All Forum Posts by: Shane Pearlman

Quote from @Joshua Christensen:

Good morning @Chris Kittle,

This is an important question and good on you for asking.  things missing in your list (everyone manages differently, so take it with a grain of salt)

Vacancy rate

Turn over

bad debt 

legal fees (evictions as needed)

accounting fees for professional tax prep

maintenance

Property Taxes

Sales Tax on PM fees (In NM, this is charged, not sure about where you are)

Reserves for replacement CAPEX - furnace, water heaters, ac, roof, parking lot, etc.

Admin, software, advertising, etc.

Cost segregation study for accelerated depreciation capture

As for your loan.  Even though rates are high right now, there is an allure to variable rates every time rates are in a down cycle.  That is something to consider.  On commercial loans, it is not uncommon to see 25 year terms or balloons in 5-10 years.  

Look for loans with lower prepayment fees if you refinance or sell early.

On an 8plex, a local / regional bank or credit union may have favorable terms with rates, term and fees.  

Best wishes to you.

In addition to the solid list from Joshua,

Typically LLC costs. These vary by region. That is basically an extra tax return, legal fees for setup, bookkeeping costs (if you aren't doing it yourself), possibly an umbrella policy. In some states it includes annual fees (like the 800usd for CA).

Turnover has both minimal repairs and cleanup. I wish it all came from the security deposit but that isn't how it always works out. 

Leasing. You also may have leasing fees, which can be as low as a few hundred fixed, but more often are a month rent. Also advertising costs.

On loans, I would hunt for an 5 year fixed interest only with low pre-pay penalties that you can refi when rates finally come down (hopefully).

Landscaping / snow removal is legit and is more viariable than you would expect. I've found you can negotiate a flat fee service at a slightly higher cost if you prefer consistency of cost over the risk.

Fees - not typically large but transaction and back fees can add up in to the hundreds, if not thousands depending on volume and plan type.

Income - additionals. We have late fees, pet fees (though less these days with the whole service animal abuse), parking fees in some cases, storage unit feeds, coin laundry revenue etc... it can add up.

Good luck. Don't be afraid to start with MF - although getting the loan might be tougher as they like to see experience.

@Kevin Sobilo - its more subtle. Their argument, if I understand it correctly, is that I have two buildings on the property. They judge one building a duplex, and the other two townhouses, by visual inspection. If the lot was split into three parcels, 2 units + 1 unit + 1 unit, they would be correct. And economically, they aren't wrong, that would be the highest and best economic outcome from a valuation perspective. But not from a cashflow perspective. And the reality is the lot is NOT split, and the real cost in doing so, the impact on cashflow and the risk to my loan make it an untenable effort unless I planned to sell right away. It's not quite the same as bare land vs hotel. Because the builds do exist. Where the argument hinges is on the lot separation. 

Thanks @Nik Moushon. Really appreciate the reply.

The two duplexes (as it sits) is definitely more of a viable argument from their side in my opinion. Although I would argue that using a duplex valuation is inaccurate due to market forces. Duplexes are worth quite a bit more per sqft than Fourplexes as there is a larger buyer pool and it opens to the non-investor customer. Whether or not the buildings touch, this would require someone with the wherewithal to buy 4 three bedroom units. Anyone anyone buying these is a commercially minded buyer and has a clear requirement for cashflow.

Sidenote, while banks and realtors consider residential 1-4 units, the county only sees residential as 1-3 units. For the purposes of property tax, they change formulas starting 4+ units to commercial models. 

In researching properties today, I found a number of examples in the seattle area where multiple separate buildings on one parcel are logged as "present use" with the total units. Two duplex = fourplex. 

Two duplex townhouses: Present use 4-Plex

https://blue.kingcounty.com/Assessor/eRealProperty/Detail.aspx?ParcelNbr=0993000930

Two duplexes: Present use 4-Plex

https://blue.kingcounty.com/Assessor/eRealProperty/Detail.aspx?ParcelNbr=7234600745

This triplex & duplex: Present use 5 Unit Apartment

https://blue.kingcounty.com/Assessor/eRealProperty/Detail.aspx?ParcelNbr=2767600595

In the end I am going to find and work with legal counsel on this. Will report back.

[Timely: appeal deadline Monday Nov 18 2024 - need to submit by Friday 15th - tomorrow]

The Property: I own a 4 plex in Seattle (magnolia) Washington bought in 2014. While it is legally a fourplex on a single lot, there are technically two buildings, a two story duplex and a side by side duplex with a walkway between them. One building was a 1920 house remodeled in 2012 and the second building was newly built by a contractor in 2012/2013. At the time, all work was done with permits and signed off by the city. I purchased the project mid flow for a discount and completed it with the builder.

The Appraisal: The 2025 property tax appraisal we received went from 1.66M to 2.43M (46.4% increase). I own a similarly sized 4-plex on the same street two blocks away whose appraisal dropped from 1.674M to 1.434M (14.3%) for 2025. All my other multifamily in the area went down between 6 - 15% for 2025. When I finally got feedback from the appraiser, it turns out they walked the property and decided it's not a fourplex, rather the "highest and best use" is a duplex and two townhouses. As such, they handed the lot over to the residential division instead of the commercial division, who then ran their own formulas. 

Ask 1 / Examples for Building our Case: I am formaluting my argument for the appeal and can use any and all advice. The deadline to submit an appeal is end of week. After discussing with the appraiser, their perspective is that the main argument I can make is by providing sales comps which demonstrate their value is out of line with the market. Which I will do of course. My concern is that I disagree with the methodology, and could use advice / specific use cases to build a convincing argument for the review board that you can't redefine use until it has been done.

It's a single lot. I have never performed a lot-split, nor did the builder. It was not my intention to do so, although I can see the value should we ever decide to sell. I totally understand that the theoretical highest and best use could be a duplex + two townhouses. And I am even on board with the idea that the value of the lot would be much higher if it was 3 lots. After all, more buyers and a bigger market, less worries about cashflow. BUT IT IS NOT THREE LOTS. They want to tax me on something which doesn't exist. And when I specifically asked if this tax valuation would guarantee me a lot split, they said it would not, and that is a city decision. It would be like charging you for a full remodel property rather than a hovel, because its highest and best use would be a swanky modern house despite never having upgraded it.

Ask 2 / Costs & Risk Involved: I need to calculate the impact of what a lot split would entail. I know thinking about what a lot split involves, but not in a strange scenario where the properties have been built since 2012, and we are just trying to adjust their lot / use. I need to know the avg cost involved more or less so that I might add that to my argument. King county is not a cheap place to operate. Are we talking 10k for some hand waiving and reviews, 30-40k for the engineering reports / planning and submission, or 100k or more. Any architects / planners with knowledge, I would be grateful for you 2c. OR if you know someone who would take a call today and chat it out for 15 minutes. Unfortunately, on a deadline.

Also what other expenses / impacts do I need to consider? I imagine a lot split would also significantly increase cost of utilities as now I would have 3 hookups in that scenario.

I am also concerned what would happen to that sweet 3.25% 30 year fixed mortgage I have, which I don't want to create any risk over in the slightest.

Any advice on how to frame my counter arguments would be incredibly appreciated. Thanks friends.

are these recorded? I'm not available then but am curious.

I am looking to form a relationship with a broker in the twin cities specializing in multifamily. I'd love an intro if you have someone you can vouch for. They should truly be experienced doing multi-family. I don't want to have to explain spreadsheets or why the deal they show me won't meet basic DSCR requirements. I've done 17 deals through my broker in Santa Cruz over the last 2 decades. Once I find someone I work well with who delivers, I work hard to earn and match their loyalty.

I own 4 buildings in Santa Cruz, CA and 3 in Seattle, Wa. I am planning to diversify the portfolio and would like to move some of our assets (both 1031 & net new purchases) out of CA and Seattle as they continue to pass some extremely challenging landlord laws. 

My primary business has our HQ in Minneapolis and I have a strong personal network in town although I don't live there.

I'd be looking for a smaller apartment complex or a few four-plexes to start. Budget 1-3M. The deal would have to cary itself with 35-40% down and have 20-30% upside once we have completed repositioning the units over a couple years.

I'm patient, experienced, and a very engaged investor. I moved to the Canary Islands a couple years ago, so I can't jump on a plane easily until the whole COVID situations truly gets figured out. That said, I operate all my properties from thousands of miles away as well as a software business with 130+ staff. I'm quite comfortable with remote.

Thanks for the help. =)

Hello my friends,

Looking for wholesalers / off market leads in Boulder CO and any advice on the market.

My brother and sister in law moved to Boulder a year ago for work and their lease is coming due mid summer. Rather than buying another SF, we'd like to do a deal together and are looking for a multi-family property where they can live in a unit and we rent the rest. Anything between 1-5M that has that can carry itself with 35% down and has strong upside is interesting. We both know the game. They remodeled their last two homes and now have renters in them (his job moved him every 3 years). I own a number of multi-family properties on the west coast and have the capital and desire to diversify. I'm not afraid of the price point in boulder as most of my properties are bay area and seattle. Either the math makes sense or it doesn't.

Any particular nuances to investing in Boulder I should know about? 

Any people I can connect my brother in law with to help grow his network and make this happen? Is there a good local meetup?

@Daniel Alvarez I love living here and typically build teams and a portfolio if it makes sense. At the moment, the loans are great but the market seems over heated. I have not been able to track down a really solid investment that pencils. Continuing to look but not with any rush.

We just moved to Las Palmas de Gran Canaria and love it. As is my habit anywhere I have lived, i’ve started scoping apartment buildings to buy. I have started my market research and have a ways to go to get to know the nuance and build the right team. 

Any local investors from the Canary Islands who I can cook a nice dinner for or buy you a beer?

@Jonathan Pflueger If you can come to tonight's meetup at pour, J Martin will be coming and has a large portfolio of short and mid-term business stays he manages in the bay area. You can pepper him with questions.

My own experience for short term rentals is very limited but more location relevant than the folks who replied (two properties : one in santa cruz and one in capitola). I did not find the demand for the short term stays in santa cruz. I was expecting the university / hospital etc to create the demand and we just didn't see it. It was mostly tourists looking for smaller timeframes.

I'm, not sure if the mountains have cracked down yet, but pay attention to permits and zoning rules. Santa Cruz has a moratorium on new vacation rentals. Capitola has streets designated for under 30 days and live oak has a max count per neighborhood. Youcan't just turn it on.

Long term rents in the area are at an all time high, and after I factored in the turnover cost, addition al taxes, wear and tear, materials, and management impact on my time, the additional profit (I calculated about 15%) was worth turning my fairly passive incomes into another job.