All Forum Posts by: Thomas Higgins

Nowhere in 2023... unless your intention is to buy low, limp through the next 18 - 24 months, and come out strong on the other side I would hold off on adding any more STRs and cut away any of your "losers." There are always home runs that will continue to perform but the vast majority will suffer. 

If you need to invest in STRs I would suggest markets that provide essential travel clients (exp nurses) or low-cost travel alternatives (Tier 2-3 cities). During a recession luxury markets historically struggle.

I also am still a firm believer that every STR should stand on its own as a normal LTR given the real legislative risk all STRs face both from local community boards and Hotel Lobbyists. With Airbnb's recent announcement of partnering with large developers Lobbyists in Tier 1, and 2 cities are going to be more active than ever. Short-term arbitrage should actually be arbitrage not baked into the day-one underwriting.

Quote from @Khari F.:

Quote from @Thomas Higgins:

Quote from @Thomas Higgins:

Quote from @Mike Dymski:

The rent comps will provide your answer.  If there are other renovated units in the area generating a premium, go for it.

I agree! Look at what the locally improved comps are getting. In my experience the largest value drivers are (in order):

Adding additional bedrooms when you can
Washer dryers in unit
optimizing utilities (sub-metering, switching Hvac/appliances to electric when direct gas metering isn't possible) 
Stainless steel appliances 
New lvt flooring
White cabinets (painted or newly installed)
backsplash
Fresh flat white paint
Quartz counter tops (or modern Formica - market specific)
updating bathrooms / reglaze 

Its not a hard and fast rule but if the property hasn't been renovated in 20+ years it's rare that some or all of the above won't force appreciation especially in Columbus!

 The math is straightforward:

If the cost of x improvement < [monthly rent increase * 12] / spot cap (investors targeted yield on cost), then make the improvement

For example: adding an electric ventless, stackable, LG washer dryer, including rough-in, will be about $4,500 that will, in my experience, increase rent by $50+ a month based on comps (market specific)

4,500 < [$50 x 12]/.075 (@7.5% cap rate = 8,000) -> for me, this improvement would be worth it. 

Rinse and repeat the above ⬆️ Done correctly you will be able to avoid over improving the property. Know your comps and know your reno costs. Hope that helps.

 Is there a source for this formula?

If Renovation < NPV of improvement proceed 

R(t) = increased rent* this is a simplified assumption because it doesn’t take into account the additional operational expenses a new w/d would cost (minimal)

Discount Rate = spot cap rate 

t = 1

*disclaimer - this is how I think about it and not investment advice. For informational purposes only. 

Quote from @Thomas Higgins:

Quote from @Mike Dymski:

The rent comps will provide your answer.  If there are other renovated units in the area generating a premium, go for it.

I agree! Look at what the locally improved comps are getting. In my experience the largest value drivers are (in order):

Adding additional bedrooms when you can
Washer dryers in unit
optimizing utilities (sub-metering, switching Hvac/appliances to electric when direct gas metering isn't possible) 
Stainless steel appliances 
New lvt flooring
White cabinets (painted or newly installed)
backsplash
Fresh flat white paint
Quartz counter tops (or modern Formica - market specific)
updating bathrooms / reglaze 

Its not a hard and fast rule but if the property hasn't been renovated in 20+ years it's rare that some or all of the above won't force appreciation especially in Columbus!

 The math is straightforward:

If the cost of x improvement < [monthly rent increase * 12] / spot cap (investors targeted yield on cost), then make the improvement

For example: adding an electric ventless, stackable, LG washer dryer, including rough-in, will be about $4,500 that will, in my experience, increase rent by $50+ a month based on comps (market specific)

4,500 < [$50 x 12]/.075 (@7.5% cap rate = 8,000) -> for me, this improvement would be worth it. 

Rinse and repeat the above ⬆️ Done correctly you will be able to avoid over improving the property. Know your comps and know your reno costs. Hope that helps.

Quote from @Mike Dymski:

The rent comps will provide your answer.  If there are other renovated units in the area generating a premium, go for it.

I agree! Look at what the locally improved comps are getting. In my experience the largest value drivers are (in order):

Adding additional bedrooms when you can
Washer dryers in unit
optimizing utilities (sub-metering, switching Hvac/appliances to electric when direct gas metering isn't possible) 
Stainless steel appliances 
New lvt flooring
White cabinets (painted or newly installed)
backsplash
Fresh flat white paint
Quartz counter tops (or modern Formica - market specific)
updating bathrooms / reglaze 

Its not a hard and fast rule but if the property hasn't been renovated in 20+ years it's rare that some or all of the above won't force appreciation especially in Columbus!

@Paul Winka I have a good law firm in Pittsburgh that we have used for similar situations. Feel free to DM me for contact! 

Hi BP community!

We are in contract to purchase a distressed 5-unit property in Columbus, Ohio. During our due diligence process, we discovered the property has no building Certificate of occupancy, variance, or any paperwork on file with the city. The property is located in a C4 district (commercial use not residential multifamily). The property was built in 1960, so it is not grandfathered into multifamily use. 

We retained an attorney and been advised that the property will need a hardship variance to operate legally. He believe that it will be a straightforward process that will take 3-5 months. I have direct experience in other markets with receiving variances and know there are often trip wires or unexpected costs that one can run into.

I was curious if anyone has direct experience with getting variances in Columbus and if there are anything things I should be on the look out for. Some questions that come to mind:

Will we need to update a class C property to the most recent building code?
Will we need to install fire sprinklers or any other large building systems (often a requirement in Pittsburgh)?
Will we have any community give backs such as donations, murals, or affordable housing? 
What are the pentiles for operating a non-conforming property without proper documentation in Columbus?

Not looking for legal advice. I am just looking for your thoughts or experience. We will be sure to get our land use attorney's signoff before we move forward. 

Thank you!

Anyone have any experience with the non-conforming properties and zoning issues on existing operating properties in Columbus Ohio?  

Quote from @Chris Seveney:

Quote from @Gaurav Nandola:

I am newbie and I was motivated to invest and acquire a number of properties to create a portfolio.

I took the plunge this year and bought 2 duplexes in Columbus, Ohio. However, in my enthusiasm, I made several rookie mistakes. 

First, my deal analysis was showing a cash flow of 5-6%, which was low, but I thought it would be good for a start. 
Secondly, I trusted my realtor too much and didn't verify all the information about the neighborhood, expenses, vacancy rates, etc
Third, I assumed that rents would go up.

Now, after owning the place for 6 months, I find a lot of pain points
1. The deal is not turning out how I thought. I knew about some repairs, but the operating expenses seem much more that I budgeted.
2. Recently, 2 of the tenants moved out and I found that I had to lower my rents by $100-150 per unit per the new comps in the area, eating further in to cash flow
3. One of the tenants hasn't paid rent for past 4 months. While the property management team managed to get some support from a non-profit, the funds are yet to arrive.

I also thought it would be more of a passive investment since I hired property management. However, I am constantly replying to their emails and following up.

Anyways, given what has happened, and since interest rates are on the rise, I was thinking a few options.

1. Sell one or both duplexes and take a small loss due to commissions, etc. Maybe now is the time to get out, before the market corrects significantly.
2. Grind my teeth and hold on to these properties. Since RE Investment are long term investments, wait a few years to see if things improve. But right now they seem to be like money pits.

Appreciate your thoughts on this.

Regards,

GN

 If this is a C-area then I recommend selling. Too much headache and this is a constant mouse-wheel type situation. If you scanned BP and reviewed the posts people put, they put 5% for maintenance, capex etc. which is a joke. If you have a demanding job, you can invest in a fund or in stocks, then it will be passive and the reality is the sexy side of real estate especially in  "cash flow" non appreciating rentals is not passive and not all its cooked out to be.

Assuming 5% of EGI is a joke what do you typical underwrite for a newly cosmetically renovated small multifamily per unit in your market? 

Repairs or unit specific maintenance?  

Class A: 500? 

Class B: 800?

Class C: 1,200?

Underwrite and offer.

It is always at least a warm lead if they are asking for an offer. Remember to try not to offend the seller. If they don't sell today they may in a few years. Keep them on you short term follow up list. 

Happy hunting! 

I am sorry you guys are going through this. I often wish real estate had less red tape as it can cause a lot of head aces. In my opinion, your agent's responsibility is to be educated on the market before they put you into this situation as an end user. A buyer for where you want to live and a buyer as a professional real estate operator are two different things. As an investor, especially when managing OPM, it is always your responsibility to be an expert in your market before you deploy capital. This is why I find house hacking a tricky situation.

Now that you are here, you have a few options:

Likely, as of right can convert to conforming use. Sounds like you have already sub-metered electric for 2 units. Probably worth underwriting it as a valid 2 unit (2b and 3b?).

You could sell it as is. It's possible that another investor would be willing to take on the occupancy liability. I know many have in the past.

As to the Pittsburgh certificate of occupancy situation, it leaves something to be desired. That said, these issues are common throughout the US.

All investors' base case should be conforming use or at least a very clear path to conforming use. This is doubly true if you are managing other people's money. From my conversations with local land use attorneys, Pittsburgh is becoming stricter about enforcing COs.

Here's the link to check a properties CO: https://pittsburghpa.gov/pli/c...

Suppose one chooses to personally take on the liability of nonconforming use, I.e., opening themselves to fines, tenants withholding rent, or having to vacate their property and make it conform per the city's direction. In that case, they should go into it with their eyes wide open.