C Class Apartment Building Should you Buy One? 10 Year Review of Income and Expenses 2011 – 2021.

Video Closed Captioning:

good morning good afternoon good evening

folks michael zuber one rental at a time

and i wanted to follow up on a video i

released a week or two ago

a week or two ago i shared with you

actuals income actual expenses for a c

class

10 unit building that we owned in 2020

and based on the feedback from that

video what i’ve done over the last week

or so is collect reports back since we

have owned it so what we are about to go

through are

10 years

of actuals right reports right out of

the property management system

uh for a 10 unit building a couple of

things to level set

the only expense that you won’t see

on the report are our mortgage payments

which includes taxes and insurance uh

you can write this down we spent let’s

just round it up to two thousand dollars

a month on our mortgage payment that

includes taxes and insurance if you have

to know the number i think it was

1987 or 1988 so i’m just gonna round to

two thousand dollars so again

the only thing that you will not see on

these reports are mortgage payments uh

you can safely assume it was two

thousand dollars a month uh since we

have owned it uh we did refi it last

year

um but the payment stayed by basically

the same

on top of that let me tell you about the

story how we bought it

and the story how we bought it is why

i sold some apartment buildings in 2019

and 20.

so we buy this building as you will see

in late 2011

we bought it from somebody who bought it

in 2006.

in 2006 this building was bought for

roughly 650 thousand dollars a door

i’m sorry it was bought for 650 000 or

65 000 a door sorry got run-on sentence

there

so again that was not crazy for the era

2006 they are all one bedroom one bath

really small units nothing fancy again

c-class flat roof

just is what it is

the purchaser of this building

uh was not a seasoned landlord

they were out of the area they didn’t

have a team they tried to do it

themselves

and

as you will see the building uh went

downhill uh they

first thought they could you know

upgrade it move along didn’t work out uh

the tenants took advantage and

shortly thereafter they lost the

building

and we picked it up from a bank

we picked it up from a bank for just

over two hundred thousand we got it for

zero down uh the only thing we had to do

was escrow 50 000

uh for the repairs and that’s what you

will see in the first year or first full

year

uh what else can i tell you about it uh

we’ve had to uh recycle tenants a couple

of times it was um

it was not full of anyone that we wanted

when we took it over

that was uh problematic

uh you will see that our first full year

of rent we collected 44 000

now the last full year we collected 83

000

so again

rent inflation is real

uh what else can i tell you um

utilities went up from 4 100

uh to 4 600 so not that bad

property management fees went up from 3

800 to 5 000.

again all of these things that you will

see again 10 units c class building

uh let’s look year by year so let me

just share it with you

so hopefully you’re seeing this now what

you will see is we closed on this right

near the end of december i want to say

it was um

i don’t know december 20th or something

like that

so all of the income or deposits any of

that stuff that would have been done

would have been done in escrow hence we

just had some expenses uh some

incidentals and whatnot uh right at the

end of the year so again not much

happened in 2001 but i thought i would

give you the full story so

let’s go to our first full year 2012.

this is where we had to lease it up we

had to get rid of people we had the

it was a lot of work heavy lift

again none of this stuff we did it was

all done by a property manager you could

see that we didn’t collect much rent in

january the new tenants knew they were

on borrowed time

really didn’t collect any rent in

february either

we start collecting rent in march and

april uh but yeah it was a messy messy

year

as we were turning units

rehabilitating the building

you can see expenses down at the bottom

called general repairs

we spent

we spent forty five thousand dollars

on just general repairs eight grand on

supplies um

large appliances refrigerator stoves acs

it was it was it was a year full of

expenses

uh we still collected 44 000 in income

that year which actually was better than

i expected i didn’t i don’t remember

this time

but as you can see

we had expenses of 80 000

again that is without mortgage payments

so we had a hundred and four thousand

dollars in expenses when you add

mortgage payments that first year again

50 000 of that was escrowed so we we

already put that away

right so we lost 59 000

that year but again we were buying a dog

the dog had fleas it was a heavy lift

we expected the first year to be ugly uh

we were ready for it this was definitely

not our first unit

so 2013

uh income went up about 10 grand again

we were getting a better class attendant

we we had to recycle a couple of time

because if you can’t move in

if when you have a bad building full of

undesirables that are just

doing bad things

you can’t recycle them out and get in

great tenants right away it has to go

through a churning process so it was

really it was messy

but yeah rents went up they started to

be about five uh

uh 550 bucks a month which again this is

2013.

uh what else do we have we had some more

repairs and whatnot uh

but again we did we did a lot of work

that first year

again something that we do

if you’re in my course we talk about

make ready costs

i believe in doing it right the first

time

and

that means you really do lower your

operational or capital expenditures

going forward when you do it right the

first time you still have some stuff

still breaks

tenants aren’t always nice to property

so you’ll still have some repairs

but you could see that expenses went

down so expenses were 21 000

year two what were they the first year i

already forgot

uh they were eighty thousand the first

year so noticeably better

so again uh we made about eight thousand

in cash flow year two again i don’t

remember this building

uh so it’s actually better than i

expected i would have expected year two

to be negative but uh even after

including mortgage payment we made a

little money year two

uh year three this is 2014 now you can

see the date right there in the middle

uh again rents stayed kind of flat from

the year before

let’s look

we start having turnover you can see the

turnover here we had two at least two

turns maybe three

uh we had an electrical issue

in uh may

la 1100 bucks

i think that was the washer dryer area

because this has a remote washer dryer

but i don’t know that for sure

we had pest control

we had somebody with bed bugs as i

remember

bed bugs were a thing again c-class area

problems for us to fix not fun but yes

it did happen

uh yeah expenses actually went up a

little bit uh because we actually

started having turnover and repair

turnover is the issue

so we roll forward to 2015 where is it

there it is sorry

there it is it’s catching up

so where are we so 2015 rents went up

again where this went from 54 to 62

000 that’s the total you can see it

right there on the right

uh let me scroll down look at what’s

going on

uh it’s

nothing uh we have turnover again

yeah the building had a bunch of

turnover

you can see that there in the general

line right at the bottom

uh nothing uh nothing crazy

was a good year we made 19 grand

cash flow spending money

2016 rent stayed flat year to year so

again right around 63.

any big expenses again turnovers you can

see general repairs february march

oh another one probably in july so again

turnovers is what gets you

again apartments turn over a lot more

than houses turnover in apartments is

much especially c-class apartments they

turn over quite a bit

um

in cash flow is okay almost two grand a

month

oops

2017 now

oh rents went down why did rents go down

i don’t know why rents went down let’s

see

oh we must had some evictions

turnover versus evictions turnover

um

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they leave on their own they’re probably

paying but evictions they don’t pay so

we probably had some evictions

uh we had termite issue termite ground

probably a spray form we had to do code

enforcement was called by someone we had

to do a 1200 code repair

what else

oh yeah we had an eviction you could see

that there line 5006 seven we paid an

attorney

so in california that probably means

three maybe four months of no rent

uh we had a eviction

than that not not too bad

oh actually yeah because rents were down

again evictions are painful

2018 rents are down again

what happened here

let’s see

oh another eviction probably

must have got some of the paid forks and

only paid 375 versus usual 750.

what else

yeah another turnover probably two

turnovers here we had one definitely in

february probably one in may june again

turnovers in a year an apartment

not great

still made some money though

keep going 2019

rents are up rents jumped in 2019. look

at that 80 from what were they 58

something like that

um

so again now rents are roughly 800 a

unit from five

definitely had to turn over here oh wow

look at that turnover

5 000 that somebody

somebody was not kind to a unit that’s

for sure

that’s pretty hard to do a 5 000

turnover

that probably

yeah i don’t know what that would have

been but that we probably had to have

water damage probably for that to be a

problem

yeah look at that total repairs for the

year was 14 grand one of one one unit

cost almost half that

bad bad

okay

yeah so that was a good year 2019

2020

uh again rents are 800 ish

i think this is the year we bought oh no

that was 21 i think i think we bought a

roof

we put a new roof on

i think that’s next i think that’s 20

21.

yeah so again nothing spectacular here

yeah so that was a good year

35k

and then this year

again rents are up but you can see there

we had uh a new roof we put on for like

44 grand or something

uh

it’s basically five buildings

we got two units side by side so it’s

five buildings plus a carport we did

everything right

it’s a flat roof which i hate but again

it is what it is

and um yeah so that uh that’s expensive

roofs are expensive

so again uh

we lost money last month because of the

roofs

which again we’ve been reserving for we

knew we knew about the roofs when we

bought it so we’d put money away over

time

but yeah so that’s um

that’s what it is so uh

a couple of things about owning c-class

apartments

one is uh tenant turnover uh if you are

going to buy a problem building

i would tell you to plan for two or

three tenant turns because you can’t go

from problems not paying drug dealers

in the light to

solid citizens

uh it’s not a jump that’s made you’re

gonna have to um

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do a couple of tenant cycles you

probably will have people be destructive

on purpose just because they’re mad

um

you will see that rent increases can

happen quite substantially but there

also can be flat year to year

um you know again we talked about

utilities i did not i expected utilities

to be up i noted that they were 41.39 in

2012 they were 46 69 and 21.

uh management fees went up because again

rents went up so again these are

interesting

um

but this is why i we sold some buildings

we sold a couple of apartment building

c-class buildings uh in 19 because they

were overpriced

uh why did we do that because

we bought buildings that were

underpriced

and if you want to overpay for something

we own

we know what it’s like to manage c-class

apartments it’s not easy

and we will gladly let someone overpay

so uh hopefully you like that hope you

like those numbers let me know what you

think have a wonderful day don’t forget

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