All Forum Posts by: Wren Martin

@Reda Akbil as has been mentioned, you must get an Attorney on board ASAP.  

However, I wouldn't be overly concerned.  I've had a slip and fall claim on (2) of my commercial properties in the past and in both instances the claimant's were unable to prove they actually slipped on our property. One of them we had on video that proved she did not slip, but the other was just her word without any witness' and in the end without a witness to corroborate the story the Judge dismissed the claim.  Still cost us a few thousand in defense fees but that was much less than the alternative.  I was of the opinion in both cases that they were just fishing for a settlement and chose to fight the claim rather than entertain any type of settlement and I'm glad I did.

Best of Luck!

@Kirt Sangha development projects are probably the most risky of all places for a new investor to start.  There are so many lessons learned on every development project that even those of us who've completed several will learn something new on every project... sometimes very painfully.

California adds another level of complexity to the equation. Just getting the water permit in some municipalities can take the better part of a year to work thru the entire process.  We recently completed a small (2) story office building in Newport Beach and it took over 3 years for the entitlement process; admittedly Newport Beach might be at the extreme but you need to research how long it will take for everything in your area; I would estimate at least 18 months no matter where you are.

The actual construction timeline might be 10 - 12 months so added altogether you could be close to 3 years after you purchase the (3) houses before you execute your first lease.  This means your investor is going to need to have some very patient money.  Most investors I deal with want to see some kind of return in 12 - 18 months.  This also means you will need to be able to support yourself during this same timeline as there will only be funds going out, nothing coming in, and it will require almost full time attention to push it thru as quickly as possible.

To answer your question as to all in cost is kind of difficult since so many factors will affect the cost of construction but a rough PSF budgetary number used for a typical stick built apartment building in my area could be  $380 - $560 PSF subject to number of floors and level of finish required.  To achieve $250 more in monthly rent per unit than your competitor you will be on the high end side of the finishes / cost.

(46) units is pretty dense for the amount of land you're assembling.  I assume you will require at least (3) floors to reach the (46) units which implies you will need/want at least (1) elevator. 

Then you need to figure out if you can provide enough parking for that many units.  You should have min. (1) parking stall per unit but the higher rents might require at least (2)... I know there is a lot of talk that people are moving away from cars and parking will not be an issue in the future.  While this may be true you still need to plan for parking just in case we don't get rid of our cars as quickly as some people think.

You also need to consider storm water.  Any water that lands on your property from future rains must stay on your property... at least in most of the muni's I'm familiar with in CA.  You'll need to design your landscaping and parking lot to collect this water and more than likely run it underground since you don't have a lot of excess land available to construct retention ponds.  The underground storage tanks are very, very expensive.

If I were in your shoes and was starting out with an Investor who had enough money for me to consider assembling properties that cost $1.5m pre-demo. I would do one or two existing, operating property acquisitions first to get some experience and to generate some reliable income to support the future development project.  I'm sure there are some great, emerging markets in middle america where that amount of capital could purchase a well performing asset that wouldn't require such as steep learning curve as a new development project might.

Best of Luck!

@Eric Thornton as has been mentioned by @Matt Engle, @Theo Hicks, @Ellie Perlman, @Omar Khan, @Jeff Kehl, and @Henri Meli, there are subtle differences between asset classes in CRE that need to be considered when underwriting a potential deal.

But the basics of Income - Expenses = NOI divided by the current market CAP rate will give you a ball park estimate of what it could be worth, all things being equal. Of course all things are not equal and you'll fine tune your opinion, or rather you will verify your opinion during the due diligence process.

For instance, if we analyzed @Michaela G.'s small Georgia retail property and determined that after some minor exterior rehab she would be able to negotiate NNN leases, meaning the tenant pays all expenses, with (4) local service retail business at $1,400, $1,300, $1,200, and $1,100 per month each, making a total monthly income of $5,000 or $60,000 per year net to landlord. We would basically have the Income and Expense totals we need to do a quickie, back of the napkin analysis.

If we then determined the local market CAP rate for small retail properties was 8% we would estimate the rough value of her property to be $750,000.00. ($60k NOI / .08 CAP = $750k) Of course there are almost always some expenses that need to be included in the analysis even on NNN properties, but that's easy enough to subtract before NOI.

However, the market CAP for small retail properties in Georgia may currently be 6% in which case the rough estimate of value would be $1,000,000.00. ($60k NOI / .06 CAP = $1m)

And before @Michaela G. can pay $750k or $1m for that vacant property she needs to determine exactly what it will cost to fix it up enough to attract the (4) tenants.   She also needs to determine what the anticipated starting rent will be for each suite to make sure there is enough potential future income to justify the investment.  And she needs to determine if there are at least (4) potential tenants available in her area that will want to operate future business at her property, and if those (4) business will work good together to attract the right kind of customer for each other's benefit.

She will have already determined the building had great visibility from the street; that there was plenty of parking for both tenants and their anticipated customers; that ingress and egress onto the property would be easy and safe; and that future customers could easily find the building when they're ready to come spend some of their hard earned dollars.

The good news about small retail properties is the tenant improvements (TI's) are usually minimal and often times the tenant can perform the work themselves.  @Michaela G. will focus most of her initial rehab investment on the exterior to make the property becomes a very attractive place where local business will want to re-locate and can see themselves succeeding there long term, often (10) years or longer.  She will of course set aside $3-$7 per SF for carpet and paint on the interior but anything more than that will be at the cost of the tenant or at least amortized over the term of the lease if she wants to lend them the funds for their TI's.  She will also set aside 5%-8% of each lease total value to pay Broker commissions, to help make sure she attracts the best possible tenants in her marketplace.

@Michaela G. will want to make sure the roof, and HVAC equipment are always maintained in top shape with annual inspections and service contracts.   She'll maintain the landscaping with weekly service to keep it looking just right.  She'll hire a Porter service to visit the property every day to sweep sidewalks, remove litter and debris as needed, and generally keep the property nice and clean.  She'll hire a window washer to come clean at least 3 times a year and after every storm.  She'll contract with a waste management company to provide a large dumpster at the rear of the property for tenant use which will be serviced 1 or 2 times per week depending on how much trash the tenants generate.  All of these costs (and several not mentioned) will be pooled together into the Common Area Maintenance or CAM which will be charged back to each tenant on a prorata basis per rentable square foot (RSF) or some other means of calculating as may be negotiated in the lease.  @Michaela G. will add a small management fee of 6%-8% to the CAM to compensate her for the effort of organizing all the services required to keep this small retail property a place where her (4) tenants business' can thrive for many years.

@Eric Thornton Your analysis will be exactly the same for an off market opportunity as one that is listed on market.  If you're using one of the calculators just input hypothetical purchase amounts to see what they look like... play the "What If" game.  "What if I could buy it for $680K?"...  "What if they would only sell it for $1.2m?"  

Take all the experience you've gained looking at and analyzing all the too expensive deals this past year to help you recognize your great deal when you finally uncover it.  Dolf DeRoos says you need to look at (100) potential deals, make offers on (10), to buy (1).  The ratios don't need to be exact but by the time you've looked at enough deals to make (10) real offers you will know for sure that the (1) you purchase will be a great deal for you.

Best of luck!

I always include a deadline in my offers but lately, as in 2005 most of those deadlines are not enforced. 

Usually, not always, the listing Agent will advise that they are holding all offers until a specified date such as after a long weekend or maybe an upcoming open house. Giving me the opportunity to either extend my deadline or pull out immediately if I just cannot wait; but they know I will probably wait since it's just business.

Holding out for multiple and maximum offers makes sense from a Sellers point of view and I don't fault them trying to make top dollar... I do when I sell. 

I admit that it can be frustrating sometimes but it's just part of the business we've chosen to be in.

This is a great thread, with differing view points and based on the comments made at the very beginning I believe it has satisfied the intent of educating new Investors.

@Roi C. Phoenix is experiencing a bit of a labor shortage in the middle of a very strong market which has helped increase costs and increase time on almost all projects.  To say the good contractors are busy is an understatement.

I believe its reasonable to ask your PM to get additional quotes for work to help verify the proposal is at current market.  This could/should be stipulated in your management agreement.

Most of the rates that have been quoted in this thread appear high for the Phoenix market... with the exception of @Derek Janssen his rates are similar to what I've experienced. ($3.83 SF Labor & Materials for Tile install)

Your Management company may have a policy that they only use licensed contractors. This is a good policy but it generally only protects them. It isn't a requirement in AZ to only use licensed contractors.  You can use an unlicensed Handyman for projects up to $700.  If you use the same Handyman multiple times in a year and his 1099 is much more than $700 you probably should consider going with a licensed contractor... or better, that Handyman should get licensed, it's not really that difficult.

Rehab and Repair are almost always potentially contentious issues between the Investor and the PM and even if the PM isn't marking up Rehab costs it sometimes doesn't feel like they have the Investors best interests in mind.  Based on your comments, it sounds like you've had a long, good relationship with your PM.  If I were in your shoes, I would lean towards a Trust but Verify position.  If Verify didn't support the proposals being sent me I would make a big shift and start over.

Best of Luck!

It feels like 2005 to me.  I'm still ready, willing, and able to buy in my market and expect that will continue for awhile longer but I'm looking at shorter holds, more flips, and piling up my war chest to go on a monster buying spree again in 2008 - 2010 whenever that actually comes around again.

@Keoki Kimzin I haven't had good luck with washer/dryer in my units and eventually removed them but if your competition has them you might be forced to include them in your unit.  Keep in mind that if you install W/D in (1) unit you will need to install W/D in ALL units… for many reasons, not the least of which is to avoid the implication of discrimination.

@Leland S. I think @Stone Jin is right about this one.  Gila Bend is not a big enough, high demand enough market to do a long distance flip (in my opinion).  I think you will also find rehab costs might be a little more than in the valley because of limited local contractor's.  If you must get valley contractors to complete the work you will be charged a premium for travel time both to the project and to the building supply store's, which the closest available stores are in Casa Grande... I think.

@Ty Wightman Great Job!  Your looking at opportunities, making offers, and getting to the next level... you're in the GAME!!!

I'm shocked about the Fourplex and the lack of disclosure by the Realtor that the Seller intended post-possession.  This is something that should have been clearly stated right up front.  I would recommend you re-evaluate that particular Realtor; I think you can do better.

Good luck on the Duplex!

There have been many great comments on this thread supporting both sides of this topic Pro and Con.  And to some degree I'm in agreement with all of them.

I started my investing career a little over 30 years ago with the purchase of a Fourplex about 3 miles from my house. I was young, still in college, and my knowledge came from reading just one book! (Where was BiggerPockets when I needed it most) This was an REO from the RTC days which some investors on here will understand. I planned to live in one of the units and rent out the other 3. The property was 100% leased with long term, below market rents (even for the RTC days). On day 2 of my ownership I learned the hard way about the Landlord Tenant Laws... or I should say I started to learn; it took many mistakes before I had them all figured out.

I messed up the management of this property so bad that after several months when I finally learned there was such a thing as a Professional Property Manager I hired my first PM.  This started a whole new chapter in my education - learning how to manage the manager.  I went thru several managers hoping the grass would be greener with a management change and sometimes it was and sometimes it wasn't.  But I was learning, asking questions, still making mistakes but not as many and rarely would I make the same mistake twice.

After a period of time and learning I started managing for myself again... but I never moved into the property, I discovered that for me living next door to my tenants wasn't something I still dreamed about... this is probably because I created such a bad experience in the beginning with my lack of knowledge that it tainted my view of "House Hacking" as the BiggerPockets community calls it... even though it was my original intent and on paper always seemed like it made a lot of financial sense, and still does.  I also never again let any tenant know that I owned the building, I was just the property manager, and have found that this distance to Ownership provided some protection from some tenant demands.

Today I am a Professional Property Manager and Investor.  In my opinion Property Management is a slightly misleading term as I think it is about 20% management of Property and 80% management of People.  I remind my Team on almost a daily basis that we are in the People business and we Manage their relationship with Property.  We must manage Tenants, Contractors, Architects, Engineers, Vendors & Suppliers and even to a certain degree Property Owners... at least to help them maintain realistic expectations in full view of ever changing market conditions.

We charge a % of rental income that is competitive in our area and we do charge a nominal Leasing Fee that is a flat charge but works out to be approx. 1/4 - 1/3 of typical first months rent in our area.  We warrant our tenants for a min. (12) months and if for some reason the tenant isn't a good fit and doesn't work out the full year we re-tenant the property at no charge.  I feel like this small fee helps offset our costs to Market, Show, Screen Tenants, and manage the Move In process without it becoming a profit center.  We make our profits over the life of the lease the same as our Property Owner's and the longer we can keep our tenants happy and in our properties the more profitable the Lease is for both ourselves and the Property Owner so our goals are aligned and this makes for a good, almost partnership like environment.

In my opinion, one of the most important components of a successful Property Management relationship is Communication.  The better we are at maintaining Quick, Clear, Complete, Transparent Communication between ourselves and the Tenant and ourselves and the Property Owner the better the experience for all parties...this usually improves over time, but not always.

Today I'm very grateful that I chose to manage my first property myself and I encourage any new Investor to follow that exact same path if they can.  I recommend the Property be fairly close to your home; I don't think it needs to be less than 3 miles away but if it's more than 1.5 hours away you will find it too easy to make excuses to skip your regular property tours.  There is a saying I heard when I was young that goes something like this - "The Farmer cannot grow a good crop unless his shadow is on the Field." I think this applies to property management as well.  I expect my managers to be on the property at least once a week, they don't have to make tenant contact each week; although more tenant contact is never a bad thing, but they do need to take a look at the property and visually confirm that everything is as it should be.

I'm also very glad I was a horrible Property Manager when I started out.  If I hadn't messed it up so bad I would have never hired a Professional Manager or 2 or 10 and had the opportunity to learn from each of them the way I have.  That single property was worth the price of an MBA for me and I wouldn't change a thing about it now even if I could.  It gave me a career that I love and even though I know there will be some frustrating days from time to time I still get up everyday excited to do what I get to do.  

Thanks to BiggerPockets and the amazing community that is so willing to contribute honestly on the Forum; I think it's entirely possible to manage your own properties without any experience at all.  When you run into a challenge you only need to post a question here and there will be many opinions shared in a very short time... and they will be varied, just like this thread, so you can view the issue from both sides before making your decision about the best course of action for you.  You can also use BiggerPockets as a great resource to find Contractors, Venders, and even Property Managers if you decide you need one someday.

Best of Luck, I hope you enjoy the ride.