All Forum Posts by: Timothy VanWingerden

major items that would vastly change the value of the property with improper underwriting:

1) not accounting for tax adjustment after sale. Each state handles tax adjustments differently so be aware of how it works in the state you are looking at. 

2) pulling in bad rent comps and basing rent increases on those comps. A new construction deal getting $2,000+ in rents does not compare to your "newly renoveted" 1970 property across town. Know the area well, and understand where the value capture is. 

3) capital markets - not having a good understanding of the terms you can get in the current market and getting a deal under contract only to have to retrade because your debt service is way "higher than you expected". 

Section 8 vouchers can absolutely be used in Kentucky. Just need to pass the yearly inspection. 

Price has softened a lot in recent months. Operators are looking at deals with lower leverage, 60-70% LTV so that they have a 1.25 DSCR on trailing financials. The lower leverage will of course bring the cashflow down a bit but it is justified given a higher cap rate.

Deals that are underperforming or just completely disconnected from the massive rent growth we have had the past 3 years, make the higher interest rates a little bit more manageable as there is additional revenue capture available in rent increases. The deals that are a little bit more stabilized are just not clearing what they were in price in 2021. I'm talking to investors every day who are still buying but they are pricing in the cost of capital at it is absolutely changing the market. 

Canvass the market by calling on properties available for rent and see what unit amenities are offered. That should help give you a good gauge on what type of premium you can charge for adding a W/D hookup as it is market specific. I would say you would probably get a 35-55$/mo rental increase which is worth it in terms of ROI.

Make sure that your residents pay for their own water if you are adding this otherwise it won’t add much especially if someone decides to run a laundromat business out of their unit.

Use a text shortcut on your phone for a canned response. You can save phrases in your iPhone that will automatically populate with a shortcut key - search text replacement in your settings.

In your response include a link to a form that they need to fill out.

Have an email sent to you once the form is filled out and only process tenants who have filled out the form.

@David Kuhlke

Before talking cap rate, you need to clean up your underwriting.

-You can get the exact tax number by going on the auditors site and calculating the assessed value. If you are in a state where the property is reassessed at sale then plug the tax rate in based on your purchase price.

-insurance looks high at 1,000/unit/yr. I’ve seen this around 175-275/unit/yr in the Midwest - granted for larger deal sizes.

-capex - you should itemize your capex budget based on the condition of the apartments. If they need a lot of repairs best to get them knocked out early and with financing so it doesn’t burn a hole in your CF.

-Repairs and Maintenance is high but it looks like you could be including other stuff in here.

Overall, a 4.2 cap is very aggressive especially using proforma numbers. You would want to see how the property has been operating for the past year and get an idea what the trailing cap is. If there is opportunity to push rents or if the property is not being managed well, you may be able to see that with a good operation you can improve the revenue decrease expenses which will bring your cap rate up. If there is upside then that justifies the compressed cap rate.

If it’s not worth the money you put into it after you finish repairs you are not in a good spot. Also, if possible you always want to finance your initial repairs. This keeps the cash-on-cash strong and allows you not to rely on cash flow for big ticket items.

If you aren’t sure how to pay your bills, don’t worry they will find you.

It depends on the area and who you are renting to. Do other rentals in the area offer stainless appliances? Any rentals in the area getting a premium for stainless?

If so, then you know It would be good to upgrade to stainless. If nobody else is doing it and the rent isn’t strong enough to support it then keep it simple and get the basics.

@Justin G. 100+ but I’ll run across smaller properties every now and then.