Summary: In March 2020, just as COVID struck, we closed on a 32-unit property. This was an off-market deal and the property looked great on paper. However, we didn’t anticipate COVID and the damaging effects of the eviction moratorium. It’s now been 2 years. The moratorium is now largely behind us. So how did things turn out? Read on to find out!
[Disclaimer: We are not accountants, lawyers or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
It was March 2020.
The COVID shut down had just started.
It was an ominous time to be entering into our largest deal to date.
The property was also a mess.
The previous owner maintained the property poorly. He didn’t take care of tenant requests.
The tenants had practically given up submitting requests because they would largely be ignored. So you can imagine the sheer number of requests that came through as soon as we bought the property.
Not only that, we were facing what would turn out to be one of the most restrictive and prolonged COVID eviction moratoriums in the U.S. Two years later, we are still dealing with limits on evictions.
So how did things turn out?
In brief, it was slow and steady progress. Like turning a huge ship around. But we eventually got there. Continue reading to see how we got the renovation started on our 32-unit purchase, and how things unfolded.
Initial Steps
The first step in my mind was to establish in the tenant’s minds that things were going to be different.
We sent a letter to the tenants establishing our goals with the property. We were going to provide a clean living environment, a safe living environment and a community.
We also told them that we were going to respond to their concerns.
However, we also established some ground rules. We told them that we can’t turn around the property without their help. They would have to pick up after themselves. They would have to police the property to prevent loitering, vandalism and burglaries.
For example, early on we dealt with a pest control issue. We of course addressed the issue by paying for pest control, but we made it clear to the tenants that they needed to keep their units clean and sanitary. We quoted Washington State Law, which states that tenants must:
“Keep that part of the premises which he or she occupies and uses as clean and sanitary as the conditions of the premises permit; Properly dispose from his or her dwelling unit all rubbish, garbage, and other organic or flammable waste, in a clean and sanitary manner at reasonable and regular intervals, and assume all costs of extermination and fumigation for infestation caused by the tenant.”
It is clear from the law that tenants are responsible for keeping their units clean and they might also be responsible for paying for pest control. Many tenants don’t know the law, so communicating this to the tenants had an immediate effect. In fact, our property manager told us that he saw people cleaning their units the day after we sent this letter.
Security Cameras
Next up was securing the property.
As we mentioned above, our goal was to create a safe living environment for our tenants.
One way to do that was by installing security cameras.
These cameras would record activity for two weeks and if anything happened, we would have a record of it.
In retrospect, I think the cameras added significantly to the security of the property. The cameras also helped us in numerous other ways.
One example was in preventing illegal dumping. Tenants often leave their mattresses, sofas and other large items instead of properly disposing of them. Which involves taking it to a dump station.
These costs are usually absorbed by the owners because they don’t know who dumped their belongings in the trash area.
With the cameras, we were able to identify who did the dumping. We then charged them the dump fee.
I think word got around to the community. In turn, it has cut down on illegal dumping significantly.
The First Four Units
When we bought the property, there were four vacant units. These units were listed at $700-750/month with no utilities being billed back.
This was appropriate for the poor condition of the units.
We thought fixed up, these units should rent for $950/month plus $94/month for utilities.
We wanted to establish a new standard with these units to ensure that we could hit that mark. So our strategy was to invest more into the first four vacant units by doing nicer finishes like tile tub surround and quartz countertops.
We did implement a number of cost cutting measures like keeping and painting the cabinets instead of replacing them. We also kept and painted the doors.
The finished product was a significant improvement.
Combined with professional photography and professional staging, the property looked like a $950/month plus $94/month for utilities type of place. And sure enough, the properties rented quickly.
New Laundry Room
The next step was to update the laundry room.
The old laundry room was filthy.The machines were old and poorly maintained. The laundry room was dark and dirty.
Bottom line, I would rather go to a laundromat than have my clothes cleaned in this laundry room.
I knew that updating the laundry room was an important amenity for the residents. Therefore, we prioritized this over other things we could have done to the property.
The finished product turned out great. Not only did the room look better, we also got brand new app-based machines by partnering with Wash.com.
The app-based machines are next level. In my opinion, they are better than credit card machines and far better than coin operated machines.
The reason is that in addition to using an app on their phones to pay, the app also tells them when their laundry cycle is done and which machines are open. So no more running down to the laundry room to find out that all of the machines are being used.
Not only was this a hit with the tenants, the new laundry room generated income for us. It wasn’t a huge amount but the investment in updating the laundry room would easily pay for itself in about two years.
Exterior Work
Next up was the exterior.
Looking back, I might have prioritized the exterior more to improve the curb appeal of our 32-unit property.
Curb appeal is more important than I realized.
By making smart exterior improvements, you can completely change the feel of a property.
The exterior work started with paint. We used more contemporary colors and also painted the doors.
We followed this up with new lighting. The building had old mismatched light fixtures so adding more contemporary lighting and consistency made a huge difference.
Next was an exterior fence. This was less about actual security because we didn’t have a gate, but I think it created a perceived increase in security.
It also added to the attractiveness of the property as a whole.
Overall, these improvements likely contributed to the popularity of the 32-unit property. Over the last two years, we have not had any difficulty filling the units at our target rent rate.
COVID Eviction Moratorium
This story wouldn’t be complete without discussing the COVID eviction moratorium.
Overall, the moratorium didn’t affect this property that much.
There were a few non-paying tenants. However, using a combination of cash for keys and other methods, we were able to slowly vacate the units occupied by non-paying tenants.
On top of that, we have not had a problem with any of the new tenants. Which is a testament to our property management team. They clearly did a great job screening the tenants.
Ongoing Unit Renovations
Our original plan with this 32-unit property was to give 30-day notices to all tenants. After which, we planned on doing a massive turn around of the property.
COVID changed our plans. Rather than suffering about it, we dealt with it and figured out an alternative.
After two years, we’ve renovated about two-thirds of the units. We have also been able to get all of the units up to market rent, renovated or not.
Not only that, we have been able to get the market rents well past the proforma amount that we used in our initial COC calculations.
As mentioned above, we projected proforma rents of $950/month. Now we are up to $1050/month.
This has significantly increased our projections of the forced appreciation to well over seven figures!
Talk about creating generational wealth with a single property!
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Plans For the Future
So where do we go from here?
We’ll continue to renovate the units and look to improve the cashflow and value of the property.
I will be installing a monument sign and rebranding the property (finally!), now that we’ve turned our 32-unit apartment complex around.
Also, there is still some additional hidden value on the property! There is an office space next to the laundry room that we can’t make into another unit. However, we could potentially create an office and try to rent it out.
At some point, maybe we’ll do a 1031 exchange if the right opportunity comes along. We’ll probably 1031 exchange into a 100+ unit apartment complex. If you know of any good off-market properties, please let us know! 🙂