This $300K Multifamily Success Story Proves You Don’t Need All the Answers Before Investing

This $300K Multifamily Success Story Proves You Don’t Need All the Answers Before Investing

4 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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If you’ve been following me for a while, you may have been along for the ride when I decided to make the leap from building a big single-family portfolio into multifamily.

This 40+-unit apartment building was one of my first dives into multifamily. It provided many learning points, but also turned out to be a great success.

We got to experience taking the property full cycle, from acquisition to renovation and exit in just 18 months.


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Finding and negotiating the deal

In 2017, we found an off-market building in an up-and-coming part of town. The listing at $1.4 million had previously been withdrawn, but we were able to track down the seller through skip tracing.

The seller was tough at first on price. Thanks to some great input from other investors here on BiggerPockets and locally, we were able to negotiate a very attractive deal. We ended up with a $900,000 contract price and seller financing.

The good price going in helped us as unexpected scenarios came up after purchase. A boiler went out, which cost us $20,000. Plus, we were working through one of the worst winter months, causing delays in construction.

Through my experience, going direct to owner has been the way we’ve saved over seven figures on deals, because we’ve avoided the competition among on-market deals. Especially in today’s market, with people often paying more than what properties are worth.

If you start off with a bad deal by overpaying, you may have just dug yourself a hole that could be tough to get out of at a later point.

The exit

We had planned on keeping this property longer for cash flow. Then we received a purchase offer we just couldn’t refuse, and it seemed like the best choice for everyone involved.

So, instead of refinancing, we sold. It was the right move at the time to do our best for our investors and secure them a good return.

The rents on the property had hit a ceiling, and the expenses were difficulty to push down further. Being a seller’s market, the decision was made to take advantage of the opportunity and sell.

We ultimately negotiated a $1.85 million gross sale price, which ended up being $1,709,981 after all costs. That enabled us to pay off all of the financial leverage we used and deliver a 16.3% return to investors, which was well within the range we had projected for them. Not bad given we were in and out in 18 months.

Our purchase price was $900,000. We seller financed with $200,000 down and budgeted $485,000 for improvements. We were all-in to the property at just over $1.4 million, as we went a bit over on the rehab. With all costs and the sale at the end of the day, the net proceeds to split were $310,626.76.

sterling multifamily

Lessons learned from renovating and leasing

Scale

Managing one project of this scale was quite the undertaking the first time around. Going in without having dedicated onsite staff for leasing and maintenance probably made it more management-intensive and a little more expensive than it could have been.

In our experience, it’s even more beneficial to go with even more units to a property so you can dedicate an onsite staff to manage the property. There’s a much better ROI on time and fewer moving parts within your business with employees when acquiring one 100-unit complex versus 100 single-families. I’ve done both, and going with multifamily and more units just makes the most economic sense.

Time & budget

As with everything in real estate, everything took longer and cost more than expected.

It took longer to renovate each of the apartment units and get them released so we could hit 95% occupancy, up from 50% when we bought it.

We gave the property a complete makeover, including signage and renovating unit interiors. When dealing with a commercial building of this size, you also learn that your overages can get big fast—for example, a single boiler that added $20,000 to the rehab budget.

We had added a contingency cushion for interior renovations. That should probably be larger if you are dealing with an older property with deferred maintenance, just to be on the safe side.

Make sure you add a lot of cushion to your construction numbers. If you will be renovating through the winter in colder markets, that can cause delays too. Perhaps the same as trying to renovate properties in the south through hurricane season.

1031 exchange buyers

This buyer happened to be using a 1031 exchange. It turned out to be a great experience for us, while they were able to defer their taxes on a previous sale into the future. We would definitely deal with this type of buyer again.

The value of taking action

Prior to purchasing this deal, we didn’t have all of the answers. We had a business plan. However, we had to figure many things out on the go.

People often feel they need to have 100% of the information known to the deal and then never take the action. That’s just unrealistic. When taking action you want to be calculated and protect against risk, however, there becomes a point where you have to make the leap. No matter how well you laid out your plans, things will always change.

Just like taking the leap into real estate in the first place, deciding to jump into multifamily proved to be a great move.

It can be scary to jump to multifamily, even for investors experienced on the single-family side. However, waiting on the sidelines isn’t going to help. The best way to learn is to do it. If you want to supersize your results, taking massive action is the way to go. To de-risk a venture like this and build in more protection from the downside, seek out partnerships and mentors.

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