My biggest deal - allow me to brag a little bit
I don't talk much about my deals specifically but I just closed on my largest one. 360+ unit multifamily in an "A" area of inner loop Houston. Ended up with a 75% LTV loan, 3.8% fixed for 7 years.
Pushed me over the 2000 unit mark.
Pretty proud of this one as closing this size deals as a solo investor without partners / syndication wasn't easy.
@Cody L. Congrats Cody! That must have been a big lift. I think a little bragging is well deserved when hauling in a whale of a deal like this on your own.
You've been busy. Congrats. Very impressive.
Congrats man! Put in the work and the money will follow
@Cody L. That’s awesome! Love seeing someone from my home 🏡 town winning!
@Cody L.Congratulations! Remarkable solo run!
Would you mind sharing some details?
- What was the hardest part for you as a solo investor to close on the deal and how did you overcome that challenge?
- What is your business model with the property? I assume you aim for a refinance in a few years - what needs to happen until then? What are the biggest risk until refinance and how to you try to mitigate them?
- What fact of the property did make you feel confident to buy it? How did you overcome your competitors (if any)? And how do you plan/project the coming months in terms of occupancy, income, expenses etc.
Thanks again for sharing!
Originally posted by @Nikolas Engel:
What was the hardest part for you as a solo investor to close on the deal and how did you overcome that challenge?
Hardest part is always (at least on a deal that size) going to be how to pay for it. Obviously there are two parts: Down payment and getting your loan. Down payment came from a sale of another property that had some equity, as well as a refinance of a large batch of property with equity. Loan was actually easier on this property due to having a lot of larger banks hungry to do the deal. For example, Wells Fargo has always said they wanted to do something with me but never has. Because my other deals haven't been a fit. Yet they were all over this one. I had a large regional bank that I really wanted to use on the deal but their insurance requirements made the deal not work.
What is your business model with the property? I assume you aim for a refinance in a few years - what needs to happen until then? What are the biggest risk until refinance and how to you try to mitigate them?
Nothing complex as far as a business model. I'll run it like all my others. I won't likely refi anytime soon as my rate was locked with a swap. So if rates don't go up, it'll be costly to unwind that swap. And if rates DO go up, then that presents another challenge to refi. Ideally the bank will allow me to recapitalize my equity if the value goes up vs a large refi. I'm at 75% now, but the value was a perfect match to purchase price. If I can increase NOI I can increase the value and 75% of a new appraisal might allow me to pull out a few million for the next deal.
What fact of the property did make you feel confident to buy it? How did you overcome your competitors (if any)? And how do you plan/project the coming months in terms of occupancy, income, expenses etc.
The price per door and price relative to income, all based on where it was, made it an easy property for me to decide was a fit. I've never been one to deep dive on financials -- and didn't feel the need to start just because this property is larger. Other buyers for something this big will typically focus on the owners in-place financials. Which were not good (very high cost ratio. About 70% for them where I average about 45%). Where as I could toss their financials out the window. Also the sellers were not very accommodating when it came to tours, where as I typically don't even tour. Which knocked out other buyers. Finally, my offer might have had extra weight vs. higher priced offers due to a track record of closing each deal I've put under contract and never re-trading.
No need to fix anything on the income side (I proforma a ~5% increase) but there is a lot of cost savings to be had.
This is awesome @Cody L. congrats!
@Cody L.Thank you for your response, good to have some context to your deal.
Quick follow up questions:
- You mentioned that you do not like touring properties. How do you safeguard against any negative surprises in due diligence or did you buy it without any contingencies? I am not sure I would have the confidence to skip that part entirely.
- How long did you negotiate? With the owner directly or through a broker? Was there a moment when things could have gone sideways? If so, what was the solution/compromise?
Thanks again for sharing!
Originally posted by @Nikolas Engel:@Cody L.Thank you for your response, good to have some context to your deal.
Quick follow up questions:
- You mentioned that you do not like touring properties. How do you safeguard against any negative surprises in due diligence or did you buy it without any contingencies? I am not sure I would have the confidence to skip that part entirely.
- How long did you negotiate? With the owner directly or through a broker? Was there a moment when things could have gone sideways? If so, what was the solution/compromise?
Thanks again for sharing!
I wouldn't say I don't "like" touring properties, it's that I don't see much point. If you're buying a stabilized multifamily, the rent roll is my 'inspection' (and on top of that I have plenty of photos). If it's full, and people are paying $1000/month, that's the info I need. What would I uncover on a tour? Or, more importantly, is what I'd find on a tour likely to make me walk on a deal? I did walk the property after going under contract but at that point it was a done deal.
Once you've bought enough of these, you know what you're getting. When I buy lower end properties, I expect there to be issues, but that's baked into the price.
This deal was heavily marketed by a national broker. I'm quite surprised my offer was selected as I 1) likely wasn't the highest bid, 2) was, honestly, woefully unqualified to be selected due to my 'size'. On the 'interview' call with the primary bidders, I let them know that a) I didn't have frim financing in place and b) I didn't have the down payment funds (as I was working in that). I can only assume my offer got a push from the broker due to my rep of closing my deals on time and not re-trading. Or it could be I turned up the charm while on the call.
There were a few small issues that came up during the closing but nothing even worth writing about.
- Lender
- Nashville TN - Licensed in AL AR DC FL GA LA MD TN, TX and VA
- 334
- Votes |
- 583
- Posts
Very impressive deal and a very informative post! Congratulations and good luck with the property!
- Investor
- Fairfax, VA
- 678
- Votes |
- 1,010
- Posts
In addition to increasing the rents 5% where do you see a cost savings on this deal? Love to know more how your squeezing the juice out of this one.
This is the Terrace at the Bromptons I believe? It's not really in an "A" area but pretty damn close to it. It's between West U and the Med Center. West U is a definite A area if not A+ area, Med Center is a B- area of Houston, but definitely among the lowest of the inner loop if not the lowest. South of Holcombe is pretty much the cut off and that's where these are. Still, an absolutely fantastic purchase and wish you the best of luck on this.
Wow! Congratulations!!
Quote from @V.G Jason:
This is the Terrace at the Bromptons I believe? It's not really in an "A" area but pretty damn close to it. It's between West U and the Med Center. West U is a definite A area if not A+ area, Med Center is a B- area of Houston, but definitely among the lowest of the inner loop if not the lowest. South of Holcombe is pretty much the cut off and that's where these are. Still, an absolutely fantastic purchase and wish you the best of luck on this.
Thanks for your comments. I don't necessary disagree.
Quote from @John McKee:
In addition to increasing the rents 5% where do you see a cost savings on this deal? Love to know more how your squeezing the juice out of this one.
Rents were up more than 5%, but vacancy was also slashed. All sorts of labor/material savings. Advertising savings. General systems/process savings. Insurance was cut in half (I'm pretty risk tolerant there). Also refinanced my 3.7% loan to 2.9% (lucked out there, got it at the bottom bottom). Stayed out of agency debt (used local bank) to avoid all sorts of other nonsense costs
Showed the bank an aggressive 1 year proforma and was within 2% of my estimates.
@Cody L. That's a beautiful property you purchased. I am looking forward to buying some larger MFH in the next couple of years. I am curious what your strategy will be if interest rates stay high until you have to refinance when your rate lock expires? That's been my only source of anxiety on large MFH since all of my properties I own are super low interest rates fixed for 30 yrs. Say worst case scenario if your interest rate doubles when your rate lock expires, have you run the numbers to see if you would go negative on cash flow or if you would still be okay assuming rents don't increase much? I know it's an unlikely scenario that rents don't increase in 5 more years and that interest rates won't be that high, but I would assume you will have a plan in place if this happens. I'm curious how many investors with MFH that have rate locks expiring in '23 and '24 will be in a bind having to refinance at these high interest rates? I guess anyone that purchased more than a couple of years ago have a lot of equity so the principal is is moderate and rents have increased tremendously. I purchased a lot of RE in '09-'12 and I don't recall seeing very much MFH properties in trouble. Maybe this is something you won't think about until you are a couple of years from your rate lock expiring? Either way, congrats on getting to the point where you could make this deal happen. That's a deal that if you hold long enough you could retire off of that one deal I'm sure!
Quote from @Chris Potter:
@Cody L. That's a beautiful property you purchased. I am looking forward to buying some larger MFH in the next couple of years. I am curious what your strategy will be if interest rates stay high until you have to refinance when your rate lock expires? That's been my only source of anxiety on large MFH since all of my properties I own are super low interest rates fixed for 30 yrs. Say worst case scenario if your interest rate doubles when your rate lock expires, have you run the numbers to see if you would go negative on cash flow or if you would still be okay assuming rents don't increase much? I know it's an unlikely scenario that rents don't increase in 5 more years and that interest rates won't be that high, but I would assume you will have a plan in place if this happens. I'm curious how many investors with MFH that have rate locks expiring in '23 and '24 will be in a bind having to refinance at these high interest rates? I guess anyone that purchased more than a couple of years ago have a lot of equity so the principal is is moderate and rents have increased tremendously. I purchased a lot of RE in '09-'12 and I don't recall seeing very much MFH properties in trouble. Maybe this is something you won't think about until you are a couple of years from your rate lock expiring? Either way, congrats on getting to the point where you could make this deal happen. That's a deal that if you hold long enough you could retire off of that one deal I'm sure!
I refinanced nearly my full portfolio in early/mid 2022 while rates were 3% - 3.5%. All are fixed for a min of 5 years. What happens if rates are higher than my current loan when I have to refi in 5 years? I expect they will be. That'll be mitigated somewhat by increases in rents and decrease in my loan balances. Also will they be as high as they are now or somewhere in-between? Who knows.
But there is always going to be both rate and term risk. You can't eliminate it (other than buying properties cash, which has it's own downsides). Only mitigate and plan for it.
If I had bought a short term rate lock or had a floating loan I'd be very worried. But I have 5-7 years depending on the loan to plan.