My biggest deal ever... and it went bust. (sort of)

My biggest deal ever... and it went bust. (sort of)

Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes

Hi BP Fam,

Previously I mentioned I was onto a large deal that I thought would be an absolute killer. Well...turns out things don't always work out as planned.

I'm not happy about the results on this deal that I've been slaving over since June but it wasn't a complete fail story so I'll share what I did here.

In April, I was approached with a large package deal of 15 units. Seller wanted $2.1 million. I offered $1.5m and some other guy came in at $1.7m  cash after I was led on for about a week. I was literally depressed for about two weeks about losing this one. Fast forward into may and the other guy apparently tried to drop his asking to $1.2m after inspections. Seller of course put everything back on the market. I jumped the day I heard of it and basically made the same $1.5m offer.

Through some silver tonguing, I made it under contract! Great! Check my bank account. I have about 80k of disposable income. I'll make this work. I have a closing date of 30 days. So within 2 weeks, I had to do some really complicated stuff using HMLs, my primary commercial banker, and a whole lot of private money. In all, I raised about 250k from private sources ranging from friends, family, and random people I found on facebook.

we close end of June and its off to the races. I basically gave myself another 45 days to get the places rehabbed, rented out, and ready for refinance. Most of the work was cosmetic...painting, new floors, etc. However some units required a gut rehab, new kitchens, appliances, HVAC, etc.

To summarize, I took the 15 units @ 10% occupied generating 950/unit to 100% occupied at an average of 1800/unit within 3 weeks. I finished all rehab Mid Aug. All in I was only about 115k in terms of remodeling/rehab/holding costs for all the units.

I worked myself to death doing this...hoping I'd get the killer cashout refinance I had accomplished previously in another deal

Called 20 + banks and only two would entertain me. Most said I was too young, too inexperienced, blah blah blah. Well I got an appraisal and it came in completely low. I disagreed with so many things appraiser said. He put me at $1.9m. Luckily one bank said they'd loan up to 82% of the ARV. another said they'd do 70% of the ARV. So...do I risk another $3k in appraisal cost and $12k in holding costs for another appraisal?

I decided against that... and just took what I could get. I did however work out with the bank that after a year of performance, they will re-evaluate and potentially give me more cashout in the future.

So here's a rough number breakdown.

purchase $1,500,000
Loan Amount 1,300,000
Rehab+holding+closing costs $115,000

ARV 1,900,000
new Loan (20 year, 6.25, 5 year)- $1,560,000

Cashout portion- $260,000

Cashout- FFFF (friends, family, facebook friends)= 10,000

Money in deal = 45,000


Rental Side of Things (by month)

Current Income- 27,000/m (Proforma is 31,500 since I had to rush rent out)
Expenses- (Utilities, Taxes, 25% Vacancy/Management/CAPEX, insurance, etc)- 12,500/m
Debt- 11,400/m
NOI- 3100/m

Something like that at least

For the other questions that may pop up:


I self manage
I doubled my portfolio in one deal

I was my own GC for the project

I still have a full time job in securities trading

I worked 110 weeks for 2 months straight

I am burnt out

I hit a lot of roadblocks including getting sued, vandalized, robbed, and threatened

I had a lot of physical blackouts and emotional breakdowns
My outlook in general on people is definitely more negative

However I am also ready to move on


This post was very much to speak on an experience and tell a story. I am not opening myself up to be a mentor, give specifics, etc unless you want to paypal me first for my time ;)

I guess it could've been worst, but we never go into these deals believing the worst happens right?

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Most Popular Reply

Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Account Closed:

How can a guy abusing drugs get so much support.   He is young so he can handle it.  But overtime drugs will win.

Sure he may make a few million but for what.   Premature passing.  This guy needs help.  And not with RE  His RE acumen seems spot on.

 give it a rest dude. your not funny and your kind of a full on pathetic jerk.

See this reply in the discussion

42 Replies

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  • Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    8y

    I forgot to mention Class B neighborhood. I don't do warzones

  • Real Estate Investor · Middle Island, NY · Member since 2016 · 147 posts · 68 votes
    8y

    Thank you for giving an insight into what these types of deals can entail. 

    I see you self manage but still mention you deduct it from your expenses, seems like a smart way to go about it.

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    @David Zheng That’s a good story. You’re probably at the point where you can grow your portfolio slower? That’s what I’d probably recommend if I were you
  • Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    8y
    @David Zheng Love the numbers love the story and hard work..
  • Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    8y

    @Caleb Heimsoth If Elon can do it, I can do it

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Originally posted by @David Zheng:

    @Caleb Heimsoth If Elon can do it, I can do it

    While technically true he’s also been in the news for some not so great tbings lately, likely made worse by his bad sleeping habits... just something to think about.  

  • Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
    8y

    @David Zheng

    Awesome job and thanks for sharing!

    Is this your first MF deal of this size? Just a few notes:

    • Banks want around 12 months of stabilized rents to give a more favorable valuation.  Best to take your time, get good tenants and top rents to push valuation up.
    • I'm assuming you had some holding costs in the beginning but your holding costs would be low or nonexistent once you rented it out?  In other words, take your time in putting together a good property with good paying tenants to get the best valuation for refi or exit.
    • Most lenders can do 70% - 75% LTV max.
    • Expenses for MF typically range from 30$ to 40% of gross rents. This includes capex, repairs, taxes, insurance, etc.  It also includes property management but sounds like you are self managing.  After you get some experience, I highly recommend paying up and hiring a property manager.  Your time would be better spent finding deals and networking than chasing down clogged toilets.
    • Once you have a system in place with a good property manager, your time should be minimal to manage that property....1-2 hours a week.

    I hear you that you're burned out...totally understand. Keep in mind, the 2nd time is much easier and the 3rd is easier than that and so on.  Cash in the bank is great but your network of lenders, prop managers, brokers, etc is worth so much more.

    Again congrats!

  • Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    8y

    @Paul Choi

    This was my first deal of this size. My last deal I did in 2017. triplex I bought for 230k, put in 110k, 2 months later I cashout refid at an ARV of 680k . pulled out 220k in cash and its grossing 8200/m. figured I could do the same thing x 4. I worked with the wrong appraiser this time.

    when your HML and private investors loans have 12% interest only payments, I bet you'll rethink about that 12 month seasoning period haha

    most lenders do 70-75. not all. you can find higher LTVs if you try

    trust me, I've had about a million people tell me to 3rd party my management however in my situation a lot of money would be thrown away doing that. Sure I can call up a plumber to fix a toilet or contractor to replace a garbage disposal. I'll get charged $150-$200 for the 20 minutes they took to take care of that not to mention the ridiculous 8-10% fee per month for taking a tenants call? Just in this deal, that's $2700/m.  I mean I can only analyze as many deals as the capital I for buying deals. Where I'm from the market is dry as hell. not interested in penny pinching ok deals. I have reasons I self-manage right now in my career. But you can bet before I'm 35 i'll be making my business calls from my beach house ;)


  • Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    Good stuff @David Zheng congratulations. I often come on this website because I feel burnt out, and the people here are likeminded/supportive and help make the process a little less emotionally draining for me. I also get re-affirmed that I'm on the right path. But you made a commitment and followed through, despite all the negative s*** that came along with it. Should be proud of yourself

  • Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    8y

    @David Zheng  "  I worked 110 weeks for 2 months straight

    I am burnt out "

    Congrats , but how did you squeeze 110 weeks into 2 months . I gotta know 

  • Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    8y

    @Matthew Paul Lots of drugs. time is irrelevant at some point

  • Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
    8y

    @David Zheng,

    I just wanted to say, I can't even imagine what it's like to be you!   I have a partner, and I just can't even imagine the amount of stress and headaches you have!  I mean wow, the size and complexity of your deals,... i'm impressed!!  Congrats on all your success!    

    Also, thanks for pointing out the burn out factor... I definitely feel it too,  for the past 2.5 years, 90% of our weekends,  in addition to our full time jobs, are just us working on the houses...  it's kinda sad when you remember Memorial day.. yeah.. that we were working on the houses.. and then Labor day... working on another house and PS-- summer is over... lol that's the third summer this has happened!   it's nice to know others are out there workings their butts off and hustling like we are!    Congrats again!    

  • Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    8y
    @David Zheng I think it’s a great testament to how motivated and inspired you are . Most people would have given up before they got started much less with all your roadblocks . I like how you pushed on and self manage . Most investors won’t do that and most give a huge chunk of profit away too! That was creative how you raised money . All in all it worked out and your on your way .just remember if it was easy everybody would do it , everyone would be rich . Reaping is reserved only for those that sow ! If you don’t sow you can’t reap .
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Caleb Heimsoth:
    @David Zheng

    That’s a good story. You’re probably at the point where you can grow your portfolio slower? That’s what I’d probably recommend if I were you

    are you still driving your lambo ??? 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    your investors you brought in are they in the deal or did you cash them out ?  the 3100 a month is that split.

    do you take a management fee for doing all of this for the truly passive money investors.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Account Closed:

    How can a guy abusing drugs get so much support.   He is young so he can handle it.  But overtime drugs will win.

    Sure he may make a few million but for what.   Premature passing.  This guy needs help.  And not with RE  His RE acumen seems spot on.

     give it a rest dude. your not funny and your kind of a full on pathetic jerk.

  • Rental Property Investor · SF Bay Area · Member since 2016 · 234 posts · 103 votes
    8y
    @David Zheng bro you’re a gangsta! You’re killing it, love the drive and ambition at such a young age. More success to you, don’t give up, you’ll make it far bro! Cheers!!!
  • Investor · USA · Member since 2015 · 325 posts · 447 votes
    8y
    @David Zheng Your story is a lot like mine over the last year. I am wondering what you are doing mentally to get over all the stresses associated with a large project?
  • Orlando, FL · Member since 2016 · 92 posts · 36 votes
    8y
    @Jehoha Lewis You dont know what drugs he may have taken. For all you know he could have been high off b12. But I digress because the point is not that he took drugs but that he accomplished an amazing feat and DESERVES recognition and relaxation @David Zheng Can you share more on the bumps in the road? Was it bad tenants or something else? Also for newbies, can you explain how the deal was structured a bit more with your private money? I'm interested to know what FFFF got out of the deal when investing 10,000 into you if anything at all?
  • Philadelphia, PA · Member since 2017 · 1 post · 0 votes
    8y
    @David Zheng I am a little bit confused. How can you have a 3100/m NOI , and 11,400/m IN debt ?
  • Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    8y
    Originally posted by @Ryan Aikens:
    @David Zheng I am a little bit confused. How can you have a 3100/m NOI , and 11,400/m IN debt ?

     Probably $3100/m cash-flow.

    The other one was probably working 110-hr weeks, not 110 weeks. Drugs was probably a joke, but ya never know with ravers :)

    Anyway, I've been here. My 2nd property was an 11-unit mixed use with 20% vacancy, a gut rehab of the retail space and enough to do to buy at a 14 cap.    Flash-forward 15 years- it's all paid off and running on all cylinders at 97% occupancy and market cap is 6. My occupancy rate could be higher but I am very selective screening new tenants. You can do that when you don't have a stupid payment anymore.

    I appreciate you sharing your story on this, David.  Not enough folks get off their butt to work in their business during stabiliization and talk about it.  You will be rewarded. May be a blessing in disguise you weren't able to equity strip more.  I never had on mine and she's free and clear now!

  • Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    8y

    @Account Closed the drugs was a joke... not sure why anyone would publicly announce they took drugs even if they did. So yes it was humor...

  • Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    8y
    Originally posted by @Jay Hinrichs:

    your investors you brought in are they in the deal or did you cash them out ?  the 3100 a month is that split.

    do you take a management fee for doing all of this for the truly passive money investors.


    I cashed them out with the cashout refinance. so basically everything in the deal now is purely mine. I didn't hold onto their money for long so my interest with them was minimal.

    The 3100/m is my monthly income for purely myself now since all investors are out.

    so in my expense calcs I always still add in a 10%  management fee, but I self manage so I guess you can say I pay myself for that effort for now

  • Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    8y

    @Kai Van Leuven I'm a single guy with no family so not much else to stress about. the thoughts of riches and freedom in the future. I had a very Chinese upbringing so really just putting myself in the emotionless robot work mindset most of the time.

  • Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    8y

    @Cristian Aviles-Morales I don't really like sharing the nitty gritty but here's some short answers

    1. tenants moving in earlier than they should have caused occupational permit issues. work permits I didn't know I needed were required. some ahole competitor who lost the deal to me I'm pretty sure knocked down some electrical wiring to one of the buildings and mysteriously the day after an "anonymous" caller reported it to the city. some guy harassing my contractors while they were working which I'm pretty sure was the same guy who vandalized my wires.

    2. my elevator pitch to short term investors. would you rather generate .01% in a checking account or invest with me and get an annualized 8% back on your money. you're basically making 800 times more. Also you can ask me REI questions in the future cause I ignore most of the people who do ask me

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