Mike’s Apartment Blog

Things finally came to a head with one of our more thorny tenants.  If you don’t remember, this tenant dug a very deep hole for herself last month.  She basically moved in and never paid rent.  She faked numerous repair and cleanliness issues, complained to the city, and caused a whirlwind of problems for us (and herself).

Our property manager, who attended the eviction hearing, bumped into her at the elevators of the courthouse where she made some very derogatory comments after her scathing loss.  I just don’t get it - in the end, she was evicted, her case was thrown out of court, and she now has a several thousand dollar judgement against her.

The unit she was staying in was nice, she had a good application with no negative marks, and should have worked out.  Now she is going to have a near impossible time getting another place to live.

Who ARE these people?

by Scott Ableman on Flickr

Ain’t nothing like coming inches to the finish line only to be clotheslined out of nowhere by some unassuming fan.  Rough.

Found out today that not only are the legal addresses to our buildings transposed, but the building has been incorrectly zoned.  Luckily, we are grandfathered in, but that means if we do any major work, we may be forced to original zoning.  So no additional units…

We may also be forced to pull permits for the work that was done prior to us moving in on the building.  Ouch… that could prove expensive and time costly.  If nothing else, it pushes back our CO and ability to get tenants moved in.

All part of the allure of investing in real estate.  If things were easy, everyone would do it…

This is absolutely crucial when it comes to investing.

Along the same vein as the necessity for a business plan, when investing, ALWAYS plan with the end in mind.  Not doing so sets you up with uneeded risk. 

It can be akin to deciding to somewhere, hopping in the car, heading out, without a destination in mind.  When you finally realize where you want to go you are likely heading in the wrong direction, perhaps low on gas, perhaps you forgot to bring things necessary for your destination.

I am all for spontaneity, as long as its miles away from investing.  Positive results in investing only come through calculated risks, and you cannot calculate risks without knowing all the variables.  Make sure you do your due diligence and have your end result in mind before putting forth effort/dollars into any endeavour.

It’s the 4th of July, a time when Americans celebrate their declaration of independance from England.  It’s funny that we celebrate our “declaration”.  The declaration didn’t really do anything – it was our steely resolve, focus, and unwaivering determination that brought us freedom.  The declaration was really just words.

That determination during a very dismal and dangerous time is what we have to celebrate.  I bring this up now, because we are in another dismal and dangerous time.  The world wide economy is collapsing around us, multinational corporations and even state governments are going bankrupt, and North Korea is firing “test missiles” at nervous neighbors.  It doesnt get any worse, and its our determination that will get us through.

Never give up.  This awful economy is a precursor to the greatest opportunity for wealth investors will ever see.  Keep focused, stick to you plan, and you will succeed.

Just never give up.

We have nearly completed the top half of the units in Cirese Court.  There was a delay as we ran into plumbing issues we hadn’t anticipated.  This put us about 1 month behind schedule, however we are well on our way to leasing the building up.

Expectation is to fill the rent-ready units by beginning of the next month.  Construction costs appear to have increased due to these mechanical issues, but we are still far under fair market value for what we have into it.  This little building should turn out to be a very good move.

Check out the management team, www.reboundllc.com.

It’s no secret the housing market has been hammered.  Prices are down and inventory are up – the worst its been in decades.  Add to it the lending standard and apprehension banks have in giving anyone a loan, sales have come to a grinding halt.  Foreclosures and bank owned properties dot neighborhoods all over the USA, and few areas have been unaffected.

But what about commercial real estate.  Apartment buildings in particular?  Depends on the area, but most areas are starting to feel the pinch.  Check out this articlefrom Bloomberg.

Basically, the worst is yet to come – at least for banks.  A rash of unprepared buyers, lofty proformas, and lax underwriting led to many building being over leveraged.  These over-leveraged buildings now present a huge issue for banks, for as the asset value comes down, owners walk away.  Defaults to the tune of 5.5% of all mortgages are anticipated in 2010.

So what does this mean for investors? 

Well, if you own buildings you are probably already feeling the pressure.  Increased vacancy and decreased collections are apparent due to job loss, while increased energy costs can pinch cash flow.  Many loans are expecting to go variable or hit their balloon payment terms within the next couple years and those owners will be unable to sell their property or refinance their loans.  Banks will be staring at an inordinate amount of REOs.  They will have to change their standards just like they are doing with home loans.

If you are a buyer, this in an incredible opportunity.  There will be many properties stuck at the banks looking for owners.  Whether it is discounted price, killer terms, or extra leverage opportunities, it will be time to capitalize.

I am in the unique situation that I will be in both camps.  I intend on negotiating with any of our current buildings to take advantage of any leniency the banks offer while attempting to pick up additional assets in the downturn.  No doubt, it will be a interesting time to be an apartment investor!

Capital improvements.

In the value add investment strategy, capital improvements often drive value into the building.  Therefore, it behooves you to make them ASAP. 

Let me explain.  Imagine you bought a 19-unit building with a laundry in one of the units.  Through your due diligence, you have determined residents would like to have their own laundry machine and would be willing to pay $25/month extra to have washer/dryer hookups in their unit.  You decide to add the W/D hookups and turn the laundry room into a serviceable unit.  Doing it sooner rather than later benefits you for two reasons:

1. You get to start collecting the increased money sooner.
2. You start building a pattern of increased income – you need a two year documented increase to take full advantage of the capital increase for sale/refinance purposes.

Remember, in a value play you want to reduce the timeline for purchase and resale/refi.  Making your changes earlier rather than later will aid you in speeding up the turnover process.  Time = Money!

It’s a question a lot of folks ask themselves in all sorts of situations.  In business, this question becomes key.

Sure, we all want to be valuable.  But, how valuable?  Not enough value and you wont be successful.  Too much value and you can’t leave without hurting the business.

In any entrepreneurial endeavour, you want to provide value enough to make the business successful without it becoming dependant on you.  Add to this the ability to delegate and create a self-sustaining operation without training your future competition. 

It’s a tough balance, but understanding what value you bring to the table and how it is brought is a key element to entrepreneurial success.

by biblicone on Flickr

A business plan for investing?  You betcha!

Newsflash – investing IS a business.  It has customers, suppliers, and provides a service/product.  Even trading stocks on the NYSE, you buy shares from people who are selling (vendors), sell to people who are buying (customers), and are trading shares in companies (product).  The more time you take to understand all these things, the greater your chance of success is.

It’s not about the actual plan that is written down on paper, that is just the end product.  All the data that goes in there about competition, marketplace, customer desires, and suppliers mindsets are the valuable things.  It helps prepare you and educate you before you drop even one dollar into the market.  This preparation greatly increases your chance of success.

A business plan also helps keep you focused.  When you start to get off track, or find yourself looking at other potential avenues, refer to your business plan.  Is it part of the plan?  No?  Stick to the plan!  If it has been working well so far, stick to it.  If you still think its worth taking the risk to go after another avenue, fine, write it into your business plan first.  This will ensure you have done all the proper research prior to taking on additional risk.

I write business plans, not only for my various businesses, but also for every apartment we purchase (yes, apartments are businesses too).  It greatly increases your chance for success.

Every cloud has a silver lining and every problem is really an opportunity.  That could not be more true when looking at our economy.

When the economy is in a depression, a dollar gets you more.  People drop their prices to make a sale, retailers get desperate, and overall business goals go from maximizing margin to just simply surviving.  That is where we are and why you get more for your money these days.

Case in point: we had a move out in a rental unit and have decided that instead of installing carpet, we will do tile.  I was amazed at prices for tile these days.  First, you can get quality materials for a very low price.  Second, you can get quality installation service for cost.  At this point, it’s cheaper than having your maintenance team do it and looks more professional.  You cannot beat that!

At this point, you can get a full job for $3/sqft which includes demo (removal of old carpet and pad), floor prep, installation, and clean up.  There really isnt a better deal out there that I have ever heard of (even in the past).

So keep in mind, when a problem shows up (especially a wide spread problem) think about how you can turn it into an opportunity.  This is the core of entreprenuerial ideals.