All Forum Posts by: Steve Olafson

Most experienced multi family investors don't use the 50% rule at all.  I use a model that is based on expenses/unit/year.

The categories are basically:

• Insurance
• Taxes
• maintenance costs
• advertising
• management
• salaries
• turnover
• administrative overhead
• utilities
• Contract services (landscaping and such)

You can bucket them however you want but you should have all of these in the calculation.  On top of this you will need to figure in $250-300 per unit per year for the capital improvements.  Perhaps you don't need them now, but you will have them at the ready when you do.

Once you calculate a number for your area, you can use that number repeatedly as your rule of thumb.  The biggest things that vary property to property are insurance, taxes, and utilities.  So you will want to get actual quotes/numbers on these items while you are under contract.

@Matt Cramer @Jarred Sleeth

I have been investing for about 18 years now.  Never did single family homes.  I rapidly built up to 1000 apartment units during the 2000's and subsequently lost them in the downturn. 

Started over from scratch a few years ago and just focused on value add deals.  Now I have about 50 units in two apartment buildings and a retail strip center.  Hopefully another retail center in the near future.

This is one of the best questions that I have seen asked on this forum.  I personally feel that many investors are going about this in the wrong fashion.

I make over 100K per year in cashflow.  That is set to go up in the next few months.  A refinance, another storefront lease, and perhaps one more purchase, the flow could be up around 170K.  That does not include one of the deals that is still in rehab mode and is not cashflowing yet.

There are so many concerned with a house here, a house there, perhaps a fourplex thrown in.  This will get you cashflow over time but there are faster ways to approach this.

BUILD CAPITAL FIRST!!!

It does not matter how you do this, just make money the best way that you know how.  If that means working hard on your high paying job, flipping houses, whatever.  I personally use value add apartment deals to make chunks of money.

Once you have enough to matter, say $250K, then you can leverage into something worth 1M.  Buy a strip center or other commercial building.  Or, buy an apartment building that has cashflow.  Better yet, buy some undervalued asset and make it cashflow even more!

I have had 5 different properties in high-crime areas.  Multi-family becomes very tough here.  Owners and managers are the rich and greedy people in conflict with the residents.  That perception is difficult to break.

I only buy in good locations now.  Much easier and actually turns out to be better cashflow.

I had enough drug dealing, shootings, assaults on the managers, stolen autos, keyed cars, graffiti, and verbal altercations to last a lifetime.

There was one manager that was very successful with the residents.  He hosted easter egg hunts, barbeques, and other events.  He was a total tenant advocate but that did get him in trouble at times.  All - in - all, he managed a great cashflow property.  But, it is not easy to do what he did.  He was above and beyond in his duties and time for the company.

Do we have any idea how many people will be at the meetup?

This can't be right....  I am a high school dropout and these questions were beyond easy.

Those are fantastic rents!  If you can get a good grasp on the property, I believe that the value will go up.

If you are having a hard time getting everything under control, you could always sell and take the money another direction.

Make some contacts with the local apartment agents.  Have them meet you at the property.  You can get a lot of good information from some of them.

 I pay my guys between $14 and $16 depending on their skills and whether they are AC certified (that is important in Arizona). 

A lot of people think that they can fix anything but cannot do it fast and economically.  A good apartment maintenance tech can do almost anything in a rapid fashion to get an apartment ready to rent.  That includes paint.  My guys can install flooring and tile (shower walls and floor) which is good to have.

I cannot stress the importance enough of having someone experienced in apartments in this role.

Given the information that you have, it is important for you to understand the value of the property on today's market.  Talk to an agent that specializes in apartment sales.  They always want to make contact with owners and will have a lot of information for you.

If the value is there, the bank might be willing to loan you more money to get some of the critical repairs done. 

Finding the resources to get these repairs completed are important.  You cannot just go out and hire an HVAC company to put new systems in.  It will cost too much in most cases!

I don't have any problem telling the vendors that it is not easy to make money on apartments and that I need creative ideas to keep the budgets down.

I had my maintenance guy get certified in HVAC. I then hired someone to install a couple of units.  I paid him extra to teach my guy how to install.  I still hire the HVAC guy to do some repairs and for consultation.  He is now a golf buddy of mine and we have a great working relationship.  AND, I get my systems installed for a lot less money now.

Is your handyman an apartment specialist?  There are maintenance personnel that have experience in servicing apartment needs.  You will learn with time where the best places are to put money into the units.  But if you have someone that can fix anything in apartments at a good price and you support them with supplies, that can really help your bottom line.

I am not suggesting that you change out a good person, just that you evaluate it. 

It has taken me many years to learn the best way to fix and upgrade.  Couple this with good marketing and leasing and you will have the competitive edge.