Every lease and estoppel was signed before we funded my first 5-unit

I came into this planning to buy one rental. What I ended up with is a 5-unit in an older brick building, 412k, and the reason I am posting is the tenant files, because that is where all the work went.

When I got the seller's rent roll it showed five units at 780, 775, 800, 650, and one vacant. When I asked for the actual leases, I got three. Two units had nothing signed on file, and the seller said they had been there years and paid on time and it had never come up.

So I asked for estoppel certificates from all four occupied units. An estoppel is a short form the tenant signs confirming their rent, their deposit amount, when they last paid, and anything the owner promised them. It is the tenant telling you the truth directly instead of the seller telling you about the tenant. Two came back matching the rent roll. The 650 unit came back saying his rent was 650 because he mows the lawn and shovels, which was nowhere in any document. The fourth said her deposit was 800 and the seller's ledger showed 400.

We fixed it before closing. The two unpapered units signed month to month agreements at their current rent, the lawn arrangement got written down so I know what I am inheriting, and the deposit difference got trued up in the closing statement so the full 800 transferred to me. How security deposits have to be held and transferred is set by state law, so I had my closing attorney handle that part.

Four of five paid on the first of the month, on time, in my account. The vacant unit is where I am stuck. It has original kitchen cabinets, carpet over what I hope is hardwood, and a bathroom that works. What do I actually need to spend to get it rented, and how much should I hold back before I start?

Answer

1omar_haddadActivePRO11

Hold back more than the scope, because the scope is never the scope.

For a small unit in an older brick building where the bathroom already works, a rent ready turn is usually paint, flooring, appliances, cleaning, and whatever the electrician finds. Rough numbers I would carry: paint 1,400 to 1,900 for a full unit with ceilings, flooring 2,200 to 3,500 depending on whether the hardwood under that carpet is refinishable or trash, appliances 1,800 for a range and fridge new, cabinets is the fork in the road. If the boxes are solid and the doors are just tired, paint and new hardware is 600 and looks fine. If a box is soft at the sink base you are into a 4,500 to 7,000 kitchen once you touch countertop and plumbing.

So call it 6,500 for the version where the floor is good and the cabinets survive, and 12,000 for the version where they do not. Budget the 12,000. People get hurt at the demo stage: you pull the carpet, the hardwood has a black stain ring under the old radiator, and now you are patching boards. Or the tack strip nails tell you there is a second layer of linoleum with adhesive. Pull one corner of that carpet this week before you order anything.

The other thing is do not upgrade past the rest of your building. You have units at 780. A 1,200 quality kitchen in a 5-unit where nothing else got touched buys you nothing on rent and slows you down by three weeks. Get it clean, bright, and dry, rent it, and learn what the market pays before you spend on the next one.

7 replies

2tonyv88SO4CPRO6

The estoppel round is the single highest value thing a new owner can do at this size and most people skip it. The lawn arrangement is exactly what estoppels are for. Now write it into a real agreement or end it, because a verbal rent concession in exchange for labor gets messy fast, especially if he gets hurt doing it. Ask your insurance agent whether a tenant doing paid or bartered work on the property affects your coverage, because the answers differ by carrier.

3gregpowell66AG4BPRO8

Second the pull-a-corner advice from harrow. Also look up at the ceiling in the bathroom directly under any other bathroom while it is empty, and run the tub for ten minutes. Empty unit is the only time you get to test the stack without a tenant in the way.

2jessreyes12AU1APRO8

Asking the thing I would have been embarrassed to ask in a room. Who sends the estoppel form, you or the seller? Because if the seller hands it to the tenant with his own explanation attached, I do not see how you get the lawn mowing answer.

1megan_doyle15 Get yours

At five units did your loan work differently than a normal house mortgage, or did it feel the same? I have never done anything like this before, so this may be a basic question.

2kevin_lombardPG1BPRO5

You spent a lot of time on screening before this. How does that change when you inherit four tenants you did not screen? I have been assuming screening is a thing you do at the front door and now I am not sure what the equivalent is here.

1laurenkim53Passive

The 650 unit is the one I would watch. In the small markets I look at, that below market tenant with a side arrangement is usually the previous owner's friend or relative, and the arrangement ends the month you take over. Ask what he actually paid in each of the last twelve months, not what the roll says.