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My partner and I recently made the decision to pass on purchasing a 118-unit multifamily apartment complex.
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What deals have you evaluated then passed up lately? What did you learn?
Let’s talk below!
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With just under a decade of experience in the real estate industry, Sterling currently manages over $10MM in capital, which is deployed across a $26MM real estate portfolio made up of multifamily apartments and single-family homes. Through the company he co-founded, Holdfolio, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single-family investing and apartment investing to wholesaling and scaling a business.
Hey Sterling, Great tips. The last one is easily forgotten. I worked on an apartment deal earlier in the year and of course the inspections took all day. Did you try to renegotiate price with the seller in light of the roof repairs?
Thank you Sterling! Great tips as usual! Always love reading your articles here in BP! I also like that you mention bringing a snack as it’s easy to be all about business or numbers and you forget to take care of yourself.
As John mentioned there were 10 buildings. Each roof needed a replacement, which the cost was near 400k. The seller would not fix the roofs or provide a credit. The location is a solid C/C+. CAP a little over 8.5% on actuals.
Sellers that don’t work with you on reasonable requests such as taking care of deferred maintenance on a huge cap ex item like roof replacement is a big reason to walk. I’ve done the exact same thing on a multi fam where the seller was not willing to lower purch price or take care of the 40-year roof. Oh well, onward and up! Thanks for sharing!
That’s exactly what I was thinking, Nathan. Perhaps the building had faulty wiring, a the foundation was not stable/solid, etc. You never know. Maybe he was trying to sell before he would have to pay that $400k to replace the roofs *and* whatever else it was that he cut corners on.
This is a great point. I passed on an opportunity with a property that I had known well for a long time, and would loved to have taken forward as a profit enterprise. But I also knew well that the seller had deferred maintenance on absolutely everything. What she had been forced to replace over the years she did on the cheap. She didn’t face up to the effect on the property value then, or when she was selling.
Sterling, thank you for your video. There is a property that I really want to purchase. the seller is (HUD-Regional Housing Authority). I had an appraisal done to try and make a better decision about the purchase. The appraisal cited many things that was wrong with the property, but the final appraisal was based upon the After repair value (ARV), which was basically the same amount as the purchase amount the seller is asking for. I don’t know much about real-estate and I feel so helpless because the neighborhood is not that good, most of the homes are vandalized, yet the appraisal cited none of those properties as comparisons, but found homes that had sold (in other areas) after being fully repaired and used those as comparators. I have another property on the same street where I raised my children and a vacant lot that I purchased from the State and really wanted the property I am talking about. But, listening to your article, I understand that sometimes you have to “walk away.” To purchase and fix the property would nearly wipe out my budget. The seller is convinced that his Executive Director will take nothing much less than the asking price and I know in that neighborhood, I would never be able to recoup my money. My heart is broken and I am disappointed with the appraisal because I know its not worth the dollar amount that’s on that paper, let alone the hidden costs of repairs that I can’t see. Anyway, thanks for the video.
Hi Sterling, I have a quick question about this. Since you found this out during your due-diligence, this deal mean you lose the money for inspection as well as any earnest money you put up? I’m not sure. I’m asking I guess. I’m guessing you do lose something. It’s not completely free to walk away. Correct? If so, how do you avoid this going forward? I can imagine that the cost to walking away from a deal can also add up overtime. Though, I do understand that in this case, there was no other option.
Funds and time was lost on the deal. Cost towards real estate tuition. The way to avoid in the future is points #1 & #2 in the video.
The deal was very appealing initially and this led to due diligence fundamentals being side stepped. Lesson learned.
Hope that helps.
Sterling do you know if you could have brought the roofers out for inspection before working non financing?
Do you mind sharing the address of the property you are speaking of in this video? Unless the building you are in front of in this video is the property you are talking about.
Thank you 🙂
Bring a snack??
I would suggest a video camera to take a video as you’re walking the property. When you enter a unit, say out loud the unit number so you know which one you’re looking at when you go back to review it.