Just bought a 140 unit property. Here’s how I financed it (thanks BP!)

94 Replies

It’s always exciting to buy an off-market multifamily property, and even more exciting when the Houston Business Journal runs a story on it!

The property is a 140 unit class-C apartment complex in the Houston Texas market. The deal was financed with a $4 million loan from a national CMBS lender, and $2.3 million raised from a private offering (Reg D 506). I've got to give credit where credit is due, some of this money originated from contacts I met right here on BiggerPockets. If anyone doubts that BP can help you accomplish your goals, I hope you are a believer now!

I got the deal off-market from a broker that I’ve worked with before. He knew a seller that needed to sell right away and wanted a buyer that they knew would perform. This is why I’ve always stressed that track record means a lot in this business. It is your track record that will get you deals, and it is your track record that will help you raise money to pay for those deals.


I frequently get asked about the costs to purchase a deal of this size. Many newer investors underestimate the capital required to do a deal like this and get caught short. Since running out of cash is very unforgiving, here is a synopsis of what to expect (using figures specific to this deal but at least it gives you a general idea):

$10,000 entity formation, operating agreement, PPM and subscription agreement
$40,000 loan fee
$21,000 closing costs
$16,000 in due diligence costs (reports, etc)
$17,500 legal fees for the lender
$5,000 legal fees for the buyer
$20,000 utility account deposits
$45,000 prepay first year’s insurance premium
$40,000 fund lender’s impound account
$600,000 for capital improvements
In addition to the above, don’t forget cash reserves!

Thank you everyone for allowing me to be a part of the BP community. I look forward to sharing more success stories in the future, and I’m sure that this forum will continue to play a role in that success.

Wow, Brian, congrats! $45K/door for a Class C. Is that the range you're seeing in Houston now for this asset class?

Can I ask some ?'s re your expenses:

1. I imagine if this wasn't a Reg 506D your entity formation and legal fees would have been less?

2. Why did you have to pay legal fees for the lender?

3. Was the lender's impound account for interest? It seems too low for taxes in TX.

4. How much would you set aside for reserves, and what portion of that would come from security deposits?

5. How long from start to finish did this deal take you?

Thanks for taking the time to share.

Great post @Brian Burke . Thanks for putting up all the information regarding the expenses behind it. I'm envious. May your vacancy stay low and your rental rates flourish!

Thanks everyone!

@Darren Sager , amen!

@Joshua Dorkin , I had to raise quite a bit of money for this one, and there were a number of investors. What is unique about this deal, however, is that one investor in this opportunity was someone that I met some time ago as a result of my posts on BP. It proves that when you put yourself out there and help others by answering their questions, people take notice. If you say something smart once in a while, people seek you out. I must have said something smart once.

That's not the end, however. I had a number of other BP members that were seriously interested in participating. That means that I have an interest list going for the next opportunity. It's a great way to start the hunt.

Originally posted by Sharon Hiebing:
Wow, Brian, congrats! $45K/door for a Class C. Is that the range you're seeing in Houston now for this asset class?
Can I ask some ?'s re your expenses:
1. I imagine if this wasn't a Reg 506D your entity formation and legal fees would have been less?

2. Why did you have to pay legal fees for the lender?

3. Was the lender's impound account for interest? It seems too low for taxes in TX.

4. How much would you set aside for reserves, and what portion of that would come from security deposits?

5. How long from start to finish did this deal take you?

Thanks for taking the time to share.

@Sharon Hiebing , the purchase price was less than $45K/door (that is my all-in figure including capital improvements and all costs)...Class C in Houston is trading anywhere from $10K/door and up, it just depends on what it is, the condition, and where. This one happens to be on the upper end of c-class prices because it's a good property. I've seen deals over there as low as $4K/door, but I wouldn't want to own them.

1. Yes. If I was funding this with my own money my entity costs would have been closer to the $2,500 range, maybe less. Because my cost to do a private offering are about the same no matter the size, the bigger the deal the better, in my opinion. Economy of scale.

2. You always do. Ok, maybe not always, but it's pretty common when you are playing in this sandbox.

3. Impound was for taxes and insurance. It was low because you have to fund the impound such that the amount added each month will equal the amount of the property taxes and insurance when they are due, plus 2/12 of the amount of each. Since we are more than half-way through the year, and the seller has to credit me for the taxes up to the closing date (which also goes into the impound), the amount appears lower than it actually was. Since the insurance is pre-paid for the first year, I only had to deposit 3/12 of the premium (remember, no monthly payment for 30 days that's why it's not 2/12).

4. I set aside $75K for minimum reserves, but initially I'll have about $250K. This is somewhat of a personal decision that is driven by your tolerance for risk. It also is governed by the property...if the occupancy is unstable and you forecast negative cash flow during stabilization, you'd want to set aside a larger reserve. I'm starting with a larger reserve because I want to have enough cash to pay my contractors without hassling with draws from the impound account. I can draw off the impound to replenish the cash, instead.

5. I first heard of the deal in March. 4.5 months start to finish.

@Jose Enage , @Brandon Turner is a literary genius, I couldn't come close to writing something as cool as him. Sounds like a great idea for a BP blog article if I can put the batteries back into my creative hat though. I'll get to work on it!

@Ben Leybovich it was just under a 10 cap on actual numbers. It looks even better when you consider what the income will look like after upgrades. Gross is $644 per month per unit on average. Projected is closer to $771.

What was the breakdown with your partners? Are they getting equity or cash each month, also how many partners did you have on this deal.

I guess since I'm on the subject how does your partnership work in regards to this property, do you get to make all decisions or do you have to run it by your other partners.

Great info by the way, which I first should have pointed out, and again thanks for sharing. Rocco

@Roc P. , I have 100% control but the strategy is clearly outlined in the business plan and in the PPM and operating agreement. I tend to run major decisions by my investors, such as selling prior to the pre-defined time, refinancing the property, etc. I think that's just good business.

I have 15 or so investors in the deal. They get 100% of the profits until they reach an 8% return, and 70% of the profits thereafter. This comes from distributions of excess cash flow, and from proceeds on the sale.

@Brian Burke Yes, writing it up into case study (past and ongoing) would be great - to cover main points like: biz plan or objective coming in (turn-around/value play?), market cap rate vs. deal's cap rate, negotiation process, occupancy before and target after, exit strategy/s, how syndication was formed, selection of PM/local power team, ongoing asset management tasks etc.

@Brandon Turner may be a good literary writer but no one can tell this case story with the same completeness, conviction and in your own brand of project management as you alone can.

It would be cool if you can share with us specifically how you 'recruited' investors or cash buyers from the BP community to syndicate this deal. Thanks for your inspiring story!

Thanks for responding to my questions, Brian. I'm so glad to hear C Classes aren't trading for $45K per in Houston (I almost had heart failure and was gonna start looking for a new area lol!). I had been told about $20-25 avg, so $10K and up is wonderful - I'll probably stick to C+'s cause I'm w/ you on area. My bad for doing the math with an "all in" number.

Now that I know what you paid, the impounds don't sound low at all. I was using a much, much higher PP when I calculated that. Makes perfect sense now. Again, really appreciate you breaking this down - exciting stuff for you!

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