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

[David Zheng]

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?