hope this helps.

Congrats on the deal!
How did you find the property?

Hello Kevin,

I personally got started with purchasing my first property and then renting out a room to a local college student (Simple house hack). Mainly I did this because I was way in debt for student loans and needed to save more money to pay them down faster. And buying a house was cheaper than any of the apartments in the area. So a Win-win-win for me.

Next I had to move for work and decided to just rent out my first house and repeat the house hack on my second home I bought.

I then had to move across country for work and decided long distance management with the crappy company I had wasn't for me. Sold both for a nice little profit that paid off my car, wedding and half of my student loan debt.

Now we house hack again, and looking at getting a small (4-plex or less) property to begin the adventure on this part of the country.

Best of luck on your journey!