TOP LIST of deferred Maintenance/multi-family

[eddyb1978]

Hello all,



2 prong question...



In your opinion what are the top items you check/watch-for while assessing and deciphering differed maintenance when valuating a multiplex asset?



Once one would have a $ value against that differed maintenance list ( Say $15K) would you deduct it from your final valuation on the asset?

eg. my analysis show that cap rate= 6% and NOI= $50K so estimated value should be around NOI/cap= approx 833K

would you ALSO minus (or negotiate) differed maintenance from that estimated value (833K MINUS 15K)?



Cheers and thanks for all the different insights!

Eddy

 

[Thomas Beyer]

As a rule of thumb 1: Deduct 2x upgrade costs

as you cannot finance it and you have vacancies while you do it and it costs time.

Why invest X to make X ?

Thus: an upgraded property might be worth $1M .. but only $900,000 if it needs $50,000 worth of immediate work.

As a rule of thumb 2: There are many "no deal" situations in multi-family .. as the seller has to agree to the proposed price and you may not wish to pay what he wants !

 

[eddyb1978]

Thank you as always... i was in a couple of situations where my exceptions and that of the seller did not align but on smaller plexes.. and with your feedback i guess i should be prepared to be more patient as i pursue larger plexes.

I normally look at roofs, windows etc... if you had to pick the top 5 differed maintenance items on your list based on your purchase experience, what will they be?


Thanks,
Eddy

 

[Thomas Beyer]

QUOTE (eddyb1978 @ Oct 7 2010, 10:14 PM)
Thank you as always... i was in a couple of situations where my exceptions and that of the seller did not align but on smaller plexes.. and with your feedback i guess i should be prepared to be more patient as i pursue larger plexes.



I normally look at roofs, windows etc... if you had to pick the top 5 differed maintenance items on your list based on your purchase experience, what will they be?


yes patience is required !



no top 5 really .. check them all .. here's a top 10 list



roof

fire code

boiler

structural issues

common areas (carpets, staircases, mailboxes)

parking lot

balconies

elevator (if there is one)

environmental issues

asbestos

appliances

 

[housingrental]

Thomas list above is good
Swap washrooms for appliances though

 

[bizaro86]

QUOTE (housingrental @ Oct 8 2010, 09:05 AM)
Thomas list above is good

Swap washrooms for appliances though




I agree with this from a suite interior perspective, more from a time and difficulty point of view than cost necessarily.



Appliances are easy and not that expensive. You go buy them, get them delivered, and the old one hauled away. Takes an hour and shouldn't be more than $1500 per suite, (that's what I paid recently for a full stainless steel set, including delivery)



Washrooms on the other hand, do not take an hour. I haven't had the pleasure yet of having a tub replaced, but its not something I'm looking forward to. Even getting a tub resurfaced meant the suite had to be vacant all day (fumes) and cost a few hundred dollars. That didn't include any tile work or plumbing. A complete new bathroom would cost at least that same $1500, but with significantly more hassle.



Michael

 

[eddyb1978]

Thank you all for the support and feedback.
Thomas i had the pleasure to hear you speak at Multifamily bootcamp which was a lot of fun. I`ll keep you posted on what comes up my way.
I also had the pleasure to meet Adam and I`m going to hang out in KWC to look at different pockets with Adam`s assistance.

Eddy

 

[eddyb1978]

An update back... Finally after a great search to find the right real estate agent for us, we have successfully purchased a 5 plex needing 65K improvement at 110K discount. We are 95% into our Rehab and tenants are booked to move in July 1st. Again, thanks for the insights at the multifamily event. We are at 20 total doors now and once the refi occurs and adds to our capital sitting on the sideline now, we will be in a position to double our doors to 40. We are tirelessly looking for product that makes sense but they are far and few in between nowadays

 

[Thomas Beyer]

[quote user=eddyb1978]We are tirelessly looking for product that makes sense but they are far and few in between nowadays


indeed .. as many sellers ask themselves: what to do with the money they receive (after they pay taxes, realtors, lawyers, ..) .. where to invest with a better or safer yield .. and with so few good choices out there might as well not sell !!

 

[Mike Milovick]

Put electrical items at top. As well as environmental. And fire code. These all can be huge, difficult to quantify, numbers.





Everything else you can get readily get estimates for. With the three above, you never know what you might get into.

 

[eddyb1978]

An update back to all. Thanks for the support. Momentum is a great friend. We finished the 5 plex and pulling 62% LTV ( Bank is lending less especially on 5 plexes with one commercial front) however recovered a lot of our initial investment, great cashflow and return on our reno money and increased equity as well.



Now through lots of networking in the Simcoe region, we were able to recycle our funds into 3 privately bought properties ( 1 x triplex and 2 x four plexes) closing back to back. A bit of work will lead to higher market rents, great projected cashflow and value add when ARV refi is triggered within 6 months from today.



Thomas thanks for the inspiration.



Cheers,

Eddy