So all the updates of interest are posted now and I figure it's time to update overall where we stand. In 2010, we started out on this venture with 0 properties. We bought our first SFR in 2010, our second in 2012, 3 in 2013, and then more from there.
Currently, our property portfolio looks like this:
-- 8 SFRs
-- 4 MFRs
-- 3-unit
-- 5-unit
-- 12-unit
-- 14-unit
This brings us up to 42 total units. Our goal for 2018 (since we basically bought 29 units since Dec 2016), is to add one more 10+ unit in 2018. We have some focus on getting all our properties set up to cash flow as much as possible before we look for more. We should have that plan completed by Summer. After that (unless something awesome falls into our lap before then), we plan to aggressively look for MFR #5 and close on it sometime in the later part of 2018.
That pretty much sums it up for now. Stay tuned for more updates as they occur!
Wednesday, February 21, 2018
Selling SFRs
The first 13 properties we bought were SFRs. In 2016, we decided to move away from SFRs and focus solely on MFRs. We owned 8 in MS and 5 in TN. Our long-term plan was to unload all 13 SFRs (or at least most of them leaving a few high cash flowing ones) over time.
We saw an opportunity to sell all 5 of our TN properties at once, moving us out of TN completely. We completed the sell of those in June 2017 and are now down to 8 total SFRs, all in MS. We made quite a bit of cash on the sell and plan to use that money for future MFRs.
While we don't have any of the remaining SFRs on the active market, we have put the word out that we are looking to sell the rest of them to our network. Currently, all of them cash flow positively so we have time to wait for the right buyer at the right price and without agent fees. We plan to get the most out of them if we are going to sell them.
More on that as sells happen!
Heat/AC units!
On SFR #3, yet another issue popped up. If you've read previous posts, you know that some units (4 or 5) were not paying for their utilities. Well, it became extremely (and unusually cold) in MS for a couple of weeks. This caused several units to need repairs or replacement.
Here is the kicker here. All of the units we paid electricity for had an issue. Here's why, and this is very important. When your tenant does not pay for their electricity, they DO NOT care how much electricity they use. What happens is the tenant will set the heat up VERY high to keep the apartment well heated during the winter months (Some units we confirmed had it set to 80!). When it drops down to 9 degrees at night, heating units just can't keep up. We are fairly sure this was the cause of most of the problems. We had a few thousand dollars of repairs to heating units (including 2 replacements) because of the extreme cold.
The lessons learned from this:
-- Make sure you don't pay for your tenant's power. They won't care how much they use and will push AC/Heating systems to the max.
-- It might not be a bad idea to send someone out to check all your units before it gets super cold or hot and do preventive repairs. A $500 service visit could have saved us $3k+.
Oh well, onward and upward!
Here is the kicker here. All of the units we paid electricity for had an issue. Here's why, and this is very important. When your tenant does not pay for their electricity, they DO NOT care how much electricity they use. What happens is the tenant will set the heat up VERY high to keep the apartment well heated during the winter months (Some units we confirmed had it set to 80!). When it drops down to 9 degrees at night, heating units just can't keep up. We are fairly sure this was the cause of most of the problems. We had a few thousand dollars of repairs to heating units (including 2 replacements) because of the extreme cold.
The lessons learned from this:
-- Make sure you don't pay for your tenant's power. They won't care how much they use and will push AC/Heating systems to the max.
-- It might not be a bad idea to send someone out to check all your units before it gets super cold or hot and do preventive repairs. A $500 service visit could have saved us $3k+.
Oh well, onward and upward!
Well, this is a first!
So on SFR #3, we have been having an interesting situation occur. As our plan to get everyone off our master power bill, something interesting came up. We had a $300 bill for power in December and $600 in January. This just occurred as it started to get cold (This is Mississippi after all). The only thing that's supposed to be on the master power meter is a few lights and a couple of other smaller items.
We knew something had to be up. We brought in an electrician to see if we could figure out why a few items cost us $600 when it should be less than $50. What we discovered absolutely amazed us. Turns out, even though every unit is individually metered, there were still random items on our master meter, including 2 heating/cooling units. This was the main cause of the larger bill. We had the electrician move everything to the appropriate units meter. Unfortunately, this means that a couple of units are about to get hit with a $200+/month higher bill in the colder and hotter months than they were used to. I'm sure they thought they had super efficient apartments. We plan on reaching out to them and explaining the situation. We aren't going to go back and ask for back utilities because of this but going forward, we will save $500/month in expenses.
I had no idea this could happen. Obviously, anything is possible but whoever originally metered that apartment apparently had NO IDEA what they were doing. It never occurred to us for a second that this was a possible scenario. On our bigger complexes, checking this out is definitely on our to-do list when purchasing a property. We probably lost thousands of dollars since we purchased because of this.
We knew something had to be up. We brought in an electrician to see if we could figure out why a few items cost us $600 when it should be less than $50. What we discovered absolutely amazed us. Turns out, even though every unit is individually metered, there were still random items on our master meter, including 2 heating/cooling units. This was the main cause of the larger bill. We had the electrician move everything to the appropriate units meter. Unfortunately, this means that a couple of units are about to get hit with a $200+/month higher bill in the colder and hotter months than they were used to. I'm sure they thought they had super efficient apartments. We plan on reaching out to them and explaining the situation. We aren't going to go back and ask for back utilities because of this but going forward, we will save $500/month in expenses.
I had no idea this could happen. Obviously, anything is possible but whoever originally metered that apartment apparently had NO IDEA what they were doing. It never occurred to us for a second that this was a possible scenario. On our bigger complexes, checking this out is definitely on our to-do list when purchasing a property. We probably lost thousands of dollars since we purchased because of this.
MFR #4
So for MFR #4, we purchased a 14-unit complex. This was was different from our previous 2 MFR's in that it was fully rented with a waiting list, needed no (or very few) repairs. There is also no plan to refinance quickly and pull money out. It's more of a traditional purchase. The objective is also to cash flow out of the gate.
Here is the plan we wanted to implement:
-- Turn it over to a new PM (my younger brother who is getting into the business).
-- Do small repairs needed (not much)
-- Get rents moved up to market level (They are currently about 15-20% below market).
-- Get everyone on a lease (Currently they are all month to month).
And that's it.
There isn't a lot to post on this one as things have pretty much gone according to plan. No big surprises have happened in the first ~6 months of ownership. 4 units are at market rent, and the 8 others are going up to about 5% below market as of March 1st (couldn't raise too much in the first year) and everything will be up at market levels by March 2019. Also, on March 1st, everyone will be on a lease (no more month to month). It has cash flowed out of the gate pretty much from the start. The first couple of months were close due to initial repairs and updates. So beyond not quite being to market rent with every unit, we completed our goals well within our timeframe.
The real lesson here is that a traditional purchase is much easier to handle than the BRRRR method. No opportunity for infinite returns in the first ~5 years, but cash flow is king for us and it accomplishes that. We did currently dip down to 12 units rented but have applications for the other 2 so I expect to be full again soon. It's just part of the game. You have to turn down folks when you're full and hope you can find them when you're not. That's why it's so important to not require a fully rented place just to make money.
Here is the plan we wanted to implement:
-- Turn it over to a new PM (my younger brother who is getting into the business).
-- Do small repairs needed (not much)
-- Get rents moved up to market level (They are currently about 15-20% below market).
-- Get everyone on a lease (Currently they are all month to month).
And that's it.
There isn't a lot to post on this one as things have pretty much gone according to plan. No big surprises have happened in the first ~6 months of ownership. 4 units are at market rent, and the 8 others are going up to about 5% below market as of March 1st (couldn't raise too much in the first year) and everything will be up at market levels by March 2019. Also, on March 1st, everyone will be on a lease (no more month to month). It has cash flowed out of the gate pretty much from the start. The first couple of months were close due to initial repairs and updates. So beyond not quite being to market rent with every unit, we completed our goals well within our timeframe.
The real lesson here is that a traditional purchase is much easier to handle than the BRRRR method. No opportunity for infinite returns in the first ~5 years, but cash flow is king for us and it accomplishes that. We did currently dip down to 12 units rented but have applications for the other 2 so I expect to be full again soon. It's just part of the game. You have to turn down folks when you're full and hope you can find them when you're not. That's why it's so important to not require a fully rented place just to make money.
MFR #3 - Work in Progress
So MFR #3 was a 12-unit complex. This is our first MFR above 5 units. What a learning experience this one has been. A quick recap is we purchased this for about 25% less than the appraisal. Our plan was very similar to MFR #2, except this one wasn't in disrepair and was partially rented. 5 units were rented when we purchased and 1 unit was being used as storage. Our plan was to purchase, put a little work into it, allow the 12th unit to be rentable, and refinance once full to pull all of our cash back out of it.
Some other items of note:
-- The property was poorly managed so our intention was to replace the property manager.
-- The owner currently paid all utilities (Power, Water, and Cable). Water must be paid as it isn't separately metered, but we wanted to move all tenants to paying their own cable and power.
-- Some units were furnished. We are not in the business of providing furnished apartments, so our long-term goal is to get rid of all furnishings and no longer provide those.
-- We had to come up with somewhere to store everything in the 12th unit, so we planned to purchase a small piece of land and put up a storage unit to hold things like furnishings and everything in unit #12.
So as you can see, the plan is pretty complex. Our plan was to have all this done by Jan 1, 2018 (Spoiler: That didn't happen, not even close). Below is a decently detailed account of the timeline so far.
Spring/Summer 2017 - Our focus right out of the gate was to get the complex more rented than it was. We had 11 rentable units and only 5 tenants. A new PM was put into place within 30 days of purchase. At this point, we went to work getting some repairs done and beginning to figure out our plan for all the items above. Expenses were way out of control. Going forward, any new tenants would pay their own utilities and provide their own furnishings. Over the summer we didn't have much luck with tenants. We did add a couple but lost a couple as well. By the end of summer, we were still at 5 and hemorrhaging money (but we had planned for that).
Fall 2017 - We purchased the land we had planned on and got the storage unit put into place. We began to get the 12th unit renovated and got about 75% of the way through and decided to hold off on more until we got more units rented. We did go +1 on the count to 6 units rented.
Winter 2017/2018 - Here is where everything is starting to come together. We went +2 on the units rented to 8 total and as of this writing have 3 applications in for future renters. So things are starting to look up on the units rented total. Our goal is to get back on the 12th unit once we reach 10 units rented so that should happen soon. As of February 2018, all units are now paying their own Power, so check that item off the list. We did reduce rent somewhat to make up for the electricity being off our books but we should come out very positive on that change. Cable is still up in the air and may phase out as we loose all the original renters but that's a drop in the bucket compared to power. Cable averaged ~$35/unit where some units were using $200-$300/month (or more) in power.
Current status:
So to sum up kind of where we are overall:
-- 8 units of 12 rented.
-- 12th unit 75% done and almost ready to occupancy.
-- All scheduled repairs and updates completed.
-- All units are now unfurnished.
-- All power is moved off our master bill.
-- Only a few units left with us paying cable, but will slowly go away.
-- Land purchased and Storage unit in place.
What's left:
-- Finish unit #12 and get it ready for occupancy.
-- Get up to 12 units rented.
-- Refinance and pull all (or most) of our money back out).
Our new adjusted completion date is now Summer 2018. Here's hoping we can get it done! That will make it slightly over a year (~14-15 months) since purchase so in hindsight that's not a horrible timeline).
One final thing to note. We expect February 2018 to be a breakeven month (or thereabouts) so things are looking up!
MFR #2
So I'll have a series of posts here to update everyone on some things. So why has it been so long since I posted? The answer is somewhat simple. Since we decided to move on to MFRs only, "activity" tends to be a lot less. In 2017, we picked up 2 properties (more on that in later posts), whereas in previous years doing SFRs, we had done 5+ for a couple of years. There is more to the MFRs than the SFRs, but new activity is much less.
So in December 2016, we purchased MFR #2. To recap, this was a 3-plex that was in more disrepair than we're used to, so it was a little bit of a learning experience for us. We actually put more money into it than it cost to purchase. In April 2017, we finished our repairs and began to rent it out. It took a few months, but we got it fully rented. We dropped back to 2 of 3 units rented for about a month and have had all 3 units rented for a while now (as of February 2018).
The interesting thing about this project was our plan for it. Our plan was to buy it, fix it up, rent it out, then refinance and pull all of our money back out of it. A few months ago, we were able to complete just that. We successfully refinanced the property and pulled our purchase price and renovation costs back out of it. It was close and basically, we pulled the max out we could in order to accomplish this. So infinite returns on this one is now a reality. It's currently cash flowing positively and we have $0 in it.
It was definitely a long journey (~10 months) but we got it done.
So in December 2016, we purchased MFR #2. To recap, this was a 3-plex that was in more disrepair than we're used to, so it was a little bit of a learning experience for us. We actually put more money into it than it cost to purchase. In April 2017, we finished our repairs and began to rent it out. It took a few months, but we got it fully rented. We dropped back to 2 of 3 units rented for about a month and have had all 3 units rented for a while now (as of February 2018).
The interesting thing about this project was our plan for it. Our plan was to buy it, fix it up, rent it out, then refinance and pull all of our money back out of it. A few months ago, we were able to complete just that. We successfully refinanced the property and pulled our purchase price and renovation costs back out of it. It was close and basically, we pulled the max out we could in order to accomplish this. So infinite returns on this one is now a reality. It's currently cash flowing positively and we have $0 in it.
It was definitely a long journey (~10 months) but we got it done.
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