All Forum Posts by: Josh Sterling

In my area most SFRs are 3/1 so we try to stick to that but I have found that the 2/1 seem to rent well, we are just working with a different tenant base.

Our apartment building is almost completely 2 BR units (There are only two 1 BR units in the entire building). I thought this would be more desirable when we purchased, but I turn down several calls a week from people looking for a 1 bedroom unit because ours are full while we have vacancy on the 2BRs

My wife got her license about a year ago. I looked over some of the class and was surprised how little of it was related to actual, real life, real estate. It seemed like a lot of the material was abstract and would not prepare you for the actual duties of becoming a real estate agent.

I would ask myself:

"Why does he want to liquidate?" Usually there is a pretty good reason and you may find yourself to be a motivated seller in the near future if you bite.

You will see cash-flow sooner in the rent ready property (obviously) and it will be easier initially. The rehab will probably not be as high quality.

In the complete rehab property it will probably end up being less of an investment overall and you will get a higher quality rehab.

We have mostly gone with the full rehab properties, as we feel it is a better value in the long run. Occasionally it is nice to pick up the rent ready property (maybe 1 in 10) just to get the instant cash-flow. Just be sure it is not a lipstick on a pig remodel.

In one of John T Reed's books he talks about how a person can manage 30 or so units on their own, maybe up to 40 if they are superman, but after that it becomes overwhelming and they need to put systems in place and have other people take over some of the workload.

I agree with what @Marcia Maynard said above. Depending on the way you manage, somewhere between 10-20 units becomes difficult. You are too small to hire someone and too big to handle everything yourself.

My experience was as follows:

1-4 units: Anxious that rents wouldn't be paid and no major issues would come up. Any unplanned vacancy or unforeseen maintenance issue could be all of the cash flow for several months. All work completed myself

5-15 units: Less worried about unforeseen issues occurring. Started to develop and understand the systems and act more like a business. Ex. If someone couldn't pay rent, they get a 7-day notice. If they have to be evicted, it is only 10% or so of scheduled gross income. If something breaks it is still only a small percentage of overall income. While some problems seemed to occur in groups, it was still easier to manage because there was always a significant portion of the business running normally. Started to hire out handyman and rehab work.

15-30 units: Systems are in place. The worries and anxiety are less, but the workload has increased significantly. While I don't like it when there is a vacancy, turnover, or maintenance issue, I understand that it is just part of the business and go on with life. A call comes in, I dispatch it to the appropriate team member (handyman, plumber, electrician, accountant, lawyer) and pay for services when billed. There is also the benefit that I use the same tradesmen regularly and start to get preferential treatment. Also switched to property management software. I no longer do any maintenance work at all, just answer phones, do showings, manage contractors/tenants. But the bottleneck in the system is starting to become apparent. It is me.

30-50 units: It is obvious that I should to hire a person to take over the day to day operations. Not because it is a ridiculous amount of work, but because I have to be there everyday. Someone to answer the phones and direct calls to the appropriate tradesmen, someone to do showings, someone to do bookkeeping. The problem is that a full time employee would take a large percentage of the cash flow, the calls and showings are sporadic but last longer than the standard 9-5, and it still doesn't seem like enough work to have someone sitting in the office all day long. Feels like I am stuck again. The true test of a successful business is one where the owner could go away for a month and come back to the same operation he left. This would not be the case for me. Seems like the only option is to grow.

This is where I am today. (btw I still work a full time job)

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The plan is to grow the number of units, possibly by starting a property management company, and also by continuing to purchase for myself. I believe that if we can get to 120-150 units under management we will be able to justify a staff of 2-3 full time people and free myself up.

I'm sure there are other issues that will come up at that size and larger. I would love to hear the experience of anyone who is at that point.

Long post I know but that is my real life experience. I hope it helps you.

I'll be there, might bring the wife also. Looking forward to meeting everyone

does anyone have a sample purchase agreement they would be willing to share to point me in the right direction?

We have reached an agreement with the seller on the purchase of an apartment building, and are now in need of an official purchase agreement. This deal will not have a broker involved for either party, therefore we will be responsible for all duties normally preformed by the broker.

Who typically prepares the purchase agreement in this case? The buyer of the seller?

My wife is a real estate agent, and may be able to obtain a generic commercial purchase agreement from her broker, is that a good starting point, and then we can have an attorney make adjustments from there? Or should we just start from scratch and have an attorney draft everything?

Thanks,

-Josh

thanks for all the responses. I figured that technically there is nothing wrong here, it is more of a moral issue. I will try to get a copy of the listing agreement as part of my due diligence. If I can verify that the protection period has expired by a significant amount of time, then it will just be a question of doing the right thing.

I would hope that this will be the first of many larger purchases, so I will make sure not to burn any bridges and let the broker know exactly what happened, as Adam mentioned.

If we decided to pay him a referral fee, or negotiate one in that the seller must pay, what would be a reasonable/fair amount as a percentage?

Thanks again for all the responses.

background:

About 2 years ago a commercial broker whom I know through friends showed us a building he had as a listing. We liked the property and entered negotiations with the seller. As it turned out, when we met the owner to view the building, we found out that he had gone to school with my wife and they knew each other. Shortly after we submitted an informal offer, the seller decided that they were not going to sell the property after all (the market was rapidly improving). We went our separate ways, the listing must have expired, and we thought nothing else of it.

Fast forward to this week (about 2 years later) the seller contacted my wife to see if we were still interested in buying, as now they are ready to sell. The building is not listed with anyone and has not been for quite a while and the sellers would like to do this deal without an agent/broker to save the commissions.

Is it wrong for us to proceed with the deal? We would have never known of it if not for the listing broker. On the other hand, it turns out that my wife knew the sellers, and the listing has long since expired.

Should we go through with it and then give the listing broker a referral fee as a show of gratitude? (Which obviously would have to come from our pocket as opposed to a traditional transaction where the seller pays the commission)

What do you think?

Josh