All Forum Posts by: Michael Wolffs

I'm renovating a triplex. In the process of interviewing contractors, one of them brought up the idea of putting laundry machines in the units. The alternatives are putting pay machines in the basement, or not providing anything. There are no laundromats in the immediate area, so not providing anything may be a problem for the tenants.

With the pay machines, the value is obvious (what you collect), however units in the apartments will likely be a good lever to get somewhat higher rents. I also tend to think the pay machines will be sturdier. For the in unit machines, beside the standard stackable conventional units, I'm thinking about single unit combo washer/driers (space saving, easier installation, and probably cheaper.) Again, I don't know how sturdy they are.

Does anyone have any experience with this. How does laundry affect rents (up the scale from nothing, to coin-op, to in-unit)?

Can someone (a local broker maybe?) give you the cap rate for the same class of property in the area? Then just do the math.

However, depending on the area, <5 unit buildings tend to value the same as SF houses. If that's the case, can you (or a broker), derive a value from nearby comps? For this, Zillow could be helpful (but probably not gospel.)

I know that. I'm basing my numbers on broker estimates (for whatever that's worth.)

My initial thought was to get all my cash out, based on the finished product being more valuable than the purchase cost + reno cost, and that the increase value would show in a mortgage appraisal, which would allow me to mortgage for all my out of pocket. I still think I can do that, in which case my cash on cash is essentially infinite (divide by 0.) But in raw dollar terms, my cash flow would be very small.

Now in most deals, it's my understanding that some money is left in the property, in the form of a down payment, which in commercial tends to be 25%. By that calculation, if I did this "conventionally" I'd be leaving $100K in the property (my target purchase + reno cost being $400K.)

Already RAVED for the May NY meeting.

Greg,

Point by point:

1. I don't think I'd have bought this building with tenants in place. It requires too much more to do working around tenants. I also saw the value to be gained by reconfiguring the the units, which, again, would have been impossible with tenants in place (especially doing the infrastructural work.) As far as bringing in professional management, I don't know if this pencils out for 3-4 units. If you have a case study showing how it does, i'd love to look at it
2. As one bedrooms, these units don't really work. To get them to be really useful/attractive one bedrooms I'd have to do pretty much all the work I'd have to do to make them two bedrooms, and from what I've seen two bedrooms get higher rents. And, at least for a while this area is not likely to be really upscale.
3. There's a time value of money issue here. If I take all my cash out, I don't get much cash flow, and can't support outside management. If I leave cash in, I lose use of that for the next deal. If I manage it myself, that takes away time from looking for and executing new deals. From what I'm hearing, real cash flow takes a lot of units. 3-4 unit buildings are never going to be a big cash flow engine, especially relative the their capital needs and management overhead, at least until you can get significant rent increases from startup (which can take years.). Maybe I should just get all my money, plus what profit I can make, and roll that into a bigger deal that has more long term cash flow possibilities?.
4. This is true. But there also seems to be as much, if not more, competition for cash flow properties also. In addition, would you rather try to manage 10x4 unit properties, or 1x40 unit (or bigger) property? What is more efficient? Which has better economies of scale?

As a professional manager, how much would the services of a company like yours cost for a property that had a $4-5000 monthly rent roll, with 3-4 units, in a startup situation? And are management and investing somewhat separate specialties?

I'm giving this project a renovation budget of $100K. That includes the conversion, and basically a full renovation on the entire building. That doesn't include creating a possible basement unit. I'm guestimating that will be another $20K. It was already finished once, but abandoned. However that means the rough ins are in place, so I have a head start on that.

My original plan was to mortgage out all my cash. So I'd have immediate payback. However, I can't do that, bring in professional management, and stay cash flow positive. I can basically do two of the three.

The current units have a single very small bedroom and bathroom in the back of the units. The entire front half of the units are a large living/dining room that has an arch in the middle of it. I've seen a couple of houses in this configuration, and many have put up a wall filling the arch, turning the front of the room into a bedroom. This is what I would do. I would also build a closet, which would be a simple bit of partition wall.

In addition, the second and third floor units have a smallish windowed anteroom off the front of the current living room area (which I will be making the second bedroom.) This is the space over the entry area on the ground floor. Currently these rooms are pretty much useless. They're too small to be a bedroom, and there's no place for a closet. The might be big enough for an office. But they're a good size for a bathroom.

There is water supply to the front of the basement (where the hot water heater is located.) and I'm pretty sure the drain line runs through the same place. So locating a plumbing stack for these bathrooms would be straightforward.

Going from 1/1 to 2/2 would probably raise the potential rents on these units by $2-300/month a piece.

As far as the cash flow, this depend how much money I'm willing to leave in the deal. I have cash to buy and renovate the building. My plan was to get a mortgage after the reno was completed. Based on estimates I got from brokers as to what the building would worth completed, I should be able to get a mortgage that will get me all of my cash back, and still be able to operate cash flow positive, but not by that much (approx $100/month.) Obviously as rents go up, that will improve. I can leave more money in the deal, and ratchet up the cash flow. If I leave $85/k in the deal (out of a planned $400K) project, I could be cash flow positive with a 10% management fee.

Thanks for the support. I was looking for a serious real estate investment forum, and hadn't really found one that had both knowledgeable posters and significant traffic until I found this one.

I'm a new investor. I'm in the middle of my first deal. As it currently sits, it's a vacant three unit bulding. It's currently 3 x 1bed/1bath units. I intend to convert these into two bedroom units, and add a second bath to at least two of the units. I also will look into adding a basement 1 bedroom unit, but I don't know if this will be allowable under code. When this is done, I'll need to make the hold/operate vs flip decision.

Since I get this deal under contract, I read a few books from one of the fairly well know "gurus." While I was somewhat suspicious, he made a number of good points. One of the key ones being that investors shouldn't be managing their own properties, and should bring in professional management, and go out looking for more deals (not spend their time dealing with management issues.)

My issue with this property is that with only 3-4 units, I don't think it will flow enough cash to warrant/support professional management, and still be cash flow positive. It's also in an area that, while not yet gentrified, may be about to start that process. So I'm thinking, I may be better off just finishing the reno, flipping this out, and looking for larger unit count properties that are already operating, and are more viable for professional management.

What does everyone here think about this?