5 Lessons I Learned From a Recent 80-Unit Acquisition

5 Lessons I Learned From a Recent 80-Unit Acquisition

3 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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Some of the best real estate investing lessons come from watching other people’s wins and fails. Here are a few ups and downs we experienced recently when buying an 80-unit multifamily apartment building.

We bought this apartment building on the southside of Indianapolis, Indiana. It has been a great investment. We actually made some great things happen in the details—but we could have done better in certain areas.

1. Never Overlook a Deal

Never overlook a potential deal. Don’t brush off (or underestimate) deals that are brought to you without checking them out first. This particular deal was presented by a fellow team member as something that may be of interest to us. We dug deeper, and found that the property was running a 70 percent expense ratio. However, the majority of those expenses went toward renovating multiple distressed, vacant units and addressing outstanding building repairs (think decks). Those expenses didn’t affect us since the work was already completed. Many investors may have passed on it on first glance at the numbers—and many probably did. I’m glad we took the time to investigate it.

2. Put Everything in Writing

If finding a good investment is all about location, location, location, then the number one rule of negotiating and securing a good deal is put everything in writing; put everything in writing; put everything in writing. Did I say everything?

The roof on this property needed a replacement. There are two main ways to tackle roof replacement in this region. The first and preferred is a tear off, which means removing the existing shingles and starting over. The second and less attractive option for long-term ownership is an overlay, which means just covering existing shingles with new ones. It is a lot faster and cheaper. It will make the roof a lot better, but as Angie Hicks, founder of Angie’s List explains, an overlay doesn’t allow you to assess the condition of the underlying materials and leaks. In a cold climate, that can mean ongoing leaks and water damage. You may end up redoing the whole roof again much sooner and spending a lot more money in the long run.

The roof was negotiated to be replaced via tear off, which is more costly. Unfortunately, the tear off terminology didn’t make it into the final contract. It was just verbally agreed upon. So the seller skimped and got away with just doing an overlay. So make sure everything—all details—are in writing and signed.

Related: The 6 Biggest Lessons I Learned From Investing in 2017

3. Expect to Counter Offer

Whether you are a buyer or seller of real estate, your first asking price or offer needs to price in some room to negotiate. It doesn’t matter how great your first number, if you are inflexible, you will lose out. People want to feel they’ve won something. We started negotiating this when the seller was asking for $3.6 million. Our first offer was $3.1 million. We finally met in the middle at $3.35 million.

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4. Negotiate with Your Lenders Too

Everything is negotiable in real estate, including loans, lender fees, and terms. We worked with a regional bank on the deal. They insisted on making it a recourse loan. I feel way better (and sleep way better) using non-recourse loans. It just makes more sense. Though for all the same reasons, most banks want to demand recourse, or will offer far worse terms in regards to rates, fees, and LTV. We managed to negotiate a recourse clause for only the first two years. For the remainder of the loan it will be non-recourse.

Related: 12 Real Estate Investing Lessons Every Investor Should Know

5. Find the Motivation

In order to have leverage in negotiations and to negotiate a deal that is really valuable and profitable, you have to dig in and find out what the motivation really is. In this specific case, the seller of this multifamily property was a builder who specialized in new-build single family homes. He needed some cash to put into his regular line of business. He really didn’t want to be in the multifamily rental business. We got him the cash he needed and got a good price on the property.

Summary

There are a lot of moving parts in a multifamily real estate transaction. If you remain diligent and negotiate, you can turn an OK deal into a great one. Miss a few critical things, like putting all of your terms in writing, and you might find it less profitable than expected.

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What can you share about your experiences dealmaking on multifamily properties?

Tell us in the comments below!

Some of the best real estate lessons come from watching other people's wins & losses. Here are a few ups and downs from a recent 80-unit acquisition.