3rd time's a charm!! I just closed a 12 unit apartment complex for under $1500 out of pocket!

40 Replies

I'm a buy and hold guy with 42 units and I've built my portfolio by purchasing with no-money/low-money down land contracts and eventual permanent financing from my local bank.

The process for how I structure my deals is outlined in the following thread.

http://www.biggerpockets.com/forums/311/topics/125040-how-do-you-scale-your-business-so-quick

Anyway, back to the success story! I have tried to purchase two different 12 unit complexes in the past few years only to strike out on both of them. One of the complexes I actually whiffed at two times, two years apart. The 1st time it fell apart a week and a half from closing. Today though, I got a hit! I won't say it's a home run yet, I'll need to push hard and get it turned around. Once rehabbed and stabilized it should produce around $40k NOI with me managing it myself. Which should be around $16k a year in cash flow after permanent financing is in place.

The deal itself was as follows.

Purchase Price - $345,000

Down Payment - Prorated Taxes, Prorated Rent, Deposits, & a $30,000 blanket note on 3 of my duplexes (more info below)

Amortization - 25 years Interest Rate - 6% Balloon - 3 years (This note was $302k after all the credits)

The Note on my 3 duplexes

Loan Amount - $30,000 Interest only until the land contract is refinanced. Upon refinancing it goes to a 5 year Amortization Interest Rate - 7%

I feel I should be able to add enough value and amortize enough of the debt to be able to roll both of these notes into a new commercial loan with a local bank around the 2.5 year mark.

All 12 one bed apartments need cosmetic rehab and new exterior doors. Me and my guys will do the work (I own a painting business). I'll do the rehabs as the units turn over the 1st time. Hopefully I'll be able to move existing tenants into rehabbed units as I go to speed up the process.

Long term plan is to get it leased up at higher rents after rehabs and then refinance into permanent financing with my local bank around the two and a half year mark. I plan to hold it for 10+ years.

@Brandon Hicks  Congrats I know you worked hard on this, if you ever need anything or advice let me know, I am really just up (or down) the road. 

@Brandon Hicks

Did you use an equity loan on your duplexes to come up with the majority of the down payment (30%) and then chip in 1500 from your savings?  

Awesome @Brandon Hicks  ! What's more awesome is your willingness to share how you do it.

In my podcast, (Biggerpockets.com/show65) I explained how I acquired a 133 unit apartment complex with only $5,000 out of pocket. So, I am not shocked you are able to acquire a 12-unit with only $1500 out of pocket. Seller financing is awesome....so is - syndicating deals, right @Ben Leybovich  ?

Congratulations on your most recent deal and thanks for sharing your experience.

Nice, @Brandon Hicks  ! You are after my heart with interest only blanket and all :)  Nice!

My 10-plex cost me $5,300 at closing, so you completely out-did me. I've never actually used owner financing on apartments - only SFR. My version of 100% finance is a blend of institutional and private money most of the time...

Have 2 banks fighting it out to refi this thing as we speak to get rid of...you guessed it - private blanket in second position.  This is my last blanket in circulation today.  No more short-term debt - switching completely to partner equity syndication model now.  

@Wendell De Guzman  - why haven't we worked together yet?

BTW - Brandon, I tried to call you today.  Did you get the message?

@Ben Leybovich  , I would love to work with you. I am looking for apartment buildings but these hedge funds are paying way more than I am willing to pay. I call it - STUPID money and that's kinda hard to compete with :-)

I am looking for 100+ unit apartment building that has at least an 8% cap rate in an emerging market. If you got any deal worth looking into, please send it my way and let's work on it together. Coincidentally, I will be talking with a prospective capital partner (who sold a business and is sitting on several millions of dollars in cash) and a potential partner who can raise money from his high networth contacts.

Wait...do I need to ask for permission from @Brandon Turner   so he does not get jealous? (LOL - just kidding of course).

@Brandon Hicks   you got your self a @Ben Leybovich special! Good work. Keep us posted on your success and how the final numbers work out for you.

@Wendell De Guzman  

Boy, you are on fire! its just 18th day of January!!!!!

Wao....am happy for you, Congratulations!!!! More to come...

Hahaha -@Wendell De Guzman  !  Be sure you keep an eye out for my upcoming article on the blog (Tuesday).  You are going to love it - guarantee!

I will absolutely reach out to you.  I thought I had one, but had to let it go.  Not so good sub-market, but GREAT MSA.  In the end, this didn't work for me...it's all in the post :)

And about Brandon, that's in the article too...lol

@William Johnson 

I'm not sure where you came up with the 30% number. I gave the sellers a $30k note secured by the equity in my 3 duplexes. In case you're not familiar with that, my attorney drafted a mortgage and promissory note. It's just paper vs. cash for the down payment.

The $1500 was as follows....

$319 to get my insurance started. I pay into what is essentially an escrow account through State Farm on a quarterly basis and then as each property's policy comes due they pay it for me. I write 4 checks a year vs. 15 or so and the payments are spread out at even intervals for less hassle and easier budgeting. The $319 was all that was needed to get to the next 1/4 payment.

There was also $600 in title search and closing fees and my attorney charged $560 for the doc prep on the land contract and $30k mortgage.

So in the end its a 100% seller financed transaction.

And this is exactly why I signed on to BP.  Not only do you get motivated to go out and get these deals done, people are willing to share exactly how they're succeeding in their market.  I know I'm not the only one when I say thank you, @Brandon Hicks  

Thank you Brandon for the answer.  The 30 percent was just an assumption on my part of the down payment that banks ask for on multi family dwellings. 

Gotcha @William Johnson 

That's the benefit from using the seller(s) as the lender. You can tailor the terms in any way that you both agree to.

Originally it was going to be a no-money down, straight up contract. Just use the credits as the down deal like I normally do. I had negotiated a clause up front so if I didn't have the equity built in at the 3 year balloon point, the sellers would hold a 2nd mortgage behind my bank refi up to $30k. I decided that in order to make their lender more likely to approve the land contract sale I would just put myself "on the hook" up front.  

I have tried to master lease a property that is only 76% occupied,needs light rehab and has an assumable mortgage. I have put in a letter of intent but they want my experience in the field and proof of funds.(master lease to purchase) I can't get past this point.Lender owned and Fannie Mae lender and the loan is only good for 4 more years. How do I get this to move forward? I have a Llc. but I have little funds,experience is flips and small rents,this is 312 units.I can get an equity partner but until I get 10% more in occupancy I can not afford another loan.

@Elaine Lotz  

I'm definitely not the guy to ask on a deal this size. I'd post your deal in either the Multi-Family or Commercial Forum here and get some responses from those who have experience in this type/size of deal.

Congratulation Brandon Hicks.  This is a great story.  I hope to work towards this type of goal in the future.  Congrats once again keep us posted on what you do and how you do the process.  This can be really informative for lots of people.

Raj

Awesome. I may have missed this but how did you find the deal?

That's pretty amazing! @Wendell De Guzman  My goal is to purchase a multi-unit property next year. I would love to learn more on how to creatively structure a deal like that without putting so much down up front. Pretty cool! Great way to start the year I must say.

Originally posted by NA Onyido:

@Wendell De Guzman 

Boy, you are on fire! its just 18th day of January!!!!!

Wao....am happy for you, Congratulations!!!! More to come...

 Ndy, no I bought my 100+ unit apartment complex back in 2009 not this year :-)

I need to buy another one this year.

@Shayla Fletcher  

This property had been listed on the MLS for the better part of the last 3-4 years. I noticed one Saturday morning that it was no longer on Realtor.com so I tracked the owners down through the property manager who had his number on the sign (property name sign) out front.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.