Why Fully Occupied Properties Still Don’t Make Money

WEBVTT
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for years my mom's stuff was fully occupied yeah
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because she was renting a five -bedroom house
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to like five hundred dollars less than market
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rent you know so of course it's that doesn't
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mean it's going to make any money yeah so and
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i and i'm with your mother and and i have properties
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that they don't increase the rent i tell them
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i need to increase rent at least two percent
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per year or we need to stay with market your
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manager you're dependent on your manager and
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If your manager is not doing a market analysis
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every year to know where the market rents are,
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they're doing you a disservice because they should
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be keeping abreast of everything going on. Welcome
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to the Ironclad Underwriting Podcast, where precision
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meets performance in commercial real estate.
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I'm your host, Jason Williams, and every week
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we deep dive into the strategies and systems
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and stories behind rock -solid underwriting.
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Whether you're a seasoned analyst, an up -and
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-coming investor, or a commercial real estate
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professional looking to sharpen your edge, this
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show is your front row seat to expert insights,
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emerging trends, and real -world underwriting
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tactics that stand the test of time and scrutiny.
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From market assumptions to debt structuring,
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cap rates to cash flow, we're cutting through
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the noise and getting to the numbers that matter.
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So sharpen your pencils and fire up those models.
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Let's get to work. this is iron cloud underwriting
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hey everybody welcome to this episode of the
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unclad underwriting podcast i'm your host jason
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williams and i got good friend business partner
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co -host frank how are you doing frank good sir
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this should be an interesting topic yep this
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one and i think this is one like the general
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public won't really understand it's like how
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can a fully occupied apartment go bankrupt or
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how can it not make money because this is very
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easy to do very plausible um we have a property
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ourselves there's always between what 97 and
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100 occupied and we weren't able to make distributions
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to our partners our investors and we're like
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baffles like why can't we make distributions
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we are 100 occupied we have good income what's
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going on um so Yeah. You ready to jump in? Yeah.
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I mean, let's define what fully occupied means
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first. I mean, are we talking 100 %? Are we talking
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95 %? What do you consider fully occupied? Let's
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consider more than stabilized. Stabilized is
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90%. So let's say 95 to 100%. And when you hear
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100 % occupied, that is a snapshot in time. At
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that one point in time, you are 100 % occupied.
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But when you average it out over the year, you're
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not accounting for the people who moved out two
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months ago and then someone moved in maybe three
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weeks later um so while it says 100 occupied
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you're going to be more like 95 to 97 over the
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course of the year so let's just assume 95 to
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100 percent um i wasn't trying to throw you off
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there very rarely will you have 100 and that
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is everybody moved in and they're renewing their
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lease they're not moving out and let's say they
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renew for like five years so you don't have any
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move out at all that would be an ideal situation
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but rarely does it happen so so off topic i was
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just thinking about how i've been on flights
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before that are full that are full flights and
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i still didn't have someone sitting next to me
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so you know so what what do you consider a full
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flight then i know it's i mean it was fully booked
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somebody didn't show up i don't know And I think
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a lot of that, and this is throwing off on a
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tangent, but whenever they fully book, a lot
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of times they'll overbook, knowing that somebody
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won't show up. And then they start giving, all
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right, well, we're fully booked. Did you mind
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if you go take the next flight or whatever, and
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here's a $200 voucher or something like that?
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Ah, yes, the vouchers. I've never done it before,
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but I have been offered. maybe they'll give a
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voucher for someone and then the original person
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who was supposed to show up never showed up for
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whatever reason and then maybe you get get a
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fully booked fight like that maybe i don't know
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maybe maybe the seat was paid for and never taken
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so that's what i was thinking and i mean i wouldn't
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say it's the same exact thing in multi -family
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but we have to talk about what occupied actually
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means right and i am talking physically occupied
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um yeah no i know you i knew you were that's
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so that's something to talk about in this yeah
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so and and we've gone into in our um in our series
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of the real cost of vacancy um we did a maybe
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a few months back we talked the difference between
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economic and physical occupancy and so if you
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want to learn more about that you can go to that
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episode um so we're going to assume you already
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know what the difference is um so we're gonna
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We're going to dive right on in then. That's
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fine. I'll let you do that. They can go back
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and listen to the other one. So yeah, so we're
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sitting at 95, 100 % occupied and we're not making
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money. What's the deal? Why aren't we making
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any money? So one of the biggest things I think
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is, are you actually 100 % or 95 to 100 % occupied?
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Are people, and let's get into the economic occupancy,
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are people paying rent? Is there delinquency?
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Are you giving concessions? What's your loss
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to lease? And so you have to keep all of that
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in mind. Hopefully your delinquency is good,
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meaning near zero. Hopefully your loss to lease
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is going to be. on average because you are increasing
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your your leases over the years so everybody
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is going to there's going to be a little bit
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of lost lease hopefully being 95 to 100 you don't
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need to do concessions so assuming all of that
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what else is there he's like well why aren't
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we making any money it's like you're going to
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have a property manager living on site that's
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not paying yeah because they're managing um so
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that could be a an employee unit or a concession
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depending on how you look at it but also you
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need to think of all right if we're bringing
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in 100k a month where is all that money going
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and who is getting paid if it's not us and somebody's
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getting paid is it the bank are you over leveraged
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um that that is very possible or do you have
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a lot of capex projects that you're funding out
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of your operating expenses that is another very
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plausible explanation um is the tax man in the
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insurance company getting well compensated i
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guarantee you your tax man is getting well compensated
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are they getting overcompensated possibly do
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you have a tax protester in your back pocket
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to start protesting your taxes for you um what
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about your property manager How many employees
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do you have versus how many do you need? Do you
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have an office manager, a leasing manager, a
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maintenance foreman, another maintenance guy,
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a make -ready guy, and a porter? Do you need
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all of those people? Ideally, you don't want
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to make someone give up a job, but if it's not
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making you money, it might be worth it. So you
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can look at that. That reminds me of when we
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looked at those Oklahoma City properties. Yeah,
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they were a little overstaffed there. Yeah, there
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was a property in town that I looked at a few
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months ago that was seriously overstaffed. What
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did they have? They had like 120 -ish units,
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I think, and they had four office people, and
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then they had a couple maintenance people. Hold
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on. Did you say they had four office people for
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120 units? Well, when I went in there to tour
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it, they had like four office people in the office.
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Now, they might not have been full -time, but
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there were four people sitting in that office.
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I wonder if they were managing other units from
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that office as well. Because just four sounds
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ridiculous to me. I think the regional might
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have set up her office in that office. Yep. But
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yeah, there were four people in that office,
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and that didn't include the maintenance. Was
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this a Class B or Class C property? It was a
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B. It was a nice -looking property. It was well
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-maintained. If you're going to tell me it was
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a Class A property, then I would think that that
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person, one of the people, would be doing all
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the different events and everything else. So,
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yeah, it was definitely a nicer property, but
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it was older. I think it was a 70s and 80s vintage.
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Maybe late 60s and 70s vintage. Survived a tornado,
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stuff like that. Yeah. For those that don't know,
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there was a tornado that hit in April of 79.
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It was the tornado that the movie Twister was
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modeled after. It was like, what are those? What
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are the five, category five? What is it? Cat
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5, yeah, I think so. Tornado wiped out my current
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neighborhood that I live in. My neighborhood
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was rebuilt in the 80s. It was... huge devastation
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you can look it up um i think they called it
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like terrible tuesday or something like that
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it was like april 19 1979 or something like that
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so it's before my time definitely before i moved
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to wichita falls so another thing what kind of
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expenses are you looking at what's your expense
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ratio if you're sitting at like 60 70 expense
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ratio one something's wrong you have a lot of
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deferred maintenance that you're trying to take
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care of um but that will also limit how much
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cash is actually going into your pocket even
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though you are fully occupied so that will eat
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you alive but why i think i i invested as an
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lp i invested in a deal and it was the deal itself
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made sense financially The property was well
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maintained. Vacancy was down. It was bringing
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in all the income that it said it would bring
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in. But the team didn't raise all the capital
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it needed for CapEx. And so all of the CapEx
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projects that they were going to do was funded
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through the cash flow. So when you do it that
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way, again, you're not going to have any cash
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in your pockets if you're funding CapEx through
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the cash flow. Now, if it's funded through the
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cash flow because they didn't raise enough money,
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technically, wouldn't all of the LPs have a higher
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value or a higher percentage ownership? They
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would have a higher percentage of ownership if
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they raise the full amount. But if they didn't
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raise the full amount, I mean, your LP share
00:11:55.409 --> 00:11:58.370
is not going to change. Well, that's what I'm
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asking. We can talk about this in another recording.
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suppose they wanted to raise say 20 million dollars
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this is a big old portfolio they wanted to raise
00:12:08.919 --> 00:12:10.460
20 million dollars but they ended up raising
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say 15. so 15 allowed them to close the deal
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and and run the asset okay your lp shares are
00:12:19.090 --> 00:12:22.870
not going to change anymore but if they if they
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raise the 20 your lp shares would have been worth
00:12:25.450 --> 00:12:30.279
less that makes sense it makes sense um this
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is this is almost like a podcast worthy of itself
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but if the LPs are worth 70 % of the deal, and
00:12:37.149 --> 00:12:42.149
originally $15 million was raised, that the 70
00:12:42.149 --> 00:12:45.149
% wouldn't be divided by the $15 million, versus
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if $20 million was raised, wouldn't the 70 %
00:12:47.470 --> 00:12:51.230
be divided by the $20 million? Well, that's what
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I'm saying. But it wasn't $20, it was $15. So
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$15 is where it is. That's what I'm saying. If
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you raised more, if you raised what they should
00:13:02.990 --> 00:13:06.580
have, then yes. the LP shares would have been
00:13:06.580 --> 00:13:12.429
worth less. But I'm thinking like individual
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shares, what my personal share would have been
00:13:14.809 --> 00:13:18.669
worth, would have been worth less than if they
00:13:18.669 --> 00:13:22.990
didn't. But again, they funded all their CapEx.
00:13:23.049 --> 00:13:25.669
They continued there with their CapEx schedule,
00:13:26.269 --> 00:13:32.919
but they funded it through cashflow. So when
00:13:32.919 --> 00:13:36.279
you fund CapEx through your cashflow, that's
00:13:36.279 --> 00:13:38.220
taking money out of your pocket yeah it makes
00:13:38.220 --> 00:13:41.460
sure it doesn't affect your noi or anything because
00:13:41.460 --> 00:13:43.460
it's all below the line but it still affects
00:13:43.460 --> 00:13:46.879
your net cash flow right below the line yeah
00:13:46.879 --> 00:13:50.779
and that that we didn't find that out until later
00:13:50.779 --> 00:13:54.289
and again somebody was getting paid so who got
00:13:54.289 --> 00:13:56.549
paid it was the people carrying out the capex
00:13:56.549 --> 00:14:01.169
is the contractors and and everybody making doing
00:14:01.169 --> 00:14:05.659
whatever redoing the pool and and doing maybe
00:14:05.659 --> 00:14:07.559
renovations and stuff like that. They're making
00:14:07.559 --> 00:14:10.740
the money, but the investors and the GP team
00:14:10.740 --> 00:14:16.559
were not. So that was, that was, and granted
00:14:16.559 --> 00:14:18.500
that was, that was, I've talked about that deal
00:14:18.500 --> 00:14:22.100
before where I made like 2 ,500 bucks over the
00:14:22.100 --> 00:14:26.220
course of 19 months versus now where people are
00:14:26.220 --> 00:14:28.200
losing everything. So I, I used to say that was
00:14:28.200 --> 00:14:30.360
a horrible deal, but it was infinitely better
00:14:30.360 --> 00:14:34.179
than losing everything. So. Right. Definitely.
00:14:35.309 --> 00:14:37.929
So if you have a fully occupied building, what
00:14:37.929 --> 00:14:42.190
does that tell you? Fully occupied building tells
00:14:42.190 --> 00:14:47.399
me that you have room to push rents. I would
00:14:47.399 --> 00:14:52.620
say you have the power to push rents more. If
00:14:52.620 --> 00:14:54.580
you even have a waiting list to get into your
00:14:54.580 --> 00:14:57.559
apartment, which some apartments do, you have
00:14:57.559 --> 00:15:00.379
room to push rents. It's because people are lining
00:15:00.379 --> 00:15:03.019
up outside your door because they know they're
00:15:03.019 --> 00:15:06.509
getting a good value for the money. If you start
00:15:06.509 --> 00:15:10.190
pushing rents, ideally, I would say you want
00:15:10.190 --> 00:15:17.320
to be less than 100%. 95 would be good. If you're
00:15:17.320 --> 00:15:19.519
below 90, you don't have that flexibility to
00:15:19.519 --> 00:15:22.399
push rents. But if you're at 95, you should be
00:15:22.399 --> 00:15:24.480
pushing it as high as you can until the market
00:15:24.480 --> 00:15:26.360
tells you otherwise. And then you can back off.
00:15:27.039 --> 00:15:29.059
Yeah, it is a good number, especially when you're
00:15:29.059 --> 00:15:32.000
at, you know, if the market average is 90 % or
00:15:32.000 --> 00:15:35.600
91 % occupied, you're still above. the market
00:15:35.600 --> 00:15:37.799
occupant average occupancy and you're able to
00:15:37.799 --> 00:15:39.220
push rents a little bit i think that's i agree
00:15:39.220 --> 00:15:47.049
with you 100 yeah um another thing is and i mentioned
00:15:47.049 --> 00:15:49.450
this before maybe you're over leveraged maybe
00:15:49.450 --> 00:15:52.889
you got a dscr loan although you need only like
00:15:52.889 --> 00:15:57.789
1 .1 or maybe 1 .15 dscr for your property that
00:15:57.789 --> 00:16:01.750
means you only have to have 15 more in oi than
00:16:01.750 --> 00:16:05.230
your debt service So if you are making that,
00:16:05.309 --> 00:16:07.629
but if you're barely making that, then you're
00:16:07.629 --> 00:16:10.210
over leveraged and you're just putting all of
00:16:10.210 --> 00:16:14.509
your NOI into your debt service. And then you're
00:16:14.509 --> 00:16:17.169
doing everything else after that, either CapEx
00:16:17.169 --> 00:16:23.129
or putting into your reserves or whatever so
00:16:23.129 --> 00:16:27.070
that you have something for a rainy day. So debt
00:16:27.460 --> 00:16:31.789
is going to be, I think, the biggest thing that
00:16:31.789 --> 00:16:35.049
takes away your cash flow. If you're in a bridge
00:16:35.049 --> 00:16:38.049
debt, bridge debts don't care about your DSCR.
00:16:38.169 --> 00:16:40.850
A lot of times they know you're putting you're
00:16:40.850 --> 00:16:43.370
doing value add so that you can get into long
00:16:43.370 --> 00:16:46.360
term debt later. So they're going to be charging
00:16:46.360 --> 00:16:48.899
you a higher interest rate than like long term
00:16:48.899 --> 00:16:51.840
debt. They're going to be paying interest only
00:16:51.840 --> 00:16:56.360
and they know you're going to be increasing rents
00:16:56.360 --> 00:16:58.980
throughout. or theoretically so you might be
00:16:58.980 --> 00:17:02.080
at a dscr of like 0 .95 or something like that
00:17:02.080 --> 00:17:05.059
with it and so they expect you to raise a little
00:17:05.059 --> 00:17:09.220
bit more to cover the the debt service deficit
00:17:09.440 --> 00:17:14.460
and before you know it you're not least or you're
00:17:14.460 --> 00:17:15.900
at least up because you're at 100 but you're
00:17:15.900 --> 00:17:17.700
not increasing the rents the way you should be
00:17:17.700 --> 00:17:20.839
or maybe you're not renovating the way you need
00:17:20.839 --> 00:17:22.680
to be because nobody's moving out so you can't
00:17:22.680 --> 00:17:24.759
charge more rents and then the next thing you
00:17:24.759 --> 00:17:27.630
know is like everything you're you're getting
00:17:27.630 --> 00:17:31.450
is going to the debt service. So that'd be another
00:17:31.450 --> 00:17:37.170
reason why you're not making any money. Does
00:17:37.170 --> 00:17:40.849
that make sense? Definitely. Okay. Sometimes
00:17:40.849 --> 00:17:43.970
I go off and get complicated. I want to make
00:17:43.970 --> 00:17:46.269
sure that I'm still grounded and what I'm saying
00:17:46.269 --> 00:17:50.930
is understandable. I mean, why, obviously for
00:17:50.930 --> 00:17:52.730
this discussion, the most important number is
00:17:52.730 --> 00:17:55.769
occupancy. You know, the whole concept of this,
00:17:55.769 --> 00:18:00.259
of this whole recording. Why do we use occupancy
00:18:00.259 --> 00:18:05.990
at all? Occupancy is a good number because lenders
00:18:05.990 --> 00:18:09.410
like it, investors like it. Supposedly, if you
00:18:09.410 --> 00:18:13.069
have occupancy up, you're bringing the money
00:18:13.069 --> 00:18:18.609
in that you should be. It's sort of like a indirect
00:18:19.509 --> 00:18:26.329
metric where you're assuming if I have the occupancy
00:18:26.329 --> 00:18:28.509
where it should be, I'm bringing in all the money
00:18:28.509 --> 00:18:34.250
that I can be. what if you had like say and this
00:18:34.250 --> 00:18:39.390
is a theoretical um you have 50 occupancy okay
00:18:39.390 --> 00:18:43.490
but one of those units has enough rent to cover
00:18:43.490 --> 00:18:48.369
the other 50 maybe it's like some maybe you have
00:18:48.369 --> 00:18:50.809
a penthouse or something in a in a building or
00:18:50.809 --> 00:18:53.369
something where the penthouse brings in 90 of
00:18:53.369 --> 00:18:55.069
the rent of the building you know and that's
00:18:55.069 --> 00:18:59.869
occupied and the other units are not This reminds
00:18:59.869 --> 00:19:01.569
me of when people ask, how many doors do you
00:19:01.569 --> 00:19:03.710
have? It's like, it doesn't matter. I mean, occupancy
00:19:03.710 --> 00:19:07.000
is not as bad. I agree with you that I agree
00:19:07.000 --> 00:19:09.220
with you overall. It's an easy number to look
00:19:09.220 --> 00:19:11.380
at. It's something that can be easily posted
00:19:11.380 --> 00:19:13.480
and checked and AI can check it and everything
00:19:13.480 --> 00:19:16.660
else. But I agree that especially there are people
00:19:16.660 --> 00:19:18.759
that I know that are 100 % occupied, but their
00:19:18.759 --> 00:19:21.359
rents, they're not using loss to lease at all.
00:19:21.460 --> 00:19:23.299
Their rents are so low, so low below market.
00:19:23.930 --> 00:19:25.450
That no wonder why you're not making any money.
00:19:25.529 --> 00:19:27.750
I mean, my mother, for example, we had a commercial
00:19:27.750 --> 00:19:31.930
strip plaza and they wanted work done. It's like,
00:19:32.009 --> 00:19:34.289
guys, at your rent, I can't afford to do anything.
00:19:35.509 --> 00:19:38.829
They've been renting it for like over a decade.
00:19:39.309 --> 00:19:41.849
And that's what's going on in like New York City
00:19:41.849 --> 00:19:46.329
right now. Yeah. They can't increase rents. And
00:19:46.329 --> 00:19:48.150
so, yeah, your occupancy is going to be through
00:19:48.150 --> 00:19:52.279
the roof because it's so cheap. nobody wants
00:19:52.279 --> 00:19:54.539
to move out because they can't move out because
00:19:54.539 --> 00:19:56.339
if they move out they're going to be paying probably
00:19:56.339 --> 00:19:58.519
three times four times what they're paying for
00:19:58.519 --> 00:20:03.970
rent now um but with with the rent what would
00:20:03.970 --> 00:20:08.569
they call it um where they can't raise the rents
00:20:08.569 --> 00:20:13.000
in new york controls yeah but they they did it
00:20:13.000 --> 00:20:15.079
even worse where they can't even increase it
00:20:15.079 --> 00:20:17.200
before they used to increase it with like the
00:20:17.200 --> 00:20:19.660
inflation rate but now they zero increase yeah
00:20:19.660 --> 00:20:24.089
zero increase right now it's like No one's moving
00:20:24.089 --> 00:20:26.789
out. Occupancy is through the roof. Landlords
00:20:26.789 --> 00:20:29.930
are sucking wind because they can't do anything.
00:20:30.009 --> 00:20:32.869
They can't make the taxes. They can't pay insurance
00:20:32.869 --> 00:20:35.150
because all of those expenses are going through
00:20:35.150 --> 00:20:37.769
the roof. But income is staying short. The only
00:20:37.769 --> 00:20:40.150
people that can buy are the people that have
00:20:40.150 --> 00:20:43.210
a lot of assets elsewhere that can afford to
00:20:43.210 --> 00:20:45.230
take the loss there because there's no way you
00:20:45.230 --> 00:20:48.359
can borrow money and afford to break even. Yeah.
00:20:48.849 --> 00:20:51.410
Yeah, you can't buy anything there with a bank
00:20:51.410 --> 00:20:53.230
loan, I don't think. I don't think any lender
00:20:53.230 --> 00:20:57.269
would look at that because even the DSCR requirement
00:20:57.269 --> 00:21:00.450
wouldn't even work. It's like, okay, well, your
00:21:00.450 --> 00:21:03.089
debt service is $10 ,000 a month and you're only
00:21:03.089 --> 00:21:04.789
bringing in $5 ,000. So how are you going to
00:21:04.789 --> 00:21:08.589
pay the other $5 ,000 a month for 60 months?
00:21:08.869 --> 00:21:13.650
You know, that's horrible. So, I mean, that plays
00:21:13.650 --> 00:21:15.849
into this conversation. I wasn't expecting to
00:21:15.849 --> 00:21:20.130
go there, but I mean, it's... it's valid yeah
00:21:20.359 --> 00:21:21.799
no i mean i was just thinking of the concept
00:21:21.799 --> 00:21:24.759
that yeah uh for years my mom's stuff was fully
00:21:24.759 --> 00:21:27.460
occupied yeah because she was renting a five
00:21:27.460 --> 00:21:29.500
-bedroom house to like five hundred dollars less
00:21:29.500 --> 00:21:32.099
than market rent you know so of course it's that
00:21:32.099 --> 00:21:34.440
doesn't mean it's gonna make any money yeah so
00:21:34.440 --> 00:21:38.849
and i and i'm with your mother and then i have
00:21:38.849 --> 00:21:40.849
properties that they don't increase the rent
00:21:40.849 --> 00:21:42.789
i tell them i need to increase rent at least
00:21:42.789 --> 00:21:45.490
two percent per year or we need to stay with
00:21:45.490 --> 00:21:49.180
market but your manager, you're dependent on
00:21:49.180 --> 00:21:52.599
your manager. And if your manager is not doing
00:21:52.599 --> 00:21:54.920
a market analysis every year to know where the
00:21:54.920 --> 00:21:57.160
market rents are, they're doing you a disservice
00:21:57.160 --> 00:22:00.759
because they should be keeping abreast of everything
00:22:00.759 --> 00:22:03.720
going on. And if they're not, they're just keeping
00:22:03.720 --> 00:22:06.700
everything stagnant. They want to keep the unit
00:22:06.700 --> 00:22:10.220
occupied because it makes them look better. And
00:22:10.220 --> 00:22:12.240
that goes against why to look at occupancies
00:22:12.240 --> 00:22:15.140
because it makes your manager look better because
00:22:15.140 --> 00:22:18.779
if you increase rent, to market, then there's
00:22:18.779 --> 00:22:20.660
a chance they're going to move out and your place
00:22:20.660 --> 00:22:22.539
is going to be empty for six months before someone
00:22:22.539 --> 00:22:25.220
else moves in. And they have to work. They have
00:22:25.220 --> 00:22:27.859
to work to keep it going. They have to go out
00:22:27.859 --> 00:22:30.059
and market it. They have to go and maintain it
00:22:30.059 --> 00:22:32.940
because it's now not being maintained because
00:22:32.940 --> 00:22:34.519
nobody's living there. They have to go in and
00:22:34.519 --> 00:22:36.339
check to make sure that it's weather protected
00:22:36.339 --> 00:22:39.339
if it happens in the wintertime. So, I mean,
00:22:39.359 --> 00:22:42.559
there's a lot of benefit to keeping a unit occupied
00:22:42.559 --> 00:22:48.259
versus empty. I have friends that have quads,
00:22:48.359 --> 00:22:51.079
and they've owned them forever. They've owned
00:22:51.079 --> 00:22:55.519
them for 15 years. Their debt service is minimal.
00:22:55.779 --> 00:22:57.240
I mean, they stole a little bit, but their debt
00:22:57.240 --> 00:22:59.079
service is pretty minimal. But they're not making
00:22:59.079 --> 00:23:01.779
any money because the property managers have
00:23:01.779 --> 00:23:04.140
been slacking. They haven't raised rents in two
00:23:04.140 --> 00:23:06.700
or three years, and everything keeps going up.
00:23:07.970 --> 00:23:11.170
Yeah, and my mom was the same way. I mean, her
00:23:11.170 --> 00:23:15.019
manager wouldn't. i don't know that's like they
00:23:15.019 --> 00:23:18.039
wouldn't increase rents and this may be going
00:23:18.039 --> 00:23:20.680
on for like 10 years they were well below market
00:23:20.680 --> 00:23:23.900
and she had to threaten moving to a different
00:23:23.900 --> 00:23:26.599
property manager before it lit the fire under
00:23:26.599 --> 00:23:29.859
them to do their job now there was a little bit
00:23:29.859 --> 00:23:32.720
of crossover between like the previous owner
00:23:32.720 --> 00:23:35.700
and the person who inherited it was like her
00:23:35.700 --> 00:23:39.099
son or something and he wasn't doing a good as
00:23:39.099 --> 00:23:43.109
good of a job as the parents were until my mom
00:23:43.109 --> 00:23:46.150
went to fire and then they started turning around
00:23:46.150 --> 00:23:48.950
and doing what they're supposed to. So property
00:23:49.490 --> 00:23:52.289
management, I think is probably one of the key
00:23:52.289 --> 00:23:57.509
factors in why things might be a hundred percent
00:23:57.509 --> 00:24:02.799
occupied and not making money. So any, anything
00:24:02.799 --> 00:24:06.420
else on this? Why, why you might be full, but
00:24:06.420 --> 00:24:10.500
not making money? Um, off the top of my head,
00:24:10.519 --> 00:24:15.650
I mean, Just the concept of low rents, economic
00:24:15.650 --> 00:24:18.470
occupancy, and those are some of the major ones.
00:24:19.250 --> 00:24:23.490
Yeah. And then, yeah, if you're doing CapEx with
00:24:23.490 --> 00:24:26.329
a cash flow or if you're debt service, if you're
00:24:26.329 --> 00:24:28.009
over leveraged, you're not going to be making
00:24:28.009 --> 00:24:33.599
money. Now, also, this is sort of going a different
00:24:33.599 --> 00:24:37.779
direction, but sort of the same, is I know people
00:24:37.779 --> 00:24:41.400
who they have a rental property. they rent it
00:24:41.400 --> 00:24:43.440
out they bring in their cash flow every month
00:24:43.440 --> 00:24:45.880
and 100 of the cash flow goes to paying off the
00:24:45.880 --> 00:24:50.779
debt sooner rather than later so you can do that
00:24:50.779 --> 00:24:55.480
if you can absorb any impact like a disaster
00:24:55.480 --> 00:24:58.950
happening but if you know you don't if you're
00:24:58.950 --> 00:25:01.589
not going to make money and and you don't have
00:25:01.589 --> 00:25:03.809
investors and you're doing it on your own and
00:25:03.809 --> 00:25:06.509
you want to be debt free as soon as you can that
00:25:06.509 --> 00:25:11.859
is one way to do it but That is sort of different
00:25:11.859 --> 00:25:14.759
than what we're looking at here. But that is
00:25:14.759 --> 00:25:17.099
one reason why you might not have any money.
00:25:18.509 --> 00:25:21.029
Yeah, I mean, it's always good to have a reserve.
00:25:21.549 --> 00:25:23.769
And I do know people, like you said, that like
00:25:23.769 --> 00:25:28.109
to aggressively pay off the debt. You might be
00:25:28.109 --> 00:25:30.410
able to have properties you can afford to take
00:25:30.410 --> 00:25:32.089
nothing out of them, that they're long -term
00:25:32.089 --> 00:25:35.309
investments. But the problem is I've seen is
00:25:35.309 --> 00:25:37.470
that sometimes people tend to get lazy, especially
00:25:37.470 --> 00:25:39.670
with the management and raising rents when they
00:25:39.670 --> 00:25:44.440
do that. I think the management, again, is probably
00:25:44.440 --> 00:25:48.059
the number one cause if you don't live in New
00:25:48.059 --> 00:25:56.450
York City. If you want to learn more, you can
00:25:56.450 --> 00:26:00.009
go to ironcladunwriting .com. You can set up
00:26:00.009 --> 00:26:01.609
a call. We can walk you through your numbers.
00:26:02.319 --> 00:26:05.799
We can make sure that your numbers do make sense.
00:26:06.119 --> 00:26:10.119
If you are in a situation where you are 100 %
00:26:10.119 --> 00:26:12.880
occupied or thereabouts, fully occupied, 95 %
00:26:12.880 --> 00:26:17.720
to 100 % and not making money, set up a call.
00:26:17.819 --> 00:26:19.519
We can go through some of your financials. We
00:26:19.519 --> 00:26:22.619
can point to where your downfalls are and why
00:26:22.619 --> 00:26:25.240
things are looking the way they are and how we
00:26:25.240 --> 00:26:27.359
could potentially turn your ship around so that
00:26:27.359 --> 00:26:32.029
you do make money. So anything else, Frank? No,
00:26:32.029 --> 00:26:35.930
sir. All right. So we'll catch you next time.
00:26:35.970 --> 00:26:41.200
We'll see you later. Bye. And that's a wrap for
00:26:41.200 --> 00:26:43.319
this episode of the Ironclad Underwriting Podcast.
00:26:43.799 --> 00:26:46.599
If you got value from today's conversation, make
00:26:46.599 --> 00:26:49.279
sure to subscribe, rate, and share the show.
00:26:49.440 --> 00:26:51.920
And don't forget to connect with us on LinkedIn,
00:26:52.180 --> 00:26:56.119
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00:26:56.119 --> 00:26:58.799
at our website at ironcladunderwriting .com for
00:26:58.799 --> 00:27:01.690
more insights and updates. If you have a question,
00:27:01.849 --> 00:27:04.309
a deal you're analyzing, or a topic you want
00:27:04.309 --> 00:27:06.750
us to tackle, shoot us a message. We'd love to
00:27:06.750 --> 00:27:09.809
hear from you. Until next time, keep your assumptions
00:27:09.809 --> 00:27:12.609
grounded, your model sharp, and your underwriting
00:27:12.609 --> 00:27:14.069
ironclad.