CLOSED on a 98-unit TODAY!

247 Replies

Originally posted by @Billie Miller :

Congratulations! My husband just quit his job to syndicate apartments (and by that I mean underwrite deals all day every day...).

Would you be willing to share your thoughts on your exit cap rate? Not so much the specific numbers but your assumptions in forecasting it? I realize that the entry cap rate on a value add doesn't really mean much. But since you're looking out 24-46 months, how did you do that?

Our method (not all that scientific) has been to look at what similar, stabilized properties are trading at and inflate that.5-1% (depending on the market) just to be safe.

 Hah Billie, my method may be a little more scientific but essentially leads me to the same 1% inflation of Cap Rate. Thought, this is not market-specific.

@Carl Ebsen

"I'm not sure if you posted this earlier but I take it since it's a 5 cap you have around 400K net income on this deal?" BL: in-place, yes.

" I've read some of your work so I imagine the roofs are not flat ;). "BL: you better believe it lol 

"Will you be sharing before and after pictures with us?" BL: Sure, why not. Might do it on the blog, though 

"Does it also follow your 2 bedroom "heaven on earth" criteria?" Yes, not too large, but large enough.  

"Curious if having the majority of units as 2 bedrooms still matters to you at this scale." BL: Actually, two bed is my favorite layout. Not quite 50% of the units here are 2s.

"I read your website and it says that you buy below replacement cost. How many square feet is this 98 unit and what did you pay per square foot?" BL: We paid $83,000 per unit. Works out to about $138 per sq.ft. Foks are paying for Class A $150,000 per unit - I suppose because it costs more than that to replace :)

Originally posted by @Saverio Nestico :

This is a great deal. Awesome! I’ve read through several of the comments and i was able to gather a few pieces of information but i want to get a specific answer directly from you regarding the financing structure. I am very interested in sourcing andsyndicating my investments and i am wrapping up my private equity investment model before i begin to pursue investors. So i am curious, can you break down the structure of your financing including any conventional, creative and any private financing? Thanks for your time. I hope we can talk soon

 Nothing creative here, I suppose. A bridge loan for purchase and rehab that works out to about 75% LTC. after the re-positioning we will see - most likely GSE fixed, but there are options.

Originally posted by @Adam Mauck :

Hi Ben,

Thanks for the reply.  I seem to be very interested in price per unit, it helps me make sense of some deals.  You made a great purchase. Keep up the good work.

Adam

 I would not get overly stuck on the price per door. If you want to make a 50% margin on the exit, you can do it at $140,000 per door just as well as at $80,000 per door. The profit is in the delta - just need to pay a function of the delta!

Originally posted by @Sam Manoo :

Congratulations on the acquisition. What submarket within Phoenix is this located in? 

Sam - we are within a stone's throw from the GCU :) 

Originally posted by @Matthew Cain :

@Ben Leybovich That is awesome! I'm from Phoenix area and love the market. What books or resources would you recommend for newbies who are interested in investing in multi-family?

 Matt, I've heard of two books. I've not tried them myself, but a lot of folks reference them so they must be good. @Frank Gallinelli 's book and Dave Lindahl's book. 

There is also a lot of information on my website.

Good luck!

was curious about the actual numbers on a deal like this.  How much was the capital raise and what was put down, interest rate, etc.  can you share the deal the investors get.

Thank you 

Adam 

Originally posted by @Scott Dawson :

@Sam Grooms @Ben Leybovich I'm in the Phoenix Metro area. Let me know if there are any meet up / Masterminds to attend locally. Currently sourcing Multi Fam here in PHX and Indianapolis. Congrats on the deal and  Keep rockin!

 Scott, definitely come to @Shiloh Lundahl 's meetup next month. We're actually very interested in Indianapolis, as well. Ben and I flew there a couple months ago to start building relationships. We were just in best and final on a property there. 

Originally posted by @Rhonda Wilson :

@Ben Leybovich You wrote "Jay, statistically it costs on the average about $1,000 per door per annum less to run multifamily in the South-West than Mid-West."

I'm really intrigued by this. Do you happen to have a study or reference? I'm not doubting it. Up in the Washington and Oregon I get really tired of dealing with mold in apartments. It's difficult to prevent and expensive to fix. It also seems that roofs will last longer in a dry climate. 

We are thinking of investing with the southwest next go around and would love to know that our costs will go down on these line items.

Rhonda, Ben mentioned the IREM report, but I thought I'd give you some specifics. 

So the IREM report surveys property managers all over the country (thousands of them), and they produce reports each year based on those surveys. You can get very detailed average operating statements from these reports. For example, I can see that they surveyed over 1,200 garden style apartments in Cincinnati last year. The average operating expenses were $5,173. That's really high. They surveyed over 4,200 garden style apartments in Chicago last year. The average operating expenses were $5,661! Compare those to Phoenix, where average operating expenses were $4,076. That's the $1,000+ difference Ben was talking about. 

Note that the report breaks it down to the detail you'd get in a T12, but with how expensive these reports are, I don't think IREM would be happy if I posted them.

Originally posted by @Manuel Angeles :

@Ben Leybovich

 This is awesome !

Congratulations !

#Goals !

What was acquisition price ?

What is projected disposition value ?

Was 100% of acquisition and improvement costs coming from raised capital?

Or did you have a lender provide lion's share of costs as debt, then raise the remaining capital as equity ?

Manuel, you probably saw some of this information after your post, but in case you didn't:

Acquisition price was $8.15M. Our all in basis after the renovation will be about $10M. We should have around a $15M property on our hands after the reposition. 

No, only 25% was coming from raised capital. 75% LTC on the loan. 

Originally posted by @Adam Mauck :

Congratulations!  I'm a native Phoenician and have been investing here for the last 25 years.  It looks like a great property in an obviously hot market, pardon the pun.  Can I ask what part of town and approx. price per unit?  I have been looking for something similar for a while now. On top of a great looking property you bought from a non institutional owner which is fantastic. 

Thanks,

Adam

Adam, we're right next to Grand Canyon University, which was a huge draw for us. You might know this already, but that area is going through some major changes right now. After having 1,000 students enrolled in 2008, the university had 17,500 on-campus students in the spring of 2017, and over 20,000 in the spring of 2018. In 2017, GCU was granted membership into Division 1 athletics by the NCAA. In 2018 (this summer), GCU received approval to return to non-profit status, allowing it to accept philanthropy and pursue grants. The university is spending hundreds of millions of dollars on construction projects in 2018 alone, including new classroom buildings, parking garages, a restaurant, athletic building improvements and library expansion. It's all part of a $1 billion construction project that GCU is in the midst of. 

Ben will likely tell me that I'm giving away too much information here, but I can't help it. I'm bullish on this area. The best part is, we didn't factor any of that future upside in to our underwriting. 

Originally posted by @Adam Bonoff :

was curious about the actual numbers on a deal like this.  How much was the capital raise and what was put down, interest rate, etc.  can you share the deal the investors get.

Thank you 

Adam 

Adam - I think we've posted the general data points prior. But, $8.15 was the acquisition. The loan is a bridge loan LIBOR + 350, at basically 75% LTC, including the renovation. Caps cost us about $50,000. 

Investors have an 8% cumulative pref COC . We did a 70/30 split after pref on CF and capital gains, and we did not do hurdles or escalations on that (may syndicators do, and I don't rule in out, but not on this deal).

Hopefully, that answers your question.

Originally posted by @Billie Miller :

Congratulations! My husband just quit his job to syndicate apartments (and by that I mean underwrite deals all day every day...).

Would you be willing to share your thoughts on your exit cap rate? Not so much the specific numbers but your assumptions in forecasting it? I realize that the entry cap rate on a value add doesn't really mean much. But since you're looking out 24-46 months, how did you do that?

Our method (not all that scientific) has been to look at what similar, stabilized properties are trading at and inflate that.5-1% (depending on the market) just to be safe.

Billie, I was in the same boat your husband is in. I'm pretty sure my wife thought I was crazy leaving my career as a CPA, to then sit in my office at home and underwrite with Ben all day. 

To provide a little more color on our exit cap: Obviously interest rates and cap rates generally follow each other. Not in sync, but in the same direction. What's interesting is that even with the recent uptick in interest rates, we haven't yet seen that in multifamily cap rates (at least not here in Phoenix). That could mean the market is more bullish on apartments now, than when they first started raising interest rates, thus offsetting the effects of the interest rate increases. The fundamentals are certainly there to back that up. But, what if its just a delayed reaction? To be conservative, let's just add that interest rate increase to our cap rate. Then, we looked at the Fed's goal of 3%. We're still about 1% under that right now, so you'd expect interest rates to raise another 1%. Let's go ahead and add that to our cap rate, too. Like I said, we haven't yet seen cap rates start to follow interest rates, so this approach gives us a lot of room to outperform our projections. 

Originally posted by @Matthew Cain :

@Ben Leybovich That is awesome! I'm from Phoenix area and love the market. What books or resources would you recommend for newbies who are interested in investing in multi-family?

Matt, Ben mentioned Dave Lindah's book, Multifamily Millions, but there are some other good ones, too. 

I really like The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges. Not a lot of fluff, just a lot of teaching. 

Then there's The ABCs of Real Estate Investing by Ken McElroy. 

Those three books will introduce you to a lot of the basics of multifamily investment. 

@Ben Leybovich and @Sam Grooms Congrats guys, Can't wait to see a Blog post about this!. I went back through the 6 pages and created my own highlight sheet :) Thanks for sharing what you have so far on this deal. It certainly helps people like myself to understand the process a bit better with real-world examples along with the reasons behind the decisions included. 

Originally posted by @Ben Leybovich :
Originally posted by @Adam Bonoff:

was curious about the actual numbers on a deal like this.  How much was the capital raise and what was put down, interest rate, etc.  can you share the deal the investors get.

Thank you 

Adam 

Adam - I think we've posted the general data points prior. But, $8.15 was the acquisition. The loan is a bridge loan LIBOR + 350, at basically 75% LTC, including the renovation. Caps cost us about $50,000. 

Investors have an 8% cumulative pref COC . We did a 70/30 split after pref on CF and capital gains, and we did not do hurdles or escalations on that (may syndicators do, and I don't rule in out, but not on this deal).

Hopefully, that answers your question.

Also, the raise was a little over $3.5M. The caps Ben mentioned are the interest rate caps, since its a variable rate. They're a type of hedging instrument.

Thanks for the cap rate insights!

@Sam Grooms , my husband used to be a lobbyist for the multifamily industry...until he realized that's the wrong side of that industry. It's much more lucrative to be the people paying the lobbyists :)

Hi Sam,

I agree completely! If you would have told me to start buying in that area 10 years ago, I would have just blown off the suggestion.  That's what makes Real Estate such an incredible career!  I have become better at speculating the longer I'm in the business, but it's still a roller coaster.  I had a friend start buying in that area about 6 years ago and he had no idea what he was getting.  I say, "buy it if it feels right."

Adam Mauck

@Sam Grooms Thank you for sharing some of high-level details from the IREM report. I agree that it would be unfair to IREM to share substantial details of what it included in their report. 

How do you inform people about offerings? We are still doing our own deals, but we're not as young as we used to be. We've thought a lot about our "exit" strategy, meaning that we would like to move more towards passive investing. Do you keep a mailing list of contacts? 

Am I correct in assuming that your deals are not structured for 1031 exchanges? 

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