Re: Just purchased a larger multi unit…and have a question - Posted by ray@lcorn
Posted by ray@lcorn on March 13, 2000 at 22:29:07:
I cannot imagine why you would want to give the tenants postage paid envelopes. Besides the expense, it puts you in the position of having to take action each month in order to collect your rent. Bad move. You want the opposite policy in place. I can imagine a tenant saying he is late because he didn’t get your envelope that month. By all means send the letter detailing the new ownership and the “reminder” about the lease terms, give them the address, a phone number and perhaps a pre-addressed envelope, but nix the postage.
Take the tips suggested below, and especially pay attention to the Mr.Landlord.Com site. You will be light years ahead of anything a broker or lawyer will tell you. Jeffery Taylor (mr.landlord) has a philosophy that your tenants should be calling you up each month and asking to pay you more money… sounds too incredible to be true doesn’t it? It’s true, and it works. He also has ideas on incentives for tenants to pay rent on time. You may have to wait until the present leases run out before implementing radical changes, but you can educate yourself now and be getting ready for tenant “anniversaries”! (not renewals)
On management, I would recommend that you not hire a management company right away. Run it yourself for at least six months to get a feel for the operation. Then if you want to get away from the operation you will know what it actually takes to run the property, and not be at the mercy of someone else telling you what they think it needs. No one will look after your interests the way you will. Thirty seven units isn’t really big enough to be economical with management fees. I also do not like on-site residents acting as managers in this situation. It usually causes problems because they try to be more than they are. You can’t give them the authority to go with the responsibilty, and you wind up the bad guy. Better to deal with problems head on, and better yet, take mr.landlord’s suggestions about tenants handling repairs as well.
It sounds like you’ve bought a building that is in good shape and has a good rent roll. Your job with a property like this is to first maintain the property as well as possible, then examine the project for ways to increase income and reduce expenses. That will translate into a higher NOI, which will translate into a higher value when you get ready to sell. You should be aiming to maximize the value whether you intend to keep the property or not.
One common strategy is to work for two or three years to increase income and reduce expenses, perhaps complete any deferred maintenance, then use the enhanced performance to support an increased appraisal for a cash-out refi. There are many below prime-rate loans available for properties with loan values over $500,000. These are known as conduit loans, and they are especially well-suited for a property like the one you describe. In many cases you can borrow more money than you presently owe, accessing your equity tax-free, and pay less debt service. Depending on the nature of the property, deferred maintenance may be financed as well.
Congratulations, and keep us posted on your progress.