Welcome to the Fearless Innovator Podcast, my name is Mechiel Kopaska and I am your host.
This week’s topic: Owning a Multifamily Property
If you recall from my last episode, I had just purchased my first multifamily property with tons of issues! The seawall was in desperate need of repair, the walls and floors on the first and second floors had gaping holes in them, the floors were not level and I had 7- 28 year AC units that any day could break down.
Day 1 after the purchase I went on the hunt for a great property manager. Well, the hunt didn’t take long, I met with the existing property manager and due to her experience with this particular area and this building, I decided to hire her and her team.
I met with her on day 2 to understand in detail the leasing agreements and to discuss vacancy rates and any concerning issues I wasn’t already aware of.
- The tenant pool was somewhat limited in this area. It was limited because there were not a lot of jobs in this area. Generally speaking, my tenants all worked in the local restaurants or bars.
- One of the 1-bedroom units was vacant and the larger 3 bedroom unit would become vacant soon.
- My tenants had nowhere to do their laundry and they were traveling 5 miles just to do their laundry
My plan was
- To rehab each unit after a vacancy, the 1 bedroom unit had shelves with no doors for cabinets and very limited counter space. I called on my rehab team and the plan was in place to get new cabinets and a countertop. Clearly this would be more appealing towards future tenants and I could raise the rents a bit.
- The 3-bedroom unit needed a new toilet, new dishwasher, and new paint.
- I added a coin operated washer and dryer for the tenants. I now had to visit the property weekly to collect the coins and check on my investment.
As the vacancies occurred, I was in wash, rinse and repeat mode, , rehabbing, cleaning and repairing each unit.
Each time a tenant would move out, I upgraded the units and increased the rents to market rates. However, I quickly learned 4 NEW things.
1). Other landlords in the neighborhood – we’re offering free water and sewer – which would equate to about a $600.00 loss on my books per month. This meant tenants were not renting from me, they were renting from my competition.
2). The local job market would also limit the amount of rent one could pay because of the type or work offered which were restaurants and bars. The rents were capped at $825 per month.
3). I’ll also point out that because these 8 units were in proximity of each other, the tenants all became friends – what do friends do? They talk about how much they are paying vs. the other tenant. The fight for equality began. The banter between tenants was becoming bothersome for me and it was challenging to keep steering this business in the right direction.
4). The property manager would then report difficulty in filling the vacancies, after all the tenants already knew upon renewal what their new rate was going to be so they would leave. Replacing tenants would often taking 3-4 months – at the same time I’m losing income.
5). Another disappointing fact was I learned the sellers hadn’t been forthcoming on their monthly expenses for electric, sewer and water, I lost close to $1,000 a month total. I had researched placing remote water devices so the water could be measured by unit, but the cost far outweighed the benefit and other landlords offered this free to their tenants. I’m not sure how they made money on their investment, but I knew I couldn’t fight this battle.
More importantly and the most concerning fact that I learned was that the 2 quotes for the seawall repair were simply a band-aid to a much larger issue. I learned through an engineering inspection that the wall was not going to collapse even though it really looked like it would and to fix it the right way was more like $40K and there were some other concerns as far as the approach to fixing it. One approach, everyone on the bottom floor would have to move out for a week, another approach didn’t require that.
After 9 months into ownership, I had completed the upgrades, increased the rents as much as I could. And was in a holding pattern on the seawall repairs when I decided that since my HIGH Interest Loan was coming due, I would just sell it!
Thank you for listening, I hope you were inspired, entertained or you learned something new!
Catch me later…