All Forum Posts by: Stephen Swiatek

@Ben Leybovich Know you mentioned stainless steel appliances and I love the look myself. Had my eyes opened the other day though on a new apartment bus tour I went on and saw many of them going with black appliances. When asked for the reasoning they all came back with the same thing and that was that stainless looks great but stainless shows every little scratch...especially with the fridge magnets. Consensus was same rents with black and less maintenance costs and just look better over time. I know black tends to be a bit lower in cost so this may be of help...

Appreciate all the discussion around this topic...certainly are some differing and charged opinions on this one.

@Ken Breeze you have some very good points noted above as well as some of the freedoms we give up in allowing this type of technology to expand within our communities. Having the EU ban these devices makes me think even longer at deploying these devices throughout our properties. I know you mentioned video or audio surveillance isn't allowed but if I remember correctly when I was over there it seemed a lot of the streets have governmental surveillance already in place so maybe it's just that they don't want the public to be able to surveil one another.

@Caleb Heimsoth I certainly understand your hesitation with the implementation of these devices around the apartments you live in...if I lived in an apartment I would have these same concerns for my privacy as well. I know it seems like nothing out in public is private anymore but allowing more of it to be concentrated in a single place just allows more "eyes" to capture every moment. 

@Guy Gimenez you are right about there not being any privacy in a public place but as I mentioned above to Caleb by placing more of these devices around it definitely adds to the overall amount of collected data for a specific place. But, with this said, it seems like our society is more and more comfortable with having this type of surveillance and so I'm sure we will continue to see more and more of this type of technology being implemented. 

BTW...my OP was based on one of our residents asking to install this on the building for their own surveillance and of their entrance and vehicle just out their door...I wasn't sure what the prevailing consensus would be and I don't we have one yet :) I decided to tell her to hold off for now citing privacy concerns for the residents around her.

@Derek Gibbs completely understand your desire to not shake the boat too much right in the beginning. BTW having mo-mo leases is a good position to be in as you can get a gauge of who’s paying/not and then decide who gets to have the longer term leases and who you will move on from. On the flip side, if the residents decide they don’t want to stick around they can give you notice and be out in a month most likely so possibly less stability in the beginning.

I would strongly advise you reach out to the top brokers in your area and build a relationship with them so you can ask and get a feel for what the going caps are...can also do the same with the property management companies. 

2nd, I would continue to look around for better financing as I believe you can do much better...reach out to the local and regional banks if you haven’t already done so.

Stephen 

@Derek Gibbs Are the numbers you posted below from the current owner? If so, I'm seeing the expense ratio to be 53.27% and not 65%...$5,020 gross rents @ 5% vacancy = $4,769/mo w/ expenses of $2,540.67. I took the vacancy from the income side and backed it off the expenses. If these numbers are how the property is currently performing then it's real close to 50% exp ratio. Taxes do seem high but then again I live in CO where the taxes are crazy low compared to the rest of the US...

Also, I don't know what the cap rates are going for a class C building in Ann Arbor but it appears they have this one listed at an 8 cap if the numbers you gave are their numbers...while you want to purchase at a 9.38 cap. If it's 8% for this property class then you may have a hard time going in at your cap if they know what they are doing.

As @David Wright mentioned, I would go with a longer amortization period like 25-30yrs which will increase your cashflow as well as looking for a better rate than 6.5% which will also increase monthly cashflow.

I agree with what @David Wright & @William C. mentioned in that you can get your units up to market rent quicker than $50/yr but of course this would require either the current residents to accept the full rental increase to market with their new lease or getting new residents to replace the ones who don't accept the increase. This goes without saying that you'll have to abide by the current lease amounts until they expire.

With this said, if the numbers are a good representation of the property and area and the cap rates for this type of building are around an 8 then the $335k list price seems reasonable. If you were to purchase at list and put 30% down with a 30yr amort. and 5.5% rate you would have at least 8% CoC return. If you were to get all the units up to market without having to put more than the $5k you have listed it would turn into a 15% CoC return and a value of $470k at an 8 cap.

Hope this helps!

Stephen

@Account Closed The last I checked Michael Blank’s deal analyzer was running $129 and well worth every bit of it as I mentioned.

@Dan Handford Great points you make and I can also see the resident’s side as well. I believe we are in the transition period where not enough AI has become commonplace yet to where most of the population is OK with having the possibility of their movements in and out of their apartments monitored by others. Still not quite sure where this falls in the legality side but do believe we are headed in the direction of more monitoring and not less and with this this type of technology and others like it will become acceptable over time...not saying I’m completely for it as I tend to like my privacy but I can see the benefits too.

@Account Closed I don’t have any experience with their analyzer but do with Michael Blank’s Syndicated Deal Analyzer. His is quite thorough and even goes as far as to be able to structure in the numbers for syndicating the deal, different loan scenarios, acquisition costs, investor returns, exit strategies, and other important items. It’s right around the same price and I have found it to be invaluable.

Stephen 

It certainly is a different game than SFRs. My recommendation would be to build relationships with the top 1-2 commercial brokers from your area. In order for them to take you seriously I would make sure you begin to know the MF lingo, if you don’t already, and be responsive when they send you deals they have...most folks don’t even get back to them so if you are doing so it already puts you at the forefront.

Stephen 

Armando,

Looked through the numbers of what you gave and see the following:

You purchased at roughly a 83% occupancy or 17% vacancy and are looking to take the property to 100% occupancy (though 100% can be done, at least a 5% vacancy factor should be used). So what I see you doing in your value add is increasing occupancy and rent per door through renovations.

With this said, after renovations are done I see a annual gross rent of $182,400 = $800/unit x 20 units x 12mo x .95 occupancy. $182,400 x 50% expense ratio as you had it = $91,200 NOI / 6% CAP = $1,520,000 valuation ($520k in value added) x 75% LTV refi (could be higher or lower) = $1,140,000 new loan amount. At the refi, to answer your question, you would walk away with $1,140,000 - payoff of current loan ($452k?) - closing costs.

If I'm reading it correctly you have a current loan amount of $452k and put down $548k while looking to put roughly $80k in renovations. If this is right, you would have $628k into the deal. So you would recoup your $628k and have just a small amount left over after closing costs are factored in.

FYI...There is a bit of a flaw in your $42k/yr annual income increase as the 50% expense ratio hasn't been applied to it. Model 2 is a more accurate representation of the value added...though I would add in the 5% vacancy instead of being at 0%.

Annual rate of return, based on amount put into deal/NOI, is a good calculation for returns up to the point of refinance and then it goes out the window...IRR would be your best formula after refi.

Hope this helps!

Stephen

Want to see if anyone has decided to move forward with installation of Ring doorbells at their apartment communities? And if so, did you have to mitigate any legal/privacy concerns for the other residents?

The doorbells/video would be focused on the outside personal entrances of each unit but also the parking lots which would also capture the coming and going of the other residents in the community.

Thank you for  your input!

Stephen