Value-Add Apartment Acquisition Strategy

[Trevor Anderson]

Hi BP community,

My team and I have found a fantastic MFU property in a major Florida metro area, but we're unsure as to the best way to structure our acquisition.

The asking price is around $2.5 million, but the property is 50% vacant and is currently operating at a net loss due to mismanagement, which presents a fantastic value-add opportunity for us that fits well within our wheelhouse. Despite having been told that all the vacancies are in "rent ready" condition, upon inspection I found that the amount of capital that will be required to actually get them rent ready will average around $1500/unit (x46 vacant units = ~$69k in required capital expense for initial lease-up).

Because the low rate of seasoned occupancy will limit our financing options (particularly with banks and traditional lenders) we're considering the lease-option path; gain control of the property, lease it up, add value, get a loan, and exercise our option. We have extensive experience in managing an MFU property like this, but we don't have the required capital readily available, and even if we did, wouldn't want to drop $70k on a property which isn't yet ours. So I thought I'd pose this as an open-ended question for the BP community: what would be our best strategy to move this deal forward?

[Colin Smith]

I think if you could find the capital to purchase it yourself and renovate the properties, that would be ideal. A Master Lease Option certainly isn't a bad idea either. You could find another person to partner up with on the financing side that you could eventually buy out or use as a private lender.