Bought 200+ Unit Apartment Complex, Increased Value Over $4 Mill

37 Replies

Two years ago I purchased a 200+ unit apartment complex in Dallas, TX for $6 million that appraised at $7.4 million at closing.

The purchase was 100% off market as I located the deal by doing a targeted direct mail campaign. I sent a series of letters that targeted owners who owned their properties for 15 years with hopefully equity and possibly a landlord who was burned out.

A 79 year old gentleman who owned his property for 21 years contacted me. He recently was recovering from a health challenge and his family members wanted him to sell.

The seller didn’t want to sell, but he knew he had to sell as he couldn’t keep up with the day to day operations. Plus his family members were really pressuring him to sell.

The first outreach between the Seller and I started in 2012 and I didn’t close until 2014. It was a VERY long process to get the property under contract and to eventually close the deal.

Some of the issues:

  • The books and records of the seller were terrible.

I mean horrible.

Fortunately for me, I am a CPA and had the privilege of working at some of the top firms in the world. I was able to slice and dice the financial data. More importantly I was able to piece together the financial mess so a lender could see the same upside I saw.

The seller was very frustrating to work with. One day he wanted to sell the next day he didn’t. This also happened after we went under contract. It was almost a weekly occurrence of the seller trying to get out of the contract.

We had issues - or how a good friend of mine says when a deal is a mess, "This deal has some hair on it!!"

  • When we were under contract there was a fire – fortunately no damage.
  • An insurance claim that pre-dated our contract.
  • Roof issue
  • And several other issues

So it could have been easy for me to walk away from a seller who was very difficult to work with. But I knew I had a deal where I could work my “magic”.

Studies have shown:

  • 2% of closing the sale occurs on the 1st call
  • 3% of closing the sale occurs on the 2nd call
  • 4% of closing the sale occurs on the 3rd call
  • 10% of closing the sale occurs on the 4th call
  • 81% of closing the sale occurs on the 5th call

Would you agree that most people give up on the 1st or 2nd call? 

That is why so many real estate investors fail to get off the ground.

Check this out, studies have also shown that:

  • 48% of the time people quit following up after the 1st call
  • 24% of the time people quit following up after the 2nd call
  • 12% of the time people quit following up after the 3rd call
  • 6% of the time people quit following up after the 4th call
  • 10% of the time people quit following up after the 5th call

We know as real estate investors our best deals are ones where we need to be persistent and can see the big picture.

I kept working the deal as I knew this deal had significant upside. I was frequently calling the seller.

By working an off-market deal directly with the seller, I was able to buy the property significantly below market value.

I acquired the 200+ unit apartment complex for $6 million.

Here is an excerpt from the appraisal where the asset appraised at $7.4 million at purchase:

So going into the deal there was $1+ million of equity.

But the deal gets better.

The property is a cash monster. After paying all expenses, mortgage and reserves, the property chugs out $20k net cash flow a month.

Pretty sweet Right??

Within 15 months of ownership, and working my butt off on this deal by working my magic, I was able to take the occupancy from 86% to 98% and increase rents over a $100 per unit. I spent over $600k in interior and exterior upgrades to add value.

I refinanced the property and the asset appraised at $10.2 million or over $4 million in equity in 15 months.

Here is an excerpt from the appraisal when I refinanced the asset where the property appraised at $10.2 million:

So if you aren’t having immediate success with your real estate investing career, please know that sometimes your best deal might not be on the first call with the prospect. 

I really hope it doesn’t take you 2 years like it did me, but keep working your own magic.

I hope you found the above helpful, here are some other threads you might find useful:

I quit my CPA Job to buy Large Apartment Buildings

BP Podcast 135 - How I Got Started, so far over 70,000 people have listened to the show

Just Closed a 240 unit Apartment Complex

Great deals don’t just fall out of the tree. You must work hard to find and locate killer deals. So continue to follow-up with those prospects!!

@Brian Adams , great story!

Could you please share some details of your direct mail approach?

I tried it on about 30 property owners in Tarrant County but had only one call back and this prospect is very uncertain. I even called a few people myself only to get "I won't sell ever!" response. I plan to keep mailing them every 3-4 months but wonder if it makes sense at all. Brokers talk to these owners every day and cannot get them to sell. Why would they decide to sell to me?

Any thoughts you may share?

Thank you
Nick

@Nick B.

They will buy from you if they like you, if they don't have to deal with a broker, if the don't have to pay a broker commission, if they think you don't know as much and won't look at hard as a buyer that has a broker.  Just to name a few.  So Don't give up!

@Nick B. , you need to give the prospect a reason to contact you. Like @Tony SanFilippo stated, my copy and call to action in the letter spoke about how the owner wouldn't have to pay a broker commission.

In most cases the savings for the seller in not having to pay the the broker commission is significant.

My 3 step letter sequence went out every 10 days. So if you haven't contacted the seller in a couple months it probably is wise to make some outreaches.

@Brian Adams This is great! Congratulations and thanks for sharing. The resiliency and patience displayed to close this deal is remarkable and clearly you had a plan to drive value. What was your target for the value increase when you purchased? Did you anticipate the $4MM increase?

Brian, thanks for the great post!  Did you have a property management company lined up during your conversations with the seller during those two years?  I'm wondering if you consulted them on potential improvements to the operation of the property or if it was just based on your experience?  I feel like having a reputable management company on the front end would also help the lender get comfortable with the deal given the horrible records from the seller.

@Brendan Kelly , thanks - yes, I was very active working with a couple different management companies to get ideas on items like improvements, running the property and other value add strategies. 

This is a great success story, love to hear the numbers and see that everything is working for you due to your grind and hard work..congrats again man hopefully some day I will have a similar story to share

Great story Brian! With all the road blocks, periodic stumbles, and rejection associated with this business, it can often be tough for us to see the light at the end of the tunnel. Im happy to see you never lost sight of that and kept pushing forward. Definitely an awesome success story to share!

I wish you many more success stories (hopefully with less obstacles!)

-Abel

@Brian Adams does your investment group do deals of this size frequently? I'm a broker in Illinois and know of a 200+ unit complex for sale that I believe would be a great investment. 1.9 million in annual revenue and only asking 9.4. Would you be interested in me sending you over some information about it?

@Brian Adams Shows how perseverance pays off! Great job and thanks for sharing. I am in the process of starting my first direct mail campaign for single family and smaller multifamily units. I am looking to use the following steps to start with and tweak them as I go. Any advise would be appreciated?

  1. Build List : SF listsource.com, MF possibly Listsource.com or public records
  2. Letter: Typed, white paper, hand written signature with blue pen in a white envelope, MF letters will have different verbiage stating "owner wouldn't have to pay a broker commission"
  3. Mailing: Mail them out every ten business days to the same address five consecutive times 
  4. Call back #: Not sure if I want to use a answer service like Patlive.com or personal line and risk the chance of going to VM
  5. Follow up: Be persistent and follow up at least five times on leads even if it goes to voicemail.

Thanks,

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