Posted by Carl CA on November 23, 2004 at 19:53:58:
James,
All of the larger projects we do like this are in LLC’s. It’s the easiest
way we know of to protect all parties, and very clearly spell out the
equity sharing agreement.
We’ve been fortunate in our ability to raise capital. My brother is a
successful general contractor in the SF bay, and his well-heeled clients
invest with us. When his clients hear about how successful we’ve been
everybody wants a piece.
My brother recently took a phone call from a client
who has invested with us in the past, but he wasn’t part of the last
project. He actually was REALLY MAD that we didn’t offer him a slot!
You gotta love having problems like that…(we promised to take his
money next time!)
Rehabbing Multifamily Units - Posted by Jan Michael
Posted by Jan Michael on November 20, 2004 at 13:06:38:
I am wondering how rehabbing multifamily units/buildings is working for investors in your areas. Where I am at, there seems to be an abundance of below market rentals for sale, that just need some cosmetic fixing, allowing for rents to be set near market and resold. In the last year I have done two of these deals. The first was a duplex where all I did was change from master electric meters to individual meters where the tenant pays electric. Each unit was running about $50 a month for electricity, so after the conversion I gave my tennants a rent discount of $30, effectively raising my net $20/month. Then painted the outside, did an overhaul on the landscaping (nothing fancy just cut some overgrowth, made things look nice, etc), put up a privacy fench in the back yard so each tennant had a private half, and as leases came due that year I raised the rent $75/month. Out of pocket cost including holding expenses ran about $5000 for the 8 months it took me to turn this, sold and netted close to $35,000. Not great but not a bad 8 months. In the last 4 months I have done a very similar deal, minus the metering project. I am in the process of closing and will net around $20,000.
I would love to hear your stories of rehabbing multifamily properties…it seems to me the exponential return on investment is far easier to obtain than rehabbing singles. I know there are single family rehabbers out there making a lot more than the $55,000 I will clear this year, but for the minimal time/money investment these sure have paid off for me.
Love hearing your thoughts, and reading these message boards!
We’ve had much better success rehabbing multi-families versus single families for several reasons. 1 the competition is a lot higher in my area for the junker single families, and there seems to be an abundance of tired landlords just wanting to get out then there are for the foreclosures and estate sales for the single families. 2nd reason we like it better are the buyers are so much easier to deal with then retail buyers who hem and haw over room size, the backyard, and the area. With the investors if the price is right and the property cashflows, they buy, plus they’ll buy several ata time, you are not going to have a family by 3 houses to live in. 3d they have their credit and finances are in order and are a piece of cake to get financed.
we had a 3 family we were selling, we put it on the market by advertising in the classifieds in the local news paper. We set up a group showing, 7 investors came, all with over a 700 score. Sold the first showing. with a retail buyer I am grateful when I find someone with a 625.
We’ve had much better success rehabbing multi-families versus single families for several reasons. 1 the competition is a lot higher in my area for the junker single families, and there seems to be an abundance of tired landlords just wanting to get out then there are for the foreclosures and estate sakes for the single families. 2nd reason we like it better are the buyers are so much easier to deal with then retail buyers who hem and haw over room size, the backyard, and the area. With the investors if the price is right and the property cashflows, they buy, plus they’ll buy several ata tilme, you are not going to have a family by 3 houses to live in. 3d they have their credit and finances are in order and are a piece of cake to get financed.
we had a 3 family we were selling, we put it on the market by advertising in the classifieds in the local news paper. We set up a group showing, 7 investors came, all with over a 700 score. Sold the firs showing. with a retail buyer I am grateful when I find someone with a 625.
Re: Rehabbing Multifamily Units - Posted by Carl CA
Posted by Carl CA on November 20, 2004 at 18:45:02:
JM,
My brother and I have worked on a couple of multi rehabs in the past
year.
First was a 16plex purchased 4/04 for $820K. We’re in the middle of
that rehab and will probably spend $50-60K when we’re done. Value
for that complex with current market cap rates should come in about
$1.4 to $1.45M.
Second is a 12plex purchased 6/04 for $700K. Rehab was minor, but
previous management was poor and rents were very low - a VERY easy
fix (the best kind). We’ll probably spend $15-20K when we’re done
with this one. Should sell for about $950K to $1.05M.
We generally do a slow rehab to prevent huge turnover which would
destroy our cash flow. We’re also don’t rush because we generally want
to receive long term capital gains, not ordinary income. Sometimes we
exchange out of these too if we don’t need the cash, depending on
how hungry my kids are…
The percentage gains on these projects are not exponentially larger
than I’ve done on SFH’s, but of course the overall numbers are larger -
so the profit really grabs your attention.
Re: Rehabbing Multifamily Units - Posted by Carl CA
Posted by Carl CA on November 23, 2004 at 06:37:21:
theo,
I got started (like so many others) in rehabbing a SFH. Then I just kept
growing it, and growing it. Jan Michael guessed right about the cash
flow. Both buildings had positive cash flow when we purchased them.
I can have up to 4 simultaneous vacancies in each building before the
cash flow turns negative, so I try to avoid that and the buildings pay for
themselves. So far, so good.
My brother and I have some private investors that provide the purchase
money and the funds for capital improvements, and we give them a
part of the action. Believe it or not, I have the grand total of $100 of
my own cash into each of these two buildings. I expect to clear
somewhere between $200K to $250K personally after we sell both of
them.
Listen. You don’t need your own cash to do well in this business. You
need the smarts to know what really works, and you need to be able to
sell yourself to raise capital. When you start establishing a successful
track record, people with money flock toward you - believe me - I’m
living it.
My brother and I are actually negociating to do an even bigger deal for
next year - 256 mixed units for $12 million. We’ve been in
negociations with the seller for almost a year already. The upside
should be somewhere between $16 and $17 million (I may be able to
retire on that one,… if it works). The beauty of this deal is, we
ALREADY have commitments for the purchase funds from private
investors. Another “$0 down” deal for me.
Re: Rehabbing Multifamily Units - Posted by Jan Michael
Posted by Jan Michael on November 22, 2004 at 22:46:05:
Theo-
I am getting my start doing smaller deals than Carl. On smaller properties you find a deal that comes real close to breaking even, get in and rehab (So far my rehab cost have been around $2,500/unit) raise rents, and then sell. I have turned my two in about a year, tennants are paying all the operating cost, and once rents are raised you are collecting some monthly cash flow to pocket while you wait for a sale. On deals like Carl mentioned, I am guessing the properties are performing already on there own (or else the bank financing wouldn’t go through) so holding cost are minimum to non exsistent. Of course you have to come up with down payment monies, and the rehab $$ for it all to work.
Re: Rehabbing Multifamily Units - Posted by Jan Michael
Posted by Jan Michael on November 23, 2004 at 10:55:34:
I?ll second what you say about not needing your own money. I am fairly small time right now, still in the ?growing it? phase, and that bank money is still kind of tough to come by. A lot of me ?selling? my idea and plans to the bank?and fellow investor/mentor of mine who started out rehabbing and is now developing 300-400 unit apartment complexes was just commenting on how the banks attitude has changed with him over the years. He says he remembers basically begging for the money to build a four-plex and now that he has years of developing behind him the banks are almost lining up to give him money?they can?t wait to give him money?he said it was a great feeling when he finally realized the power had shifted to him and his projects and not residing with those who had the money. Neat perspective I think, and a place I want to get to in a couple of years.
JM