Updates On Our Biggest Investment To Date! | Podcast | MFH | REIal Talk | EP. 27

Hey, everyone, Dannielyn here, co founder of the Freedom Real Estate Group family of companies. And this is Real Talk, our podcast, which is Real talk for real estate investors. And today we have a special guest, Chris Sonnino.

Yeah, hi, I'm happy to be here.

How do you pronounce your last name?

Sonino.

Okay. I was listening to some of our other podcasts and I heard Sonino come out and I was like, crap, have I been doing that wrong whole time?

Sunita's right.

Okay, good. So tell us what you do.

I run Independence Property Management and I'm heavily involved in a lot of the operations here at Freedom Real Estate Group family of companies.

Yes, you are. And he's been on many podcasts. But I said I'm still going to ask you to introduce yourself so that people would know if you're watching for the very first time, how important Chris is to this team. And of course, as always, if you're watching the podcast on YouTube, which a lot of you guys do, I have cheat sheet notes, because I always do to make sure that we stay on track. Otherwise I'll go everywhere. So today we're Talking about the 56 unit apartment complex that we purchased. We had titled that podcast before, I think our biggest investment today or something like that. So we're giving you an update. I think this is probably. Well, it's just short of a year since we purchased it. Purchased it on October 15th of 2020. And then now it is the day we're recording. This is what's Today's date?

The 30th.

September 30th 30th of September. So yeah, so this is going to be released I think next week closer to the close date. That's you're getting the real live data as of just today because Chris, this past week gave me fantastic news. Now it was ecstatic and I was just going crazy. I haven't even posted on Facebook yet, but Flip and I did go out and celebrate, so good job, Chris. Okay, so what we're going to do today, that purchase was a 56 unit apartment complex. It was a 48 unit. That's three buildings and then an eight unit probably like five minutes down the street or something.

Yep, couple blocks.

Okay, so we're gonna be selling the 8 unit just because this is a part of Flippin I's personal portfolio. And we've decided that we want larger complexes instead of small. So we're selling the 8 unit. So today we're really gonna dive into the 48 unit is what we're gonna talk about. So let's start with the supervisor tenant situation. I'm gonna let you go into this. Cause you actually met him. I just talk about him on these podcasts, but go ahead.

Yeah, so I think you're referring to the live in maintenance, slash manage, slash grouping everything else. That is all the other titles he had there. So we. The previous owner of the property prior to Danny and Flip, they were a DIY owner. And so they kind of did the best they could for managing. I think the gentleman was local. I don't think he's local anymore. So he put his trust in a tenant who had a little bit of maintenance, a little bit of maintenance experience and possibly some management experience and said, hey, I want you to collect my rents and be my resident liaison and all the things that come with what a manager should be doing. Popped them up in one of the units, gave him a discount on rent. Actually, I think he didn't have to pay rent and said, hey, collect my money. As long as I get X per month, you know, whatever. That was a very fun tenant to remove. It was a very interesting process, actually. So we try to work with them a little bit. Did not pan out. And he was in our third wave of evictions.

Yes.

That's when we finally got people going out the door. So it was a very interesting. The unit that he lived in was also one of the worst units for the flip. We had actually tear up the floors and do some of the subfloor. And yeah, it was. It was a mess. But it was also Hughes located in the building that was our first to fully get renovated and filled because it was a two. Every unit in that building was two bedrooms and they rented really, really fast. So that was the first one to get filled.

Nice. That was a lesson for me about the difference between one bedrooms and two bedrooms and how popular, you know, two beds or more, and how quickly they will get leased. Faster than the one bedrooms or an efficiency, which we have too. Which was, I think, the last one to get rented.

Yes, it was. Yeah.

Okay. So now I've talked about this on podcast before, so I want you to kind of go into it. I've shared that he was what we think is a drug dealer. He was literally like scamming like the. What would. There's a subsidy that. Where you can go in and treat yourself for rehab and then you come out. And he was. This is what I've heard. So that's why this is. This is the time to kind of come true. With what? You know, he was bringing those guys out, signing them up to be able to subsidy. Be a subsidy tenant in that apartment complex, telling them to pay him their checks. Like there was a big old scam going on.

Yeah, yeah. So you're calling. You're talking about subsidy. Payee less, subsidy more. So like Social Security payee. So essentially Social Security administration not to get too deep into that.

Yeah.

Social Security administration sometimes require people to have payees because they can't. They've deemed them that they can't handle their own finances. So they'll designate a person that's in charge to collect that money and pay their bills. So he became the designated payee for, I think five. I think five residents there. And when we're going through this eviction process, you know, we have to verify, like, rent's not been paid and the tenants are. I've paid my rent.

Right.

We're like, you haven't.

Right.

And so it comes back to when we got to the root of it. He was actually, in fact, taking their money and wasn't. It wasn't getting into the proper pockets. So those tenants in later got evicted for other things in addition to non payment. So it's not like we forced them out because of it. But we were understanding there was part of the reason why it took so long to get him out because there was so many moving parts. I cannot confirm or deny whether or not he was affiliated with drug usage on the property. However, there have been lots of speculations and lots of eyewitness testimony of that. Ultimately, it was a non payment of rent situation that got him out. We non renewed his lease, but yeah, he was heavily active. And actually, you own. It's not part of this, but you own a duplex that's a couple blocks, more than a couple blocks, about 10, 15 minutes away in Middletown as well. When we finally moved him out of your 48 units, he showed up next door to your duplex. He moved in next door. We're like, okay, this is gonna be a long day. This will be a great thing. So we ultimately had to trespass him for all of the properties that we own.

Wow.

Like anything that was part of that package. Because this 56 units was bought in a larger package of other single families and duplexes. We ultimately had to trespass him officially in Middletown from all of our assets. And since then, we haven't had as many issues. I'm sure he's still there somewhere.

Yeah.

But I haven't had any dealings for about three or four Months. So it's been a breath of fresh air.

So nice to hear. Yeah. I was also told, like, you know, that whatever that subsidy is that treats people who are going through drug addiction or whatever, that he would pull them, give them leases, and then sell them drugs. This is what I heard.

Yes.

I also heard, oh, many times where we'd walk into vacant property that was somehow not vacant and somebody sitting there, oh, I'm the maintenance guy, you know, James, let me in.

Yeah.

Or, you know, something like that.

That's. That's another interesting. So after he moved out and we're vacating units, we're securing units, putting new locks in there, adjusting George Jambs and all that, we come back and there's somebody back in the unit. And the bottom line was that he was hiring people in the community, hiring, quote unquote, to work for him because I guess he did some remodeling and maintenance esque stuff for other landlords in the area. He would have them come in, do labor for him and say, hey, I'll cover your rent, and then just move them into our complex with no lease. So that was a. Interesting thing to learn about. I didn't know that. I mean, it makes sense, but I don't think like that. So I was like, okay, that's new. It's not one I've encountered before. So luckily we have a good legal team and we were able to get a little bit creative on how to. How to make that not happen anymore. Including you installing cameras.

Yes.

Ultimately we came down like, hey, just people telling us there's problems isn't enough. We need to actually be able to just check it at any given time. So we stalled cameras, and I think there's 13 cameras on the property. All the entrances, exits, parking lots, common areas. The whole property's covered.

Yes.

And ultimately we end up catching some of that traffic and we're able to get the police out there. Quit early. We even hired the police.

Yes, we did.

And for a while there, we had them on site 10 hours a day or something. Exactly right of the night, just to make sure we can turn a corner.

Yeah. And it got to the point where the activity around there was so crazy and you guys were doing such a good job of getting them out that they started breaking in windows. Right, right. And we just kept continually finding people in our vacant units after we thought that they were gone and it was empty and it was secured. There they are again. So then we started putting simplisafes on. We started boarding up, I think we put Simplisafes on, then we did second step of board up Windows. But then I think they stole a couple Simplisafes.

Stole a coup. Simplisafe's. I have a funny story about Simplisafe.

And actually explain what a Simplisafe is for.

Oh yeah, yeah. SimpliSafe. So SimpliSafe is a service that I use, you know. Advertisement here sponsored by SimpliSave. So no, SimpliSave is a. As a, like a do yourself security system. So you. You pay for their service. I don't know what the costs are for that. It's more of a problem.

I think it's $25 a month per unit.

Yeah, they got like little motion sensors, door sensors. They have a little base tower and little keypad. I mean just your traditional home security system. Simply plug, plug and play. Strenuous setup or hard wiring or anything. We use it for not necessarily problem areas, but specifically problem properties. Properties that we have trouble getting the security where we need to be. Even when like we go and change locks for some of our single families, like there's just so much foot traffic.

Yeah.

That we want to just have that little out of security for our clients. For you.

Yes.

To make sure that. Make sure that, you know, there's not. We're notified if something happens. Right now let's say the motion sensors are super, super sensitive. So we've like caught squirrels outside of windows and things. So strategic placement of these devices is important. You mentioned like people breaking in windows. We had to board up like all of the ground floor windows and then they like grabbed the awning and they did a chin up on the awning and they climbed in the second floor window. So we're like, great. So we started screwing windows shut and it was a very large task to get that. And it was only one of the three buildings, which is crazy. There's only one of the three buildings that was actually a problem. And they're literally like right next door to each other. So still confused as to why only that building was a problem, but the rest of them, like, we locked the doors and people left them alone. It was the middle building, actually. It was the peanut butter, the sandwich, the middle one that was being a problem.

That's funny.

So. But yeah, we had a situation actually on the last wave of evictions, I think it was the last eight person was not in the right state of mind. Possibly chemically induced. And we were getting them out belos there. We had a crew there helping move all the stuff out for her. And in one of the boxes she was carrying out was our Simplisafe. And not only are Simplisafe, but our wireless Internet, like our router that we use that she had unplugged from the wall in the common area. So I was like, well, what's that? She's like, oh, this is the stuff I have to return to T Mobile. And I'm like, no, it's not. So I flipped. Luckily, we mark everything. So I flipped over the router, and it has our little handwritten IPM whatever. And then on the Simplisafe, I popped off the back where the battery is, and there's Flip's little notation of what Simplisafe said it was. And I'm like, yeah, no, these are ours, and that's theft. And she was like, oh, almost been my boyfriend. And I was like, okay. So, yeah, there's been lots of situations. And we go on all day.

I know. I just wrote. Wrote down three of them just like that. Throw out here. That's what this podcast is for. Right? So the attic. Do you remember that?

No, you wouldn't write that one down. Okay, so in the problem building, we could, like, after we were like 100, sure they weren't getting in the doors and they weren't getting in the windows. Like, there was no way that they were getting in. We're like, how are they still getting into this? Like, they're getting in, not even having a key. So if they get out, like, they can't lock the door or anything. So we're like, we. We don't know how people are getting in. And then I don't even know how we figured out that they were climbing through the attic access in the third floor common area. Like, they were getting into the attic, crawling across the rafters and dropping in through the ceiling of the units. And I was just like, these guys are just.

They're so creative.

So we end up. We ended up like, we. We put boards across the attic.

Yes, we did.

And we screwed them in there and started moving people in the building. We're like, okay, if you. Anything other than you in this building, like, call us, because you're the only person that lives in the section of the building. So there should be nobody here right now between the hours of 8 and 5, we're probably working. But if it's after 5, here's my personal phone.

Yeah.

Because there's somebody breaking in somewhere.

Yep. Yeah. That was the most surprising of all of them. And I think it was one of our contractors. He goes, I think I figured out how they're getting in. It was hilarious. So another one was the police. So there was many times, like we've said that we've walked into what we think is a vacant unit and suddenly there's people inside. Sometimes just a guy, sometimes two guys, sometimes a guy and two girls. It just doesn't matter. And they bring all their stuff. So it could be that example of attic and then in, and then open up the front door and everybody tries. So there was one time where we called the police while we were trying to get them out, because they were just slow going because every now and then they're just like, okay, yeah, they grab their stuff and they just walk out. But this time they were just, you know, kind of hanging around. So, like, we're gonna call the police. So the police come and I can't remember. I don't think you were there. I think it was me and Jen, one of our in house contractors, maybe at the time. So we're talking to them and they get them out and they ask them all these questions and they trespass them. And then I start talking to them about, you know, this complex. And they said, you know, this complex was actually owned, not before the owner that you bought it from, the prior owner was the police chief.

Right.

And this complex is known for its, you know, drug activity. Right. And so I asked, are you guys here a lot? They're like, we're here all the time. And so I pointed right across the way. That's one block away. That like 200 unit, beautiful complex.

Yeah. Two parcels. Like it's divided by a parking lot and a church.

And it looks like brand new. I don't know what the construction is, but it's gorgeous. And I said, do you ever go there one block away that way? She goes, no, never. And I'm like, okay, at least I know this area is good. It's this complex that is very well known for. Here's where you go to get this.

Right?

So we asked them, you know, questions about Simplis Safe, and they said, what if we put it on silent? And so they don't know what's going off, and then you have time to get here and catch them. And she, she honestly said, I would love to tell you that we could do that, but we are so busy, it could be 10, 15 minutes before we can get out here based on who's, you know, what else is happening. And the last thing that you want is for them just to not, you know, not. Or she had given an example. She goes, I just recommend something loud, you know, just make it go off so they get back out and you know that something happened. So it was just a crazy conversation, but it did give me hope. And that's when they asked for, can I have your personal number? And my personal number, my husband's personal number so that they could call us if, you know, they had any issues.

Yeah. And we, like when we replaced the common area doors to try to again, secure the buildings, I think we gave a copy of the key. Like they have a master key to get in. And I think, if I'm not mistaken, they actually have a master key key to the individual units too, because we have that also those on a master key system.

Yeah.

So, I mean, if there is a situation, they can get in. They don't have to wait for us. I, personally, I'm 35 minutes from the property. I think you're about the same. Yeah. So if we, if we were to have to go out there, it would take us a bit.

Yeah.

To get there. But having a relation, good relationship with the police department has been very helpful.

It's been fantastic. And I just loved hearing that, you know, it's not this area, it's just this building. We're like, we're going to turn it, we're going to rebrand it, we're going to do all that stuff and it's going to be okay. And that's the last thing that I wrote down was just when you mentioned the cameras, remember when we contacted the previous owner about the cameras and he said, yeah, they don't work anymore because my, my, my, the whatever you use the box.

Yeah, yeah.

The box kept on getting stolen.

Yeah.

And I was just. In my head, I'm going, it was your guy that you, you know, that you hired to run this place. Probably.

Yeah. No, 100%. Yeah. Actually, yeah. When we, we installed the, when we reinstalled the camera system, I mean, we did a whole new system. We didn't use any of their materials.

Yeah.

Just for security sake. And that's one of the. This was one of our simulations. Like, he's going behind a double locked door. So it goes to the common area and then into additional locked area that no tenants have access to.

Right.

Has some of our mechanical stuff in there. So we are in there often. And then it's like locked behind a sealed, like a steel cage. So it's like they may go in there and be able to unplug like the Internet which would make them stop working. But the actual backup for everything is locked up. So there's ever a situation we can roll back the tape. Yeah, yeah. And actually, I have access to it on my cell phone. So, like, I see I can just pull up the cameras whenever I need to see. And yeah, it's definitely makes me feel better about it.

And I remember Jeff saying, yeah, you know, I knew Chris was going out there, so I just look at the. On my phone and I check the cameras, and I'd see Chris walking around.

Funny story. I was. I was there one day actually. I was there actually to meet the police department about something, and there was like a. Somebody just walking around, not in the good mental state. So the police were on site, and Jeff is on the phone with me. Like, okay, two. I have two phones. So I have my personal phone and my work phone. Work phone. I have the camera up because I'm trying to figure out how many people are involved in this little thing. Because we're outside. Can only stay in one parking lot. Can't be two places. Jeff calls my personal phone. He's like, chris, go around the back. They're on the back. Oh, the police coming. Like, he's watching play by play of the situation that's right in front of me. It was. I had. I had to get off the phone with them. I was like, hey, man, I appreciate it, but.

Yeah, that is so funny. Well, I don't know if there's. There's probably more horror stories, but I really wanted to dig into that because I keep on. You know, I'm on other podcasts now, and they're like, tell me about this apartment complex. They really want to hear the story of. Of what happened and how did you get through. So that was the horror part. Right. We bought it because we needed to buy the entire package, and that apartment was a part of the package. So we ended up getting it, and then we found out kind of all of this stuff. So it was a crazy road. But let's start walking them through the process of getting to where we are today. So talk about. We realized we had to start doing evictions, and this was Covid environment.

Yeah. Yeah. So granted, this was, like you said, October. We IPM have a pretty standard, like, we don't do any evictions directly after acquisition. We try to wait at least 30 to 60 days, because if a resident has an excuse not to pay rent, it's when the management changes. I don't know where to pay my rent. So we have to Establish a little bit of rapport, like, hey, I'm here. I'm going to take care of one or two work orders for you. I'm going to be on site. We're going to talk in person. You know, we try to establish that. So we also knew right off the rip, though, that we were going to be removing a fair amount. We didn't have a shrub number because we didn't trust the financials. Once we got to know the people involved with the financial statements, we. You had a general idea of what you wanted to go with the property as far as rehabs. So we wanted to make sure we were doing everything possible to make progress toward that without losing time with removing tenants. So became very evident very quickly what tenants were not good before we even looked at the books. Okay. So we kind of develop a plan. We're going to do a couple waves of evictions. Covid, like I said, it was in the end of. Toward the end of the year. So we're still under a lot of restrictions for non payment of rent is a big thing, especially with COVID So unfortunately, not paying the rent is one of the easiest ways to get people out. The shortest notice is required for that. But at the same time, like, a lot of these are criminal. Criminal activity. They're violence. There are people that were like behind like a year's worth of rent, like, so it became kind of a tough conversation because the ones that were just behind on rent, like, we're going to give them opportunity to pay some form or fashion, but at the same time make it abundantly clear that we're going to help you get resources to pay rent. But ultimately you've got to transfer to one of our new units and the rent's going to increase quite a bit because we're completely renovating the unit. And I understand the rest of the building and the rest of the property may not be at that level yet, but we're working towards that. So we were having very clear, very transparent. Nobody should have been surprised when those notices started getting posted the door. And we started with the criminals. We started with the bad eggs, we call them, the ones that were just culturally not fit for the community. I think the first wave was, I think 15 or so. I think, wow, where we're just like, hey, you gotta go. Yeah, we're not gonna offer you another unit. We're not going to. This. This relationship's not gonna work.

Yes.

I think the property had two vacancies when you bought it.

Yes. Well, I think one at the 8.

Unit and one at the 48, I think, right? Yes, yes. Yeah, yeah. So we started with bad eggs about 15. Took several months. I think it's only two to three months to actually get that process rolling because municipalities at the time are a little bit cautious about evictions, even though the wording was very clear for non payment of rent. So. But they were kind of cautious on all evictions. So we had to kind of actually put our legal brains to work a little bit to figure out how to get those rolling. Coming to January, we're rolling out the second wave, which is another 15. I think those moved a little bit faster because now we're past like our third extension with the CDC decorations and we're able to have a little bit more of a conversation like, like, okay, hey, your lease is expired at this point and you're not. We're just on non renewing. Like we've waited our time, we've asked you to leave, we've given you an opportunity to leave at this point has nothing to do with rent. Most of these people, we didn't even charge back damages. Like we're like, listen, we just want you to move. So we're going to waive your damages because you were going to remodel the whole thing anyway. We just wanted them out back rent. A few of them did get charged rent. Like, like we're going to collections on them just because of the fact that they didn't leave willingly and there was still eviction costs that went into that. So they're getting a little bit of rent. But we're not chasing you for the, you know, $10,000 of damages to the property. And then the last wave was literally the, the end. The only the non payments, the people that were kind of paying a little bit here or there, but they weren't really being on time for it.

Right.

And that, that was in, I think April or May was the last wave. Last wave, I think there was nine on that one. Overall, 48 units. Okay. We evicted all but two.

Yes.

And those two are still pay in full on time. And they did transfer. They transferred pretty quick. I think they transferred in January or February, signed a new 12 month lease at market rate.

Yep.

We didn't have a utility package then because we hadn't really had that discussion.

Right.

So the utility is a little bit different on those two units, but they're at market. Yeah. And they both. Oh, three. There was one person that inherited one that we have one inherited person that had an existing lease. So two people Transferred. One person has an existing lease, which is actually expiring today. Firing, I think, today.

Yeah.

We're gonna keep them for a while, though. She's actually a really nice lady, but. Yeah. So 48. That's what, 45. 45 evictions.

Wow. Yeah, the crazy part is. It's crazy. It's 45.

Right.

It's crazy to do 45 during a Covid environment, you know, with everything going on.

So, yeah, we were both very stressed out because a lot of those are like, oh, we're just waiting on a court date. We're just waiting. We're just waiting. Like, I can't do anything to influence those. We're just waiting. And so when we finally got, you know, some momentum, those. Those set out days, like, we had three people from IPM there. We had crews there because we wanted to make sure we capitalized on getting them out as quickly as we could that day. We want to have any loose ends going into the next day. You know, we, at that point, learned our lesson, and we had new door jambs ready to install locks, screw screws to screw the window shut. Like, we kind of got the task down at that point. Well, because the rehab team, a bulldog, was able to turn them in, like, a few days. Yeah, they were fast, you know, so for us, it's like, okay, as quickly as we can, get it back to us as possible, the better. And, you know, so that the eviction process had to be on point.

Yeah. And so that. That leads right into, like, the rehab and the fact that the rehab was sort of delayed because I particularly. I don't know how you really felt about it, but I know. You know how I felt about it. I was like, I don't want things vandalized. Right. Because these guys are just breaking in. They're doing anything to just make our lives miserable, trying to turn this complex over. So we kind of. We're. It was the shaky ground of when do we start rehab, Right.

Yeah. So, yeah, I mean, and old Steve, our project manager there at bdr, they. They. He wanted. He's like, let's do this, do this. Let's go in there. Yeah. I think he asked me more than you, like, what's the status of this unit? So what we did is when we. We got one unit vacated, and the nicer of the three buildings, we. Well, at the time, they're all the same now. They're all great now. But at the time, that was the one that was a little bit easier to manage. We had one unit that we turned into Fort Knox. Like, the guys put all their materials in there. This is their base camp. We made sure that was probably the most secure unit in the whole complex. I think I had two deadbolts on it at one point. Like, it was. It was tight.

Right.

And he started buying materials and putting things in there so he can move quickly on these rehabs. And then Steve also, he had designated crews. Like, he had. He had a team that was. Anytime we vacated a unit, he had him in there the same day.

Yeah.

So it was super easy transition. Like, hey, here's the keys. Take over.

Right.

Half the time we just dropping keys in a lockbox, and he would just run in there. It was a delayed start. We're still dealing with a couple, like, punch items, things on the back end, because we did. We just steamrolled through all these rehabs, and now they're back in tenanted. Like, we're finding small plumbing issues and small things that. That just happen with apartments. Yeah, but, yeah, no, I mean, it was a little bit delayed, but, I mean, yeah, it moved quickly.

It was just. Yeah, it was just a shuffle because I kept on going, don't. I don't want them to steal our stuff and vandalize and materials. And it was crazy. So we got through that. Okay. The next thing I have is rebranding.

Yeah, rebranding was interesting. So the little. Little apartment complex you talked about on the corner. Corner. It's like I said, it's literally two parcels away, separated by a church and the church's parking lot. Like, really, you can see the building from our building. It's called Trinity Place. Trinity Place, right. Yeah, yeah, Trinity Place Apartments. And so in front of our, you know, your complex, there's like this little rinky dinky wooden sign that's, like, half falling over that says Trinity Apts. So rebranding was a must. Plus, that sign had to go.

Yes.

Actually, I took the pleasure of kicking down that sign myself.

Did you?

Yeah, it was a very nice moment for me. It's probably on the cameras, because it was after the cameras. So I think we started with a poll in the office, just like, hey, we're talking about naming it. And the selection committee was you and Flip, I believe. I think some logos were also thrown in there in the mix, too. Once we had a ballpark idea, and somebody from our office named it.

Yes.

Yeah. So our marketing coordinator, Caitlin.

Yes.

Came up with the name, which is really, really cool. Yeah, she can put that on her resume. So, you know, she named it. She named It Pine Ridge, not Pine Space Ridge, not capital P, capital R, but one word, Pine Ridge. And it. Then the naming came from the fact that there is literally a ridge. There's a line of pines in the middle of the property.

Yes.

And that was brilliant.

Yes. Yes, it was.

Yeah.

Yeah. I think that's one of the reasons Flip and I liked it so much. It's like, it just. It was relevant to the property itself.

Right. And it was unique. It's not Trinity. It's.

Yes.

It's not any of the other ones. It's Pine Ridge. And it's. So we got this beautiful big sign with a logo and says Pine Ridge Apartments on it. Got it put up on a. On a mound. When you're driving up to the property, you can't miss it. And then we got some, like, new leasing materials and stuff like that. There's a big, like, grand opening, like, now. Leasing sign.

Yeah, yeah.

So. And then little thing. I don't even know if you don't realize what we did, but, like, we IPM printed up, like, flyers and we put them all around Middletown just saying Pine Ridge Apartments. And it just had, like, our contact information. Dropped them in, like, speedways and places. They have little pin boards. Sure. Don't know how much actually help with leasing into things, but just it started to change the conversation about that property. That's been huge win.

Yeah. So that leads us into leasing. So talk about the leasing and maybe any obstacles or successes that you found as the property got filled up. Right. Because it's kind of hard when a property is empty.

Yeah. Yeah. So first, the first difficulty there was tracking. Right. We've got two different companies that are competing for the same space. Well, competing is not maybe the best word, but we're. We're trying to accomplish similar missions in the same space. They have their timelines and their way of tracking. We have our way. So we had to find a middle ground of like, hey, how can we communicate effectively so that when you're done with the project, it can be handed to me quickly. Now we have. We have those systems in place with the rest of our companies on a bigger scale. But for this specialized project, it was a little bit more daunting to get everybody on the same page because the traditional methods of communicating wasn't going to work. We'd have to bring it down to just this one project. Plus, not everybody in Freedom Real Estate needed to be, you know, told every step of the process for buying Ridge. So putting the company public, you know, spreadsheet to Track rehab wasn't going to be sufficient.

Right.

So we had to kind of reinvent a little bit the spreadsheet we end up having. I think I had like seven tabs on it, but ultimately we could track it through the whole process. So. So our leasing team would get in there, we'd be able to see what Bulldog was saying was done, and then we would go in and we'd look at the property and say, hey, we need to fix this. Isn't this. And then they would give us a timeline. If it was minor stuff that we can still lease, we'd still try to lease it. One of the things with this property that made a little bit more difficult for us and for those of you that are clients of ours, that watch we use Show Mojo, which is a virtual, like, no contact showing option. We were starting to use it before COVID and then Covid just put it on the front burner. Okay. Very, very hard to do with properties that are currently in rehab because you have multiple crews going in and out. One person has a key because they had to get in the building, then there's not gonna be a key to the unit.

Right.

We're showing. And then also because of the way the buildings are set up, there's a common area which doesn't have a. It did have a. It does have a traditional knob on it. But, like, you have people going in and out, having a lockbox on that may not be efficient. So we were like, we're not going to be able to do auto showings for this.

Right.

Like, we're going to have to actually go out there and do some salesmanship.

Yeah, yeah.

Plus the property needs some salesmanship. When we first started. Now by time we got to the last five or six units, the property selling itself.

Right.

You know, but so for a while there, like I was doing showings, we had leasing assistance, and now our assistant manager, Mariah, she was out there doing showings, like bulks of five to six per day, trying to get some interest. And Even with your 8 unit that's right down the road, it's a similar situation because, you know, the one bedroom layout might be kind of what they want, but they want a little bit more space. So, hey, we got this eight unit down the road that's also a one bedroom, but it's a one half bath. Want to take a look at that? They'll take a look at that. They may not like that. They may just say, you know, I like this one bedroom bed. So we kind of play the properties off each other a little bit.

Yeah.

And now we're. Well, this is announcement for later, but we're in a position. I'm gonna put it this way. We're in a position where we're using some of the leads from Pine Ridge to fill the other property industry.

Nice.

So leasing was a task, and mostly is because of communication between companies.

Right.

And then also building interest. That property had a reputation.

Yes.

We destroyed that reputation and rebranded it. So it's bam. And that. That's not. That's not as simple as throwing. Throwing money at it. Right. We have to get the whole community engaged.

Yes.

In that conversation.

Yeah, exactly. You guys did a great, great job. So what's the status of occupancy?

We're 100 rented. Yeah. So we have several moving in tomorrow. The ones that are not moving in tomorrow, like, moving in early next week, but their leases are signed for for the first. We are a little bit behind our timeline on that, but it's definitely a huge win. It was a major project.

It was. That we've never done before.

Yeah.

First timeline was a guess.

Yeah.

In a Covid environment.

In a covenant. Yeah. A lot of variables that we were not expecting, too. So. Yeah. 100 occupied, all at market rate except for one unit, which I don't think we're gonna go into major detail on the one unit, but that one will be a market rate in the next couple of months as that lease expires.

And it was really just. It was a guy that we hired to kind of help us. We're like, you're on site. You can live here. He was in our in house construction crew.

Correct.

And it was a kind of a security piece, especially for me. I know it didn't turn out the way we wanted it to, but it was a. You're here, you're rehabbing the stuff. You know, what's going on. Please be our eyes and ears. And it gave me a little peace of mind, and I would have structured it differently.

Yeah. Knowing what we know now, we would have restructured it a little bit differently. We're not necessarily losing money on that. It's just more of a. The relationship didn't pan out the way we expected. We initially made the relationship agreement, but, you know, you learn. You learn. And now, like, now we, like, actually, one of our. One of our tenants is actually helping with grounds and things, too.

Nice.

But now it's set up the way it should be, where he pays full amount of rent, and then he gets a small stipend on the Back end once the work's done. So instead of discounting rent, which I'm not gonna do ever again. Yeah, no, but. So we're in a really good position there.

Okay, so I have two more bullet points to talk about. Let's talk about because we're going to go into the noi which is net operating income for anybody who does not know what that is. When you get into the apartment world, it's about noi like your value of your property is based on how much income you are receiving. So your income minus all expenses, that's your net operating income. And the bank is going to take a look at that. And therefore then you kind of adjust the rate by your. The cap rate. Right, right. So we'll go that into that in a second. But talk about the income sources that we have here at this property that goes into the noi that I'll talk about in a second.

Yeah, yeah. So for all of our portfolio, I'll do it this way. All of our portfolio, the, the major income sources are rent and pets. Okay. So there's a garage space and extra space. Sometimes you have a couple that will get a little extra for running a garage for a little bit more on the rent. But for the most part it's ren market or better. And then pets. Pets is kind of tricky because it can actually be a liability. But we required a pet deposit that's non refundable. We actually call a pet fee.

Right.

And then there's a monthly fee per pet on top of that. So we try to mitigate any potential long term damages by charging upfront for that.

Right.

Now when we were starting to have the discussion early on, when we started vacating, you and I sat down, down and we put together like what is the goal for the property? And we had a similar discussion about what your NOI needed to be. Roughly.

Right.

I think has evolved over the last year a little bit. But we're like how can we maximize this? Right. One of the things that we immediately. Well, we immediately started talking about but didn't really iron out until the beginning of the year was utilities. Utilities are weird. And single family usually is a single meter and you know, know and you can just build utilities for our multifamily. Like there's gas I think is separately meter but not all electric was for these buildings. And some of the buildings are metered differently. Plus there's common areas too.

Right.

And then there's also like you have to pay for a much larger trash bill because you have to get like A service to come out with dumpsters and service on a regular basis. So in order to try to mitigate that a little bit, we developed a youth utility package. So we looked at the usage over the last year when it was fully occupied before purchase.

Right.

Because we knew we were vacating everything or close to everything and then re renting it. The usage should be a little bit better actually, because we're putting any energy efficient stuff back into the buildings.

Right.

And upgrading everything. So like worst case scenario, this is how much utility is going to cost. And then we built a package that the residents are now paying the utilities without having to have the services in their name. So we have the control of making sure the bills are getting paid.

Yes.

Which is a big win for you.

Yes.

It's automatic.

Yeah.

It comes directly out of our accounts. And. And the tenants have the security of having a flat bill.

Yes.

They're not getting a bunch of fluctuations. It's not, it's not requiring us to go and look at every single bill and line them out and do a bunch of math, because we love math so much to figure out what tenants should be paying. It's not based on square footage. So the efficiency is paying just as much as the one bedroom. And it's just a flat bill. Everybody's equally contributing to this pot that pays the utilities. Now what that does for you and I know we kind of had to talk to a legal team and make sure that we were doing everything above board. What is for you is that utilities fluctuate. So some months it may be $200, some months it may only be 265, you know, so but that fluctuation, the package pays for itself.

Right.

And then we'll, we'll do an analysis at the end of people's leases, probably annually, we'll look to make sure that we're covering all the utilities. We need to be. As of right now, we're on track. Now granted, we are just now fully occupied, so a few more months, I'll see where we're at. But another thing we did, we started off with month to month leases. We thought that that would be the best way to control the variables, especially with utility packages that we started at a number and it kind of grew over a few months as we started seeing the utility usage. We then switched back over to 12 month leases.

Right.

Because there was more and more pushback for people wanting the security of having a long term place. And that also sweetens the dealing utility package because then they're locked in at that rate for 12 months guaranteed.

Right.

And then for you, that's, that's. That's revenue that comes back to help cover.

That I can count on. Right, Right. Y. Yeah, I. I agree.

A couple other things we have is that we did install multifamily. We have the luxury of choosing whether or not to have laundry facilities. Can't really do that for. Well, you can do it for single family homes, just not as fun to do it for single family homes. So we have a. We have a service that has coin operator laundry in two of the three buildings. The third building doesn't have a, like a designated area that would fit that. It would literally have to go in the hallway.

Right.

So we set up two laundry rooms in the buildings and the residents have access to be able to go and do laundry. It's actually pretty good pricing for that.

Yeah.

There's a little bit of kickback to the supplier of those equipment because there's some warranty and contractual obligations there, but the rest of it comes back to you. And then also as a courtesy, there is a WI FI package for the three buildings.

Yes.

Now, Jeff, if you're listening, kudos to you, man, because that was a pain to set up. And I know that you spent a lot of nights and extra hours making those phone calls.

Yes.

But it's set up and it's working. It's not required. I think we charge $35 a month. It's actually the same exact utility package I have at home as far as what I get. But my tenants are paying 45% of what I pay.

Right, right.

So for them, it's a win. Absolutely. The only thing is, like, sometimes there can be bandwidth issues and things like that when you have a mesh network of Internet. So it is optional. We don't make it a requirement. And if they choose to get their own Internet, that's fine. It's more. So we want to provide this cheap for you. Some people only need it for their phone or their TV.

Right.

They don't need to play Xbox and PS4s and all these things. So for those people that just need just basic Internet, it's a cheaper software for them. And then they can add it or remove it whenever they want. It's literally for us changing a password, you know, providing a password. So.

Right.

Very easy to use. I think. I think 65% or more.

Yeah. I looked at the sheet today preparing for this podcast, and I think we're cash flowing like over 300amonth just on WI fi.

Right? Yeah. And the Goal with the WI fi is just cover the WI fi. Like, we just need to cover that bill. It was more so of an amenity for the tenants to be able to have access, not so much a profit center. So. And it's working out. People love it.

Yeah, that's great. Yeah, I love it. Okay, so let's get to the numbers, because I promised the numbers when I. When we did the vlog preview for this. So right now, because Kris and IPM has done such an amazing job, we are getting to prepare for refinance. So I actually have a partner in this deal. That's one of the reasons some. Some of you may ask, why the heck did you buy this place? Like this is crazy. But. But I did have a partner that she now owns, her and her husband, I think 1800 units. I actually showed the property to them and they said yes. And they ended up partnering with me on the financing side so that I actually brought in private lenders to be able to fund the deal. So that was no problem. They're partnering to be able to refinance. So they're talking to the banks right now and showing them all the rent rolls and the T12 and stuff like that, preparing for us to be able to refinance the property. Because it takes for a bank to want to refinance a property like this. It's going to be three months of 90% economic occupancy. Do you want to explain the difference between occupancy and economic occupancy?

Yeah. So occupancy is the property. The percentage of property is occupied. So in this situation, 48 units, 90% occupancy is. I believe we said 43.

I think so, yeah.

I think 43. Meaning that there's bodies, warm living bodies in the units, whether or not they pay rent. Okay. Economic occupancy is. Not only is it at a certain level of occupancy, but those people have to be paying overall 90%. So it's a double calculation. So for this, if there's 48 people were fully occupied, that we only have an allotment for four people not to pay rent. Now, that being said, we don't have anybody that's not just not paying rent.

Right.

Most of the time it's like I'm making a partial payment. It's still Covid. Even though we're kind of on the tail end.

Right.

There's still people affected economically because of it. So we're a little bit more understanding about that. So we're allowing a little Bit more leniency on the timelines for notices and evictions processes and all that, but yeah, 90 economic. Meaning that if it's fully occupied, 90% have to be paid in full.

Yes.

Monthly. So by month end.

Yeah. And that was why one of our goals was to get it 100% right. So that way if four people didn't pay rent, we're not screwing the refinance process like start all over. So that was super important. Okay, good. All right, so I'm gonna put on my glasses because now there's numbers. All right, so I just did the calculation on the shelf sheet because they just finished leasing. So I had Jeff fill it all out just the other day so I could come here with all this information. Annual NOI for the property after all expenses is $321,000 a year. And add an 8 cap, that puts us the value at $4 million. So this 48 unit, what we purchased it for was a little over 1.1. That does not include the 8. We actually divided it up so we could see what we spent on each building. So one point million dollars was the acquisition. So far in rehab, we've spent 613,000. And I say so far because on the H vac units, we decided to, as they fail, replace them. Like let's not replace everything right now, but let's just let them go as they fail. So that makes us 1.7 million for our all in number. Once we pay off our private lenders who funded this deal, we're going to be at almost $2 million, which means that our private lenders made almost $261,000 in that 15 months of being the lenders on this deal. 3. And I'm so excited to pay them that because they've known me for a long time. This is my very first apartment purchase. And I said, will you come on this ride with me? And they trusted me and they did it. And it's nice to be able to reward people that you've been working with for a very long time who do trust you, that you always come through and do what you say you're going to do, even when it's a horror story of a deal. So our goal for refinance is December 2021, January 2022. And even though the value is at 4 million, if it's trading at an 8 cap, which this area is, we're actually selling our 8 unit, you know, at an 8 cap as well, we're holding it. You know, we want this for cash flow. We didn't want to, you know, rehab and then, you know, sell it to somebody else. If you're going to do that much. What work, might as well just sit back and enjoy it for a little bit.

Enjoy it for a bit. Yeah, absolutely.

Yeah. So I'm super excited. Anything else that I'm missing as far as stats or, you know, kind of, you know, our race to the finish line?

No, I mean, I mean, there is a capital improvement stage. I mean, there's still things that need to happen. I mean, we have a plan to replace some windows. You mentioned the H vac. There are things on the rehab that we're like, okay, we just need to get it to a standard, consistent standard, and then also give a little extra for safety, security and all those things. So there are still things going on. But you replace the roofs. We did a lot of work on the parking lots. Actually. We sent our maintenance guys out there to stripe some lines.

Oh, nice.

So, I mean, there's still things that are ongoing which will help appreciate value a little bit more. And then as we start seeing the benefit of the rent coming in, that'll also help.

Yeah. So, yeah, I'm excited.

I'm really excited. I'm also glad that this is not the absolute focal point of my entire staff, but that's okay.

Yeah. Sorry about that.

It's okay. No, I'm excited to be a part of it.

Yeah, yeah, yeah. And I think we all were waiting for this finish line to come. Right when you're in the middle, you're just like, oh, my gosh, when are we gonna be done with this property?

Yeah, I, I actually, I called you. I called her on Friday last week and I was like, hey, guess, why didn't you leave voicemail? My intention was to say, hey, guess what we did. Well, I actually told her that on Monday morning.

Yes.

And so she's like, what?

Yeah, yeah, it was celebration time for sure.

I'm so excited.

Yeah. So thank you so much for all your hard work, your leadership and everything you did. This is, I don't know if you've ever taken a, you know, 56 unit apartments from, you know, evicting everybody to rehab, to leasing it all up before.

Okay, that was the first for me. Yeah.

No, congratulations for the experience and knowledge that you now have and you did it successful. What I hear most of all is they're like, you know, look at this is the type of operators that you want to work with. Right. They could have just put their, through their hands in the air and said, Forget this. This is crazy. I'm not dealing with it. I'm out. But instead, we just didn't let any of that affect us, and we just kept going. Every single day was, okay, what do we do about this?

Yeah, there's a killer team behind the products here, and they'll do. I mean, at one point, our president went out there, he put his shorts on, and he's like, all right, let's clean some units. And he got out there, he did some drywall, some paint, and he's like, I'm going to do this toy. Like, yeah, we have to do everything we can. And so I think it's all team effort on this property. And even now, like, as we're, like, we use the analogy of landing a plane, like, the plane sit on the tarmac, we're unloading people. Like, we're done. The project's done. It's just got to let it finish out.

Right?

So really excited in the position that we're in. I was able to sleep easy this weekend. It was a good. It was a good. This has been a good week.

Yeah, me too. So thank you to my partners who partnered with me on the steel. Thank you to ipm, who's been amazing on the steel, Bulldog Renovations, the entire team. I think everybody had a piece of playing this. I know Jeff is excited about wiping his whiteboard clean.

Yeah, he's got that whiteboard on there forever.

Yeah. Yeah. So I'm so grateful for this experience and knowledge that we all got to do together. And we're here. We did it.

Yeah. I keep asking you. This is actually your last point on here, but I keep saying, hey, we're going to do this again.

Yes. Yes. We're preparing to do many more. Thank you for even noticing. I totally forgot that we've now, like, partnered with somebody that we're gonna do a bunch more locally. We're working with Steven, who's gonna do more on a national basis. So, yeah, I'm in the multifamily game. This is exciting.

Nice.

So I hope you enjoyed the podcast. This is a lot of information, but we promised you that we were gonna get it all out there. There's many people that have asked me, and I said, we're gonna tell the whole story, just everything. Yep. So we appreciate you for coming on and sharing all this, because you really knew all the goods.

Anyway, it's fun. I love this stuff.

So join us for our future vlogs and podcasts. We love talking about all this stuff, and we always like to invest our in close our Real Talk for which is real talk for real estate investors. Just let me usually I haven't done a podcast like a month. This is our podcast Real Talk, which is real talk for real estate investors. And we all ended up it we always end it with invest smart, Live happy. Bye everybody.

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