Investment Property
Making Money With Turn-Around Properties
By
May 23, 2005, 08:59

What is a turn-around apartment? One that you spin on the tip of your finger? Nope, usually a turn-around property is one that's distressed -- but has potential. Can you fix all properties and make them better? I don't think so, but this article will give you an idea of how to do it successfully.

The key to a successful turn-around is the location. If you buy a property in a bad location, your opportunities, no matter how much money you have, will wither on the vine. A successful turn-around property can be a property you can improve to attract more tenants at higher rents, a building that can be renovated to another use, or a building that can be torn down and rebuilt.

How do you find turn-around properties? There are a number of tell-tail signs, including:

* Weeds growing in driveways.

* High vacancy rates.

* Tenants not paying rents.

* High percentage of late rents.

* Units in disarray and damaged.v

* List of problems documented by the police department (not hearsay).

* Poor maintenance, other indicators of mismanagement.

What should you do when you find a turn-around property?

When you have identified a property that your skills can turn from a sow's ear into a silk purse, you need to check out the neighborhood. Visit 10 nearby apartment complexes. Do a rent survey. Inspect all of the units, make a list of all of the repairs, and then bid it out. Add a percentage to that number because it's always more than you expect -- how much more depends on local labor costs, supplies, etc. Think about the exterior of the property --landscaping, pool, roof, awnings, asphalt, gutters, etc. Look for dryrot.

Read all of the rental agreements. Review the tenant roster. Speak with tenants. See who will stay, especially if the property is improved.

With careful market research you can establish the market rents for the property, and with comparison-shopping you can identify what amenities competitor properties offer -- and what your property lacks.

However, fixing a turn-around property is not a completely scientific process. All of us have some level of emotion. We respond to good looks and good feelings. The critical thing a turn-around property needs to achieve is that "good feeling" we get when we buy a new toy or new car or have a great dinner.

How do you get that "good feeling" with an apartment property?

The first step in the emotional process is to get rid of the bad apples -- those who pay late or not at all, those who do not abide by the rules.

Create amenities that make the property a better place to live. Think of the newer property where a small area was fenced it in, and the owners installed a small playground and a half-court basketball area. It was very attractive, and I am sure enabled this property to fill up in just four months.

Next get rid of all the cars that need to be towed. Don't allow auto repairs on site. Managers need to enforce the rules. Tenants who don't want to comply need to go.

You want to upgrade the look of the property on the outside...and the inside. It will not do any good to install grass and flowers and repaint the outside if the inside is dark. Consider using light paint to increase hallway lighting. Install more lights if need be.

Older units, the prime target for a turn-around, need to be upgraded to stay competitive. Consider installing dishwashers, microwave ovens, disposals, and new and more electrical service. Today's tenants have so many electrically powered gadgets, i.e. boom boxes, computers, TV's, hair dryers etc. that even in studio units you should consider supplying 100 amps of power and in larger units 200 amps.

Tenants are demanding cable access and high-speed modem access to the Internet. Consider new cabinets and closet systems to create more efficient space in closets. Install bright, heavy-duty linoleum, carpeting, countertops, sinks, light fixtures and blinds. Make the apartment feel like it's entered the 20th century.

Adding those old time touches like a spice rack installed in the kitchen cabinets, easy access cabinets in the kitchens, and an ironing board that folds out in the pantry door are forgotten ideas that make you look like you're a step ahead.

Decorate the units with mini-models so that when a potential tenant walks in the door they fall in love with the unit at first sight. With every new discovery of the special things you've done, you close the deal, and tenants will not want to move out.

Depending our your location, you may not need a swimming pool and a weight room to attract tenants. But you do need enough parking and a property that is well lit at night and looks and feels like home.

Even with the best on-site management it may take a year to finish your upgrades and re-tenant your property. You need to make sure that you have taken the time to budget for the lack of revenue due to tenant turnover and for all of the hidden surprises you are going to find. Dryrot and carpenter ants may just be waiting for you to renovate.

So after all of this work where is the upside in a turn-around project? The upside is in the form of increased rents, lower vacancy rates, happier tenants, and a project you can sell easily because most buyers of investment property want to have "Pride of Ownership" investments.

Since 1989 Dan the roommate man has helped 1000's of people find rooms,apartments or roommates. Need help? Contact him at 800-487-8050 or http://www.roommateexpress.com