5 Unit Blog "My Story As A Newbie"
Hello everyone, I have been a lurker on this site for a while ever since I bought my first investment property. It is a 5 unit apartment complex in an exploding area near the coast of Central Florida (but not beachside). I decide to write down my experiences here to seek questions, learn better ways of accomplishing tasks and to give hope to others who struggle during the learning curve of being a landlord.
>>> Quick history, my deal was OK for the area, not a home run but a decent priced fixer-upper in an area that has a high demand for rentals. I got a commercial loan and HLOC to purchase the Units. 350k for 5 units on ½ acre, it is on well water and septic which is common for the area. I am planning to buy and hold. Fast forward through months of re-habs, evictions, and quick lessons. and I think I am seeing the light at the end of the tunnel. I will be posting on this thread to share what it really means to buy, manage, and succeed as a landlord. I hope this tale does not get cut quickly if I have to use my Exit Plan. If anything, this thread should be very humorous to the seasoned landlords.
>>> I bought the unit fully occupied and run down, the previous landlord did not care about the buildings or tenants. Two of the units were barely livable, infested, broken appliances, leaks, etc, etc. First plan was to remove the undesirable tenants and begin turning the place around. NOT EASY ! One almost went to court; they did not leave until the Sheriff posted the Notice of Eviction (pre-trial note that a court date was being set). They left ONLY after that was posted on their door. I even had to rent a truck to help them move, you will be amazed what you will do to get some one out, I was anxious to get started. The tenant did not sweep, clean, mop or anything for over 4 years. I recall the exterminator I hired saying “Hey I’m from the Bronx; I’ve seen everything…Ha-ha he freaked when he saw how dirty, infested, and destroyed the unit was. I know I am part of his beer drinking stories with the other exterminators forever.
>>> The other family had a pit bull (plus other dogs) that would cause issues with my insurance company. They also did not pay rent when they heard it was under new ownership. Eventually they left after finding a new home and paying a small portion of what they owed me. Lesson Learned: If you are going to evict do not hesitate, it is an easy process but cost $$$ about $100.00. Next thing I know the young couple in the “prime” unit gets two pit bull puppies ??? My lease says NO Pets; they had to go as well.
>>> What is it with Pit Bulls? Who is going to rent to anyone with Pits? I have two dogs but am lucky enough to own a house. DO tenants really think they can hide a dog?
1st Lesson Learned – Evict without haste. You will get your property back sooner.
[ Edited by Waylon on Date 12/15/2005 ]
OK so 3 of the original tenants were out. Two of the original tenants are great, pay rent, no complaints and keep their units tidy. So now it was time to rent out the "prime" unit and re-had the two vacant ones. Mortgage is due and I am 60% Vacancy !!!! We paint and clean the unit and advertise in the paper and with a sign in the front yard.
2nd lesson learned ...Classified ads are expensive! My wife placed the ad (she is great) but the bill for the ad was around $400 for 1 weekend !! It did drum up many applicants but the area is so short on rentals all you need to do is place a sign in the yard and 1-3 calls a day will come in. No more classifieds for now.
I found a great renter for the larger unit, he was even a property manager in his youth so now I am down to 40% vacancy. After completely re-habbing the worse unit (10K in repairs, remodling, etc.) the tenant upstairs wanted to move into the new unit even with the rent increase. That worked OK because I want to get into each unit to do repairs, remodel, and raise rents. They shuffled downstairs and the rent went up BUT I am still at 40% Occupancy and Mortgage is Due !!!
3rd Lesson Learned...Rehabs Always take twice as lopng as predicted and cost more than anticipated. My reserves are getting eaten up faster than I thought.
Waylon: Excellent posts. I appreciate your dedication and I have read these with interest. I look forward to your next post. We can all learn from each other, and this is exactly what makes this forum so interesting and informative, in my opinion. Thanks!
MC
[addsig]
Question - did you see the inside of the units before you made your offer? Were you in a bidding war or could you have insisted that the previous owner vacate certain tenants/clean up their units before closing?
FInancing was probabally done wrong or should I say not the best way I could have done it. I did not have any training from all the books, videos, seminars that flood the market. ANother stumbling block was the 5th unit which moved it into the "commerical" classification. I was able to get what I think is an OK commecial loan at 7.5%/15yrs for about half the purchase price. I could not get any more on the commercial side due to its former owner using it as a tax loss, it was not turning a profit on paper. This combined with a low appraisal by the bank (drive by appraisial). In this area it still was the best deal around.
It seemed the only way I could get the remainder was to get a HLOC on my residency which has tripled in value in the short 3 years I have owned it. The owner had other CASH offers waiting for me to flail and break contract. So in short I feel like I would be better off to somehow refi the HLOC on my house to somehow get a HLOC or loan of some type against the apartment to get back the equity in my house.
Another big point for me is I like fixed rates not something based on prime which the HLOC is based on. My goal is to have the loans directly on the apartment separating my home loan from the business. Once I get my equity back I am going to use it again and seek another deal and try to use less to no money down.
I am cash flowing presently but would like to shift the debt off my house somehow. IS THIS A GOOD THING TO DO? OR AM I STUCK WITH THE "BAD" WAY I INITIALLY FINANCED? Any and all inpuyts would be appreciated. My gut says I will need to hold for 1 year so it can be re-appraised by the bank which will allow for me to borrow money against the apartments to pay off HLOC entirely therefore owing $$$ against the apartment hopefully with a fixed rate. Currently they can only appraise it at selling price
The lender who is working with me I trying to push me into a 5 year arm , 15-20 year maturity fixed rate. ARMS scare me for some reason because I want to Landlord (collect rentals) for the long hold. 5 years from now where will the rates be? I would guess not much higher than they are now maybe maxing out at 8.0% but I have no crystal ball.
Financial Gurus please shed light on this situation, you can even blast me for how I initially structured this....I have thick skin [ Edited by Waylon on Date 12/18/2005 ]
I guess my last post has me thinking...What does a Property Managemnt Co. do for you? I guess they handle colleting rents and all maintenance calls but do they charge extra for the labor time they spend fixing an issue. I guess they would require you to pay for any parts used? DO they cleanup the area on a regular basis (blown trash in the parking lot, etc.)? Landscape? Please share your experiences on what they do and will not do. It may depend on the Company itself and what they offer.
aLso what is the average rate? I heard something like 10% of the gross rent income per month. I guess I could pick up the phone and call one but I like to hear the "real" experiences not a sales pitch full of promises.
Thanks for the reply, I am learning something new everyday.. I guess I will not be seeking a property management co. but definately a landscaper to handle the yard. I was mis-guided on what a property management co actually does. Thanks Again.
I am drafting a letter to all my tenants, the fire inspector explained there is a new law prohibiting out door grilling in residential apartment complexes. I have mixed feelings on the issue, on my side it protects my investment BUT could you imagine? Your right to grill a juicy steak or nice piece of fish taken away. The natural setting and quiet porch areas crys out for grilling. I know it is in my best interest that no grilling is allowed and now I have a legal reason to prevent it.
One thing I should mention about coco nut palms...I will let them grow only until they begin to produce "nuts". Once a nut begins to form the Palm must come down (4-6 years out). They are easy to remove and I view them as temporary landscape features. Why? Good question...Falling coco nuts kill about 150 people a year ! (U.S.F. Statistic) This is not a good palm to have in a rental, although it can be fine for many years BEFORE they mature to "nut making" age. Could you imagine the legal ramifications? [ Edited by Waylon on Date 12/22/2005 ]
Tasks finished yesterday...
-Finish coat of paint in the kitchen, cleaned refrig one last time.
-Finish coat for about 1/3 of the living area
-Finish coat on the entryway/hallway and front door
-cut the grass, first time I have had to do this in weeks ,but what a difference a trim .neat yard looks. Thankfully the grass is growing very slow this time of year.
---- total time spent at property was only about 4.5 hours.
What a difference a fresh coat of paint will do, the color scheme was biege and blue with a wall paper border. I am changing this to Satin white for the walls, semi-gloss for the trim. Very boring but the white really opens up the space and highlights the vaulted ceilings...The new scheme makes the unit seem very large which is what I wanted.
In my market I have noticed renters want space and do not appear to be turned away by the all white scheme. Most just want a place to live and the renter pool is competetive so color is not an issue , more so they want clean open space. All white seems to do the trick. I did have one prospective tenant ask if the could add color to maybe one wall, no problem if it is done right with quality paint. I may but a small touch of color somewhere but I have not decided where or if it is worth the time.
My struggle now is wether or not to replace the carpet in one bedroom, it has one large stain that may not come out and looks OK but not great. The cost to clean it would be less than replacing but if I clean and it still is questionable I just wasted $$$ of the cleaning. Still on the fence on this, I would like to rip it up and tile with linolieom tiles which is trouble free but less "homey" and more industrial look. Another cosideration would be foot noise heard by the downstairs tenant would be louder on linoleom vs carpet.
Also I have a dishwasher that was basically free, I do not know if I want to install it, If so it will be writen in the lease that if it fails, I will not repair it, it is a "bonus" item not a item supplied under normal circumstances. If it looks to be a problem plumbing it in and placing the unit in cabinetry I will back away.
On another note, I received a flyer from the realtor selling an apartment complex down the road. 8 unit for $649.000 ! The construction is all wood frame, no CBS used. Not something I would want to persue at that price BUT I hope he does sell it so the comps will continue to skyrocket as they have in the past. [ Edited by Waylon on Date 01/19/2006 ]
Here is a twist, unit 95% completed.... I decided to check a wood rot spot under the carpet by the sliding glass door. Inspector pointed it out, I knew it was there but somewhat pushed it back on the list until it was forgotten about. Well it was bad (normal). Inspector commented about how he sees this same damage everywhere.. I cleaned the area out and grabbed the circular saw. I did a real good job cutting out the rotten section. It was much easier than I thought, all the mystery about how these things are puit together is making sense. I can see the Cinder block wall, I can check out the "crawl" space. It was much bigger than I would have thought. Peered around at the electrical. It was cool to see what was between floors and the types of joists used and how it was connected to the cinder block. This structure is built like a tank !
A simple 3/4" plywood patch is all that is needed and it will be better than new. The sliding door did not latch correctly (fixed) which must have been the source of the water. Definately a fix that was needed a while back.
Well time to get this sucka done! Yesterday was one step forward and two back.
Does anyone out there have some basic good advice on buying, subdividing, and resaling raw land? Any advice would help, I have much to learn.
Where is one to start?? I am just about finished on my first raw land deal. See my post elswhere on this forum. Idid numerous multi and single family rehab and my own weekend house on my own in the past.
The next logical place to go was raw land. You need balls of steel and nerves of iron. At least on my 200.6 acres!
I can not stress enough to do your DD. Check the zoning and if already sub-divided, get all the engineering material to review as part of your DD prior to offering a dime.
There are numerous hidden costs associated with raw land. Town fees, money in lieu of open space, well testing (if no sewer) and of course engineering, wetland and survey costs. Read up on all you can. Spend the morning in Barns&Noble with a cup of java and peruse the real estate section.
Most important, at least for me was to attend as many Planning Board and Zoning meetings to get a flavor for the process. Not only did I learn alot, but my face was familiar to them when I was on the agenda.
I took 200 acres and ran it through too preliminary approval in 14 months! I was told by everyone that I coulds expect 3-4 years when I started the process.
I also had the liberty of leaving my profession and act as P.M. throughout the process.
Good luck, everyone needs it to deal with municipalities!
[ Edited by flyboy on Date 02/04/2006 ][ Edited by flyboy on Date 02/04/2006 ]
Brining this back up to update in case any novice, fence sitters, etc. are thinking about jumping into land lording…Yes it is still Fun, weird way to describe it, but when you work for someone else, and then you run your own buis. You get a nice feeling when things stay afloat.
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Yes, that would be the word. afloat. I can’t quit my day job yet, but I can continue to have some one else pay of my loans and now I am looking at the equity to do another deal. Small profit each month as well. My best tenants did leave recently but it gave me an opportunity to bump the rent up $25 and it was re-rented in 2 days. The rental market is still great. Qualified tenants are easy to find (so far).
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Couple of bumps to report, AC issues with a newly installed unit. This is being worked on by the installer and should be fine in time. Possible AC problems in another unit (man! FL is rough on AC’s) and another surprise fee , Commercial water permit and quartly water testing, whew! I didn’t do 100% due diligence because this was unexpected, small amount of $$$ but it all adds up. Finally a broken washer…my guess is a belt but I do not know for sure, checking it out Monday. I have never fixed a washer but I bet (hope) it is easy…a down washer. That’s lost revenue!
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Still amazed at the cleanliness of the units and grounds. It seems if you give the renter a nice place with cared for landscaping, they respect it more and keep there “stuff” in check. It is like when you clean your house, for a while the first few things that get tossed around look really out of place and get put up, but your area is trashed, 1 or 2 more messes won’t matter.
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I am planning to get an appraisal to see if I can use the equity to purchase a quad in the same city. Gotta bunch of questions on that, but that is on a thread in the Multi’s section. Further out…Hurricane season is around the corner, things may get interesting around here…starting to think about getting a generator (or two). Oh yea, Spanish classes were by far one of the most useful classes I was forced to take during college. One of the original tenants knows very little English and it is cool speaking with him in his native language, so far we have been able to rap in broken dialect with success.
I wish I had a better estimate, I planned on emptying it out at the beginning of the month and charting how much they pull in. So far it has been emptied whenever I happen to be around doing something else. I should have at least charted 2 weeks worth and doubled it for a rough monthly figure. If I had to GUESS 200-250 a month for $1.25 washer and 1.25 Dryer.
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So far it has been a great experience, the initial investiment of the appliacnce has already been paid off, the tenants love the onsite laundrey option, and I never have a shortage of quarters for those pesky parking meters at the local beach
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Downside...good luck finding a refurbished units (I had to drive 1.5hr to get mine) and of course repairs. So far the repair has only been a faulty water valve due to the well water mucking up the intake (this is prevented by a simple screen which was lacking on the units initially). New units were more $$$$ than I wanted to invest.
Thanks for the reply Lavonc, My property is located close to my primary residence (15 mins). So far it has not been a burden for me to take care of the weekly issues but I have noticed the time I spend over there has been less and less each month. When I purchased, I had a significant amount of rehab work to do and I was working over there every chance I could. Now that it is finished, my activities include: Landscaping (I’m young with a desk job so I actually enjoy mowing ! Weird), Collecting the $$$ from the coin op machines, and minor repairs. I have a cell phone for the business the tenants use to call in problems. Everyday I check my phone and have not received a call is a good day for me. Lately, I have not received any calls which is great.
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I plan to hold on to this property so I will eventually not want to do any work and go the route of maintenance man for repairs, landscaping service and just handle collecting the rent/managing the books. I plan to go over there today and do some light landscaping and maybe some exterior painting. I look forward to this due to the fact I am usually working at a desk for 10hrs a day with no windows. Ahhh, working outdoors. I can’t wait to break a sweat and get some exercise. The NE winds are cranking at 20+ mph and the temp is in the 70’s. It should be a nice day out.
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Seas and Swells are building fast with the Low pressure spinning off Cape Hatteras, the surf should be 8 foot plus soon so I plan to get a lot of exercise in the next few days, significant surf predicted for Florida! The water temperature is warm, I know my secrete spot will be real fun Sun-Tues. WhoooHooo!! Living in FL is nice…..
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Oh, yea...I felt bad about the car breakin because the exterior parking lot light was one of the last items on my list to repair. When the car was broken into the light was not working and the car was basically in the dark zone. If the light was functioning it would not have been a target. The light works now plus I added a motion sensor. I did not re-imburse them for their car window and luckily nothing of value was taken.
[ Edited by Waylon on Date 04/29/2006 ]
Thanks more to come later..[ Edited by Waylon on Date 08/10/2006 ]
Anyone else with an insight into this?
Thanks,
JS.
bump!.