All Forum Posts by: Jeffrey Wannberg

I recently discovered the previous owner of my property did pretty much the exact same thing to me. 30 units were on a month to month lease, and all due diligence checked out. 

The day before we closed, he issues a lease renewal to his buddy for 18 months. Plus he lowered the rent by $50 a month. I find its ironic he made sure he got full rate, but not me. He also did not notify me at all.

I figured it out when I tried to terminate his month to month status and out comes this lease. Surprise!!! But in the end I won against the tenant, I did successfully evict the tenant because of lease violations (he tried strangling another tenant and he was harassing others, but that is a different story).

As for the owner, I followed up with my lawyer. She thinks I have a good case against him. But all I could really get from him would be the difference per month than what he disclosed. This would really only be about $600. Although I would like to punish him myself in court, I did take others advice and let Karma take care of him. The $600 just isn't worth the time. 

So I think you will have to figure out what the real damages are from the lease extension and if it is worth the time. Also, if you want them out, can you find a place in the lease that they are violating, then use the process to get them removed? 

Thanks for the advice all.

I figured lawyer could handle this, so other than me obsessing and digging through records for the past couple days, it becomes only money from here on.

The seller is a sleaze. I almost had to sue him right after the sale because he wouldn’t endorse the money orders he collected for rent prior to closing. They were all in his name. His lawyer got him to comply before I filed on him. 

His life was these apartments and he can’t seem to disengage and retire. He just keeps popping up and meddling in this eviction I am trying to proceed on.

If I have to honor the remainder of the lease crammed by the seller, I have been told other tenants will leave.

We are trying to evict on the disturbing other tenants clause, but the seller came in and was a character witness for them. The judge issued a continuance until next week so my PMs can get statements from the other tenants.  If all goes well he will be out, if not I am stuck with him for 6 more months. Unless I try and buy him out.

So if I can claw back money from the seller I will have made him pay for the issue in the long run  

I just came across an issue from the purchase of a multifamily building and wonder if anyone else has seen this behavior before and what should I do about it. By the way, I have contacted my attorney for actual advice and next steps, but she hasn't gotten back to me yet.

I purchased a 30 unit Multifamily last November. The seller supplied me with the leases, rent rolls, and financials. I did due diligence and everything matched, there were no discrepancies. 

All the leases submitted in due diligence were already in month to month status. The seller never renewed any leases in his 30 years of ownership. The rent increases and stated rent were written on the old lease. Some of the leases were from 2001 to give you and idea how old they were. 

Rent rolls matched those numbers and financials also matched what he submitted.  

When we started getting rent, one of the tenants payments was lower than expected. I couldn't figure it out, partly because the old owner was really lax on leases and documentation. There was also some poor communication with the property managers and myself. But I just defaulted to the tenant until I could figure out the issue.

This tenant is also a problem tenant. So we are attempting to evict them, since I thought they were on a month to month status it should be easy, then out comes this lease. It turns out the seller issued 1 lease renewal, for 18 months, to this tenant days before closing. It was not disclosed prior to the sale. He also lowered the guys rent by $40 a month. He did this on the 1st of the month I purchased, meaning he didn't see any decline in revenue, but only I would get less. 

As to why he would do this. It turns out he has some kind of mentor relationship with this person. Has been looking out for him. 

I think this is fraud by the seller. He actually lowered the returns on the building intentionally to benefit this tenant. By changing the financials, he also changed the value of the building at purchase considering Cap Rate valuation methods. Technically he would also have been overpaid in rent payments for that few days at the beginning of the month.

I know this seems small and probably not worth the effort, but the seller is a bad nightmare that just keeps coming back up. Forcing this issue, if it is one, is a way for me to get him to go away. 

@Jason Bott

The issue that is causing the increase is around replacement cost and coinsurance. The values the buildings are insured to now are closer to the actual cash value (ACV) of the buildings rather than replacement cost value (RCV). When they use a coinsurance formula they say I am way under-insured and need to adjust the amounts.

(Amt of carried insurance)/(Amt of required insurance - 90% of RCV) X (Value of loss) - Deductible = Claim payment

($470,000)/($1,179,355) X ($40,000) - $5,000 = $10,940.92 would be paid out by Indiana Farmers

In total the 2 buildings ACV is around 1M. But to replace them they are estimating 2.5M. I believe it would probably cost that to replace the buildings, but not sure if you would want to. The area is class C and it would be tough to justify the cost to build new buildings. 

The increase in rates is mostly due to the increased insurance amounts. Not sure what I should do, right now they want $6k more a year.

I am looking around for insurance companies that offer insurance for an old apartment building (30 Units). The 2 buildings were built in 1920. I currently have Indiana Farmers, and the rates were inline last year with previous owner, but this year going up considerably. So looking to see others suggestions on where to look.

Thanks,
Jeff

I am looking for the same, property manager in Indy near Irvington. I own a 30 unit complex which I am working to keep filled and make improvements to the building. I am looking at replacing my current PM, but need to find someone interested in a small apartment complex.

@Ross Denman

@Derek Gendig

@Joshua Howaniec

Thanks,

Jeff

You are going to have to think about that some. I roughly calculated via your profile cash flows that each property is returning about 4.5% on your equity. That is why a 4.5 to 5% mortgage won’t change your cash flow as per your calculations. 

Bottom line you could be doing much better with the equity than currently. Just an example. My property is leveraged, my cash on cash return is closer to 18%. 

I take it the properties are the ones you currently list in your profile. What do you figure they are currently worth?  You also must have put all your payments in the past years to pay them off? I make that assumption from the amount you listed as invested and they don’t equal the purchase price. 

Yes that is correct.