All Forum Posts by: Ken P.

There is a similar situation near me where an investor bought a short term rental house, rehabbed it, ran it for a while, and then got in trouble with the town after a neighbor complained and the town said short term rentals weren't allowed in the community. Despite the house being operated for years by the prior owner as a STR. No decision yet, but it's looking good for the investor, as they were able to find about 20 other houses in the area that have been operated as STRs for years with no complaints. The STR owners have banded together and are meeting with the town as a group, and it looks like the town will adopt some STR rules allowing and setting guidelines for STRs.

Good luck with your situation.  Keep us posted.

@Danny M. just checking in to see how things are proceeding on your plans.  The 8 month time frame you gave yourself for education and saving prior to investing is coming to a close soon. Have you decided on your first RE move? 

It's snowing here in metro Detroit today, and more is expected over the next few days, so stay there in South America a little while longer if you want to completely avoid this winter.

As others have noted above, 100% return over 5 years had been a reasonable return expectation for the 10 year period leading up to 2022.  When interest rates and interest rate caps surged in '22, the values of MF assets began falling, so deals being sold now in many cases are not delivering that same return. The price decreases are due to both the decreased returns to investors possible at a given price point as the cost of debt financing increases, as well as some dumping of assets due to redemptions (looking at you, Blackstone) and the inability to refinance properties that had been purchased in 2018-2021 with high leverage floating rate debt. When the tide went out, who was and wasn't properly dressed for swimming was exposed.  If the operator who has debt maturing in 2023 or 2024 was properly conservative, they can sell and deliver gains albeit lower than in the past, or refinance, continue to pay dividends, and hope to sell in 2025 or later with good capital gains. 

For new money going into MF in 2024, there is the possibility to benefit from the financial distress of forced sellers by purchasing good assets in growing markets below the cost of replacement and holding until a fortuitous time to sell, while harvesting ongoing dividends.  2023 and 2024 have been a wakeup call that the operating team must have a long-term hold plan that allows them to hold the property profitably until selling at an advantageous time of their choosing. 

I agree with @Ronald Rohde, it sounds like simple battery Schlage keypad deadbolt locks would be a good fit.  We've used Schlage BE395 keypads for years on commercial properties, with different codes for different tenants, maintenance personnel, etc., allowing us to easily remove access when a tenant moves out or there is a personnel change. Just change the 9V battery once a year using a good name brand battery and you'll be all set.

Shanea, there is no relationship between your primary residence and any loan on that and a commercial loan for the 6-unit apartment building.  You can rent your primary house out and live elsewhere at any time, as long as local regulations allow (e.g., some HOAs do not allow rentals in the community).  Hopefully you would only do that if it makes financial sense to do so, such as having rental income high enough to produce positive cash flow after accounting for all expenses.  

On the commercial loan side, for the 6-unit building, most lenders are going to want to see a business plan that makes sense with the building fully rented, of course with some projection of lost rent.  If you plan to occupy one of the units (house hack), then either the rent from the remaining 5 units should be high enough to still make a positive business case, or you will need to pay rent to make the numbers work.  If you're entering into this transaction with business partners and a commercial lender, the deal has to guarantee the lender and your investors that they will be paid back and receive a return on their investment, respectively, with house hacking a nice-to-have if the deal can support it.

A lot depends on how organized you are, the quality of your team, and how good you are at screening potential tenants. I self-managed 25 LTR units while working in a very responsible engineering management position before finding a good part-time property manager to help carry the load, which allowed me to grow further. We made sure our units (apartments and houses) were in perfect condition, never pushed rents to the very top of the market, which assured we received lots of applicants, and would gladly leave a unit empty for an extra week or two until a great tenant came along. This minimized tenant drama, and maintenance headaches, which made the workload manageable. Good luck as you grow your portfolio.

There are a number of expense categories that can trip up a multifamily investor during underwriting. To name a few:

- Taking proforma or even rent actual numbers at face value. If you know you need a certain quality of tenant to achieve the rental income, make sure the stats of the current tenant base meet the minimum criteria expected; e.g., rent to income ratio, credit score, bankruptcy history, etc.  "Pump and dump" by pumping up occupancy with substandard tenants is not unknown.

- Maintenance.  "Everything is updated, that's why our maintenance numbers are so low."  Go with industry standard numbers, not the numbers the seller provides.

- Personnel costs.  See above. Use industry standard numbers for the market as provided by 3rd party property management companies, not the numbers from current ownership.

- CapEx. Walk the property with your preferred contractor when getting it under contract. During due diligence, inspect every system and every single unit.

Who is the audience for your underwriting, it's not clear from the question.

I set up auto payment from my bank to the seller's bank, with his bank account # on the checks.  One month's check did go missing one time about 5 years into the loan, and I had to stop payment and have a new check cut.  The banks are literally across the street from each other, but of course the checks come from some processing center half way across the country. 

 Hi Elizabeth.  The house is on Jefferson Avenue in the Gaslight District, just a short walk from the shops of Clifton / Ludlow.  It's about 10 minutes' walk from campus. We felt pretty confident that the house was in a safe area when we bought it because we'd looked at the crime maps of Cincy, looked at lots of other student rentals around the area, and walked some of them at night.  The Gaslight District is sought after for single family owner-occupied houses, so if people are spending serious money to live in the area, it seemed like it would be a good place for our daughter and her friends to live, which turned out to be the case.

 Thanks for the kind words.   Best wishes on your UC rental endeavor.  Doing a full gut renovation as first real estate investment is not for the faint of heart.  If you succeed with a project of that scope on the first go, you've likely got a bright future in real estate investing ahead.