Keys for Repositioning Strategy Flashcards
What part of a city to buy in?
Ideally look for class Cs in class B neighborhoods
What kind of property management company to use?
One that has done at least 5 prior repositioning projects
How to raise the NOI to raise property value?
- Increase the QUANTITY of the income stream: raising rents, increasing occupancy, or both
- Increase the QUALITY of your income stream: better tenants
- Increase the DURABILITY of income stream: keeping good tenants as long as possible, getting rid of bad ones quickly
What to look for when scanning properties for repositioning?
Problems to look for and fix (don’t do deal if you can’t find and fix one of these issues):
- Wear and tear (deferred maintenance)
- Rotting Wood
- Carpets
- Appliances
- HVAC
- Sinks, Counters, Faucets, Pipes
- Etc.
Multifam Millions author says to be careful with buildings older than what age?
35 years old. Says lots of work/money to keep up with
When looking to upgrade tenants, take note of what
Existing demographics in area. Most tenants will come from 3 mile radius around the property
Repositioning Rule of thumb:
Repositioning will take about as long as the decline did.
Don’t try to sell property too quickly after repositioning. Occupancy will dip when bad tenants leave, then come back up (takes time to change perception of your property in community)
Occupancy item to account for when forecasting cashflow for reposition:
Expect to lose 15-20% of occupancy at time of takeover (Expect that 70% of tenants at the end of year one will be new)
2 Main Reasons Why Repositions Fail:
- Running out of Money - Always budget worst case scenario. Budget for fat contingency margins
- Hiring Bad Management - specifically need a good repositioning manager
Best properties to look for?
Ones that look awful but only need cosmetic repairs (not structural, mold, termites, etc.)
For cosmetic repositioning deal, expect to spend how much?
Between $1k-$4k per unit. Anything more is a major repair job.
Rule of thumb: Avoid any repair that does’t increase value of property. Almost all cosmetic repairs do, almost all structural and environmental repairs do not.
The Ten Biggest Mistakes Repositioners Make:
1 - Running out of money during repositioning. Cost overages and time delays. Must put no overages clause in contract with the contractors.
#2 Leasing Up Too Soon: Don’t rush it, it takes time. Want perception of your property to change first, which leads to word of mouth.
#3 Not using licensed contractors:
#4 Not getting 3 Bids (minimum): After signing Purchase and Sale agreement, get permission to have contractors on site for bids immediately.
#5 Assuming the lowest Bid is the best Bid. Some people lowball on purpose to make it up later on “unforeseen overages”.
#6 - Not going after private money sooner. It is the key to growing the vault. Start with friends and family, network through them, always market.
#7 Not consistently marketing, for both deals and private investing
#8 Discriminating - Treat EVERYONE the same. Should be standard process. If ANYONE in your ORGANIZATION gets caught, you can still go down for it.
#9 Not having signing authority on bank accounts: Property Mgmt Companies.
#10 Buying property with bad environmental issues. Get familiar with Environmental Phase One report and have it done on your properties, even if smaller ones. Asbestos, radon gas, oil, run off contaminants, pollution in water, etc. Even if you close, may have problems down the road which may make it difficult to sell.
#11 Inspecting the property yourself - The inspector inspects some units and the overall structure but it is YOUR job to go into every unit.
#12 Managing the Property Yourself.
#13 Using Fill in the Blank Legal Forms. Always use an attorney.
#14 Dealing with tenants. Don’t get tempted to get involved.
#15 Thinking You Know It All. He went to a seminar that increases his income by 25%.
