All Forum Posts by: Nathan Tabor

What is the first thing you do when you build a house?

Did you think the foundation?

Well, there are “99” things you must do before digging the foundation.

Why do we immediately jump to the foundation as the starting point? It’s the first thought which comes to mind but that doesn’t mean we should always go with our first thought.

We all need to work on avoiding the “first thought” in our lives and in our businesses.

Why? Because when we start at the wrong point, we can’t get the results we desire. We ultimately waste time and money and we create issues we must resolve.

Read these questions and consider your first thought compared to the answer given.

- want more money? What’s your first thought?

What about - Start with a budget and live within your means.

- want better relationships? What’s your first thought?

What about - Spend quality time with your loved ones.

- want better health? What’s your first thought?

What about - Eat better and exercise.

- want a better relationship with God? What’s your first thought?

What about - Study His word and pray.

“The solution to most of life’s problems are simple, the hard part is implementing the simple solution.”

"People may doubt what you say but they will always believe what you do."  

If someone is working with you because of the shirt you wear or the car you drive then you need to RUN from them.  Why?   Because they only care about outward appearances. 

Be fair, be respectful, be honest and you will be amazed at how people respond to being real. 

Joseph, thanks for the questions.  Yes, I use this formula on all deals I do.  The profit could be cash from a flip or it could be monthly cash flow or it could be a combination of both.  

The question of "What do I pay for a troubled property?” is a hard one to answer unless you know the process. The process I use is backing into the value.

Here’s how you can do it:

First, put all the financials you received from the seller to the side.

Second, establish the NOI by calculating your own numbers. Be sure and use conservative rent amounts and liberal expenses.

Third, establish the cap rate for your property.

Fourth, determine holding and carrying costs.

Fifth, determine cost to renovate property.

Sixth, establish the profit you want to make.

Seventh, establish the cost to sell (broker, taxes, etc)

Wa-lah (Voila), now you have the full picture you need!

Now, take these numbers and calculate the value of the troubled property.

Here’s the formula:

Value of Stabilized Property (NOI/Cap rate) – Cost to Renovate – Projected Profit – Holding/Carrying Costs – Broker Fees = Value of "Troubled" Property.

The Value of "Troubled" Property = your OFFER PRICE!!!

Duke Energy owns the meters which means they have to repair/replace them.  When you first contact them though they will say NO!  However, if the meter box is stamped Duke Power (or a power companies name) they have to repair/replace them.  

I've had two deals where Duke Energy had to replace meters.  One was 40 meter boxes ($84,000 dollars) and the other was 113 meter boxes ($237,300).  This meant I made that money because I didn't have to spend it.  *Part of the deal for them replacing/repairing the meters is I had to sign a document stating going forward the property owned the meters. 

@Dan Handford thanks for organizing this event.  I look forward to presenting on the 19th. 

@Grant Rothenburger it depends on each piece of property.  It's one of those "things" investors never think about until they are having to write a check.  Since it only takes a few minutes to varify during due diligence why not do it, right?  

If you are renovating apartments which are over 20-30 years old do you know who owns the power meters? 

@Grant Rothenburger should I make you wait for my presentation? haha  

Here's the issue.  If the city/town/municipality/etc doesn't "own" the fire hydrants they will not repair them or service them.  If the property owner "owns" the fire hydrants then they are responsible to repair and service them.

I purchased a 66 unit complex on 13 acres.  There were 4 fire hydrants.  I just assumed they would be kept up by the city.  Unfortunately they were not.  The road into the property was private and the hydrants were on private property.  Thankfully there were no issues!  However, had there been issues, I would have had to pay for them.

To replace a fire hydrant is around $3-8k plus permits.  The cost to replace piping would depend on the lay of the land and length. 

Think about fire hydrants in housing developments.  You buy a house and there is a fire hydrant in your yard.  Who pays to fix it? :)

@Joe Fairless thanks for hosting The BEST EVER Real Estate Investing Conference.  I'm honored and priviledged to be speaking on finding, fixing and flipping apartment complexes.  

I've been involved in 26 multi-family transactions since 2006, generating over $52 million in gross sales.  I've raised over $1 million dollars from investors and have consulted on real estate deals worth over $200 million. 

My niche is class C complexes with high occupancy and major deferred maintenance issues.  My focus in helping those looking to get into multi-family or who are looking to expand their portfolio.   From making sure their business plan is current to making sure due diligence is done properly.  

Have you ever considered who owns fire hydrants? 

Have you ever checked the zoning on a property yourself? 

Do you have a current business plan?

If you want to meet in CO send me a message.   See you in CO!

1.Raise Rents

There’s an art form to renegotiating lease increases. The tenant must feel they are getting the best deal possible and even some perks to the deal. Discuss with the tenant about having timely maintenance and the desire to work together. Run an incentives program for those who pay on time. As you renegotiate the terms of the lease, make sure the tenants know the quality of renovations and how their new apartment is going to look.

2.Cutting Expenses

For every $1,000 that you save a year, you have increased the value of the property by another $10,000 (10% cap rate). Review every expense for the complex and determine what can be cancelled or trimmed.  Then renegotiate contracts with vendors.

3. Laundry Facilities

I owned a 56-unit apartment complex that didn’t have washer and dryer hook-ups.  So, I converted one unit into a laundry facility. I ran my numbers and knew that I would either break even on the laundry facility or possibly lose up to$100 a month. I went to each tenant and asked if they would they sign a lease increase of $25 a month if a laundry facility was provided. On the first round, over 80% of the current tenants signed a lease addendum stating they would pay $25 more a month once the laundry facility was open. That was a $1,100 increase in rents per month, which meant over $13,440 a year. Let’s assume my numbers were off and I lost $300 a month. That would be $3,600 a year loss, but I would still have more than a $9,800 gain per year. On a 10% cap rate, that made the property worth $98,400 more!

Some laundry companies will put the machines in for you and service them. You can search on the Internet for a company near you. Mac-Gray is the company I’ve used numerous times.

4. Cable Television

Cable companies will give you bulk pricing if you contract for all units to have cable. Cable companies will charge a flat rate to activate cable services in all units. This can help you increase rents IF you have negotiated it with the tenants. However, if you add it and make it available then try and raise rents, your conversion rate will not be great.

5. Quality of Appliances

For years, I went back and forth on buying used appliances for $400 a set to buying new appliances for $900 a set. The money I saved up front, I usually lost in replacing broken appliances. However, when I had new appliances installed, I always rented the unit for more money.

6. Updated Kitchens/Baths

Where you cook your food and wash your body is very important when making a decision about where you are going to live. Make sure you renovate the kitchens and bathrooms to the best quality that match up to rents. If you cut corners here, it will reduce the rental amount for your units for and it will decrease the value of the complex.

7. Landscaping/Flowers

Your apartment complex is someone’s home! When you approach a business and an opportunity to make money, you look at the surroundings. The person living in your complex or potentially looking to move in views this as their place of residency… a place where they will entertain family, raise their kids, and invite friends to cook out.

Invest money on the outside of the apartment complex, and it will pay off in the type of tenants you attract. Plant some perennial flower beds and some flowering trees. Keep the beds mulched and weeded year round for the best appearance. Always keep any grassy areas mowed and trimmed regularly so that the landscaping is appealing when tenants arrive home. Pride in the outside of the property will also build pride in the inside.