All Forum Posts by: Seth Borman

Vacancy didn't change that we noticed. We did the boiler upgrade because the boiler was taking $500/yr to keep running, and the downtime was hell on the tenants. The new boiler didn't have a repair bill and didn't require a minor meltdown once a year. Same with the AC in that house.

The added insulation is for tenant comfort. We try to offer a product that, while dated, is clean and comfortable.

Look up the Form Follows Finance Fourplex from R. John Anderson.

We bought a master metered 7 unit apartment in 2016 for $572,000. We put in heat pumps to replace the gas boiler, but again it is master metered so we couldn't get any more money for that. We implemented a utility recovery fee and increased the rent because of the AC. 

In another deal I replaced the boiler with a new boiler. We went from a 50% efficient gas boiler to a 96% efficient modulating, condensing boiler. AC and shoulder season heating came from an 18 SEER mini split (it was 2011 or so).

We owned that house for another six years and never saw a dime of increased rent because it was an efficient house.

We also do insulation in a lot of SFRs but that doesn't come up. 

Have you done this? 

The part I struggle with is "you then increase the rents..."

I've done some of this stuff for years but I've never been able to get above market rents on the basis of the building being more efficient. How do you communicate this value to the tenant?

Speaking as someone that underwrote hundreds of apartment acquisitions in a rent controlled environment, the entire business model was built around vacancy decontrol. You can assume some level of turnover and use cash for keys to increase it, but then you can put renovated units on market at higher rates and drive value.

You can't do that here.

 The cost of electricity includes the cost of the fuel that produced it, but like half the bill is transmission. If the fuel price doubles that could make the price of electricity go up by half. Depending on how you use the fuel that might or might not make much of a difference.

I've always believed that the tenant's financial stability is my financial stability. I had thought that 2020 would prove this to people.

I already converted out one gas heat property to electric so the only gas bill we have across over 40 properties is for cooking stoves and domestic hot water for one seven unit building. It's pretty cheap.

The cap rate really only works for people comparing the cash flows that the asset can provide. If you look at something as a land deal, or a redevelopment opportunity, or with some other things like rent control, it doesn't help as much.

For instance, if you are doing a covered land play you might see land that sells at a 4.5% cap based on existing units on the property. That doesn't mean that the existing units are super desirable, just that the cap rate doesn't accurately reflect how the property was valued.

 Yeah, it will lower property values... and property tax revenue along with it.

Clean the vent.