So, we had another thread going for a couple of weeks here. And this is not yet a success story, since a lot of work needs to be done to make it a success. 

But, today, @Sam Grooms and I closed on this 98-unit in Phoenix.

This is a syndicated private placement acquisition. @Jillian Sidoti and her firm, whom I highly recommend, helped with the PPM-related docs. 

The unit mix includes studio, 1x1, 2x1, and 2x2 lay-outs. The asset was constructed in 1984, and has by and large been un-touched on the interior of the units. However, the bones are very good, the unit sizes are attractive within the sub-market, and the location is experiencing very significant gentrification.

This was a mom-an-pop owned property. Rents are low even for as-is condition. Our Cap Rate on the way in is a bit under 5%. Our expected Cap Rate after the re-positioning in Y3 is 8.3%. Obviously we feel that there is a lot of upside on the rents. 

We have a $1.4M renovation budget, which includes complete reno of the interiors, as well as close to $500,000 in the common areas.

I could talk for hours, but I won't. I have a feeling me talking for hours might happen on the blog :) 

But, feel free to ask questions - I won't tell you everything, but I'll do my best to paint the bug picture.

@Ben Leybovich

Congratulations it sounds like you found a great deal in one of my favorite markets, Phoenix, AZ.

Just out of curiosity is this your first deal in AZ?

Originally posted by @Anthony Gayden :

it sounds like you found a great deal in one of my favorite markets, Phoenix, AZ.

We were able to get it under contract before the call for offers went out. That helped a lot in preventing the price from getting bid up. 

@Ben Leybovich Congrats!! I went to school at ASU- it’s a great market to invest as the annual YOY rent growth is strong. How did you find this deal.. was it off-market? If so, did you contact the owner directly? A broker tell you about it?

Congratulations @Ben Leybovich on the new deal! The units look in great shape as they are. Can’t wait to see how it turns out after renovations!

Originally posted by @Ryan Theige :
@Ben Leybovich

Congrats!! I went to school at ASU- it’s a great market to invest as the annual YOY rent growth is strong.

How did you find this deal.. was it off-market? If so, did you contact the owner directly? A broker tell you about it?

Ryan, this was a market listed property. I simply received an email one day, just like I do so many others. Once we underwrote it, and got comfortable with the potential, we engaged our PM to look over our numbers, and once they validated our thought process, we did the tour. 

I suppose we moved a bit faster on all of the above than most people. In the end, we were able to tie it up before the offer date, and thus avoided the bidding war.  Pretty sure that the bidding process would have pushed the price up significantly.

Originally posted by @Anthony Gayden :

@Ben Leybovich

Congratulations it sounds like you found a great deal in one of my favorite markets, Phoenix, AZ.

Just out of curiosity is this your first deal in AZ?

 Anthony - yes, my first mutltifamily in AZ.

Originally posted by @Sam Grooms :

Originally posted by @Anthony Gayden:

it sounds like you found a great deal in one of my favorite markets, Phoenix, AZ.

We were able to get it under contract before the call for offers went out. That helped a lot in preventing the price from getting bid up. 

 don't forget what Ben promised to aheroshome.org when you successfully closed...  !!!   congrats hope its a winner

@Ben Leybovich @Sam Grooms Congratulations!! By you being able to have your offer accepted prior to the call for offers is everything!! How were you able to do so? Recently, when I tried to do that the broker suggested I give a non-refundable deposit of $10-20k to get it under contract prior to any other offers. In hindsight, I definitely should have done it but lesson learned.

@Ben Leybovich , @Jay Hinrichs is right. It also has to be a big donation, since you waited. 

Thanks, Jay. We're really bullish on this property. 

Originally posted by @Sam Grooms :

@Ben Leybovich , @Jay Hinrichs is right. It also has to be a big donation, since you waited. 

Thanks, Jay. We're really bullish on this property. 

 YOu tell him Sam... those of us that are so blessed by real estate and are on BP  we want to show that we give back in a meaningful way.

on this deal did you use a broker for your senior first position debt or did you use a local community bank or regional bank ?

or FHA type product just curious..

Originally posted by @Nik S. :
@Ben Leybovich @Sam Grooms Congratulations!! By you being able to have your offer accepted prior to the call for offers is everything!! How were you able to do so? Recently, when I tried to do that the broker suggested I give a non-refundable deposit of $10-20k to get it under contract prior to any other offers.

In hindsight, I definitely should have done it but lesson learned.

When touring the property with the broker, he made some comments over the course of 30 minutes or so. Even though he didn't explicitly say it, we left with the impression that the seller wasn't very sophisticated and just wanted to get the deal done already. A few days later (it would have been sooner, but we were getting financing lined up) we took the broker to lunch and asked him directly if the seller would be willing to accept an offer before the call for offers. After he confirmed our hunch, we submitted our offer later that afternoon. 

Originally posted by @Jay Hinrichs :

Originally posted by @Sam Grooms:

@Ben Leybovich , @Jay Hinrichs is right. It also has to be a big donation, since you waited. 

Thanks, Jay. We're really bullish on this property. 

 YOu tell him Sam... those of us that are so blessed by real estate and are on BP  we want to show that we give back in a meaningful way.

on this deal did you use a broker for your senior first position debt or did you use a local community bank or regional bank ?

or FHA type product just curious..

Absolutely agree on giving back.  

We used a broker with Berkadia for financing. We weren't sure if we were going to go the broker route, but I'm so glad we did. Worth every penny.  

Congratulations @Sam Grooms & @Ben Leybovich . 

Originally posted by @Jay Hinrichs :

Originally posted by @Sam Grooms:

@Ben Leybovich, @Jay Hinrichs is right. It also has to be a big donation, since you waited. 

Thanks, Jay. We're really bullish on this property. 

 YOu tell him Sam... those of us that are so blessed by real estate and are on BP  we want to show that we give back in a meaningful way.

on this deal did you use a broker for your senior first position debt or did you use a local community bank or regional bank ?

or FHA type product just curious..

Where do I send he check?

My kid's school parent organization is first in line. My wife is the president, so you'll understand. I'll match to you.

LIBOR + 350 with caps bridge 3+1+1. Get out of it most likely in 24-36 into Freddie if it looks like we are staying in. Lender from NY - Berkadia facilitated. 

Originally posted by @Ben Leybovich :

Originally posted by @Jay Hinrichs:

Originally posted by @Sam Grooms:

@Ben Leybovich, @Jay Hinrichs is right. It also has to be a big donation, since you waited. 

Thanks, Jay. We're really bullish on this property. 

 YOu tell him Sam... those of us that are so blessed by real estate and are on BP  we want to show that we give back in a meaningful way.

on this deal did you use a broker for your senior first position debt or did you use a local community bank or regional bank ?

or FHA type product just curious..

Where do I send he check?

My kid's school parent organization is first in line. My wife is the president, so you'll understand. I'll match to you.

LIBOR + 350 with caps bridge 3+1+1. Get out of it most likely in 24-36 into Freddie if it looks like we are staying in. Lender from NY - Berkadia facilitated. 

 OK I put in 2k to aheroshome.org personally to kick start it.. as did the other 5 founders..  so if you match that ,  Brian, Chris, Tom and Bandon would be most grateful.. !!!  

congrats on your venture I wish you the best of luck with it.. also its ringing endorsement with the uber competition and herd mentality that is following MF these days that you guys pulled this off.... your to be commended. 

@Ben Leybovich   and its sure does not look like a OHIO pig either LOL  .. 

Originally posted by @Nik S. :
@Ben Leybovich @Sam Grooms Congratulations!! By you being able to have your offer accepted prior to the call for offers is everything!! How were you able to do so? Recently, when I tried to do that the broker suggested I give a non-refundable deposit of $10-20k to get it under contract prior to any other offers.

In hindsight, I definitely should have done it but lesson learned.

Hick - this was $100,000 EMD with NO FINANCE CONTINGENCY.

$50,000 good faith to lender to begin the app. 

$15,000 to the securities attorney.

$7,000 to RE Attorney

If my math is right, I think this is about $172,000 hot on Day 1.

Freaking crazy, but such are the big boys club rules.

Is that about right, @Sam Grooms?

Congratulations @Ben Leybovich Do you mind sharing what you expect that to put into your and Sam's pocket each year? Not just NOI but what left for you after paying investors?

Was the $172 up front your personal money or was some of that raised money?

Thanks

@Ben Leybovich , that about covered it. There was about another $5K in misc. expenses. 

@Ned Carey , yes the $172K was personal money. Our PPM didn't allow us to break impounds (use investor money), until substantially all of the money was raised. Almost all of the $172K is needed on day one, so it wasn't possible to use investor money. 

@Ned Carey - the general partner is reimbursed out of the raise, but only if the deal closes. I've lost some money in the past when the deal did not close...But as Sam says - yes, the float to get things off the ground is personal money.

This is one area where there is a fair amount of moral hazard. Obviously nobody wants to loose $150K, and one could say that with this much money hard, the sponsor can "feel committed".

The thing is - I wouldn't do a bad deal if I know it's a bad deal. This is where the moral fiber of the sponsor is crucial. The cognizance of fiduciary responsibility in the sponsor is above all else... Good thing Sam and I are bullish as all hell on this deal, so moot point...

As to your questions around returns - there is typically no or very little cash flow left for the sponsor after the pref paid. For us it's a fee model. A little on the front, and a lot more on the back if we can execute the plan. And if not, we are **** out of luck. Basically - long game.

We do get some management fees during the hold, but not enough to mention. And, frankly, not enough for the work we do. For us, this is all about the exit! But, it's the kind of money that is worth waiting for, working on, and executing :)

@Ben Leybovich that makes total sense. 

It does bring up a quandary if one's goal is for relatively passive income. SFHs may bring better cash flow returns, but harder to scale. Even if one can scale it becomes much less "passive" 

Larger properties, as you practice it, may bring in bigger money long run, but not continuous spendable cash flow.

Originally posted by @Ned Carey :

@Ben Leybovich that makes total sense. 

It does bring up a quandary if one's goal is for relatively passive income. SFHs may bring better cash flow returns, but harder to scale. Even if one can scale it becomes much less "passive" 

Larger properties, as you practice it, may bring in bigger money long run, but not continuous spendable cash flow.

 Yes, Ned - this is not a cash flow play for me. I have cash flow coming from property I own individually, as well as business. The syndication model for me simply balances things out and creates big pay-days down the road. Additionally, because the projects are large, my percentage of ownership allocated to me vast amounts of passive losses, which for a real estate professional do the job of shielding things...

In short, I am more than happy to give away the cash flow to my partners.

Originally posted by @Ned Carey :

@Ben Leybovich that makes total sense. 

It does bring up a quandary if one's goal is for relatively passive income. SFHs may bring better cash flow returns, but harder to scale. Even if one can scale it becomes much less "passive" 

Larger properties, as you practice it, may bring in bigger money long run, but not continuous spendable cash flow.

The distinction on larger properties is between a sponsor and an investor. An investor can get cash flow. A sponsor gets their payday on the exit. Now, once the property is repositioned, there's usually enough cash flow for the sponsor if they don't exit the property. However, the highest returns for all involved are when you exit after repositioning (assuming there's another investment to move your cash to after the exit). 

@Ben Leybovich

First off congratulations on the deal very impressive 

But I have to say This peaks my interest ..... I always thought of you as the guy who has said all the smart money has already made the big moves back in 2013 or whenever it was in your original few podcasts 

Why are you going so big this late in the cycle esp with mf which many have said is very overheated... also if there is a previous post on this I apologize for redundancy I have not read it

Maybe it’s an add value force equity play or something?  I personally don’t do large mf but I am very interested and will possibly be working with a lot more capital this time next year so I’d love to hear your thoughts