Been a while since I have posted, as I have been busy! Closed yesterday on two 36 unit MF complexes in OKC (portfolio deal.) This was a 1031 exchange using money from the sale of a property in Austin with the difference coming from Freddie SBL financing. Despite the fact that I only owned an 8 unit building (purchased last year) and had never used Agency financing, it took us just over three months from application to close.
It was quite an experience but I had good assistance from the folks at Red Capital on the Freddie financing - they walked me through a lot of the process and gave me a good idea of what I needed to do. Smartest move was hiring a local attorney who knew all the folks at the title company, as well as others involved. Worth every nickel I paid him. (His assistant was top-notch as well!)
So if any of you are thinking of taking the plunge into MF (and if you can find a good deal) don't hesitate to consider Freddie or Fannie financing.
@John Umphress Congratulations! What part of OKC is your deal in? I've been to OKC several times in the last 2 months and I didn't find any good deals, Did you have someone local to OKC bring you the deal since you're in Austin, TX?
@Ray Johnson , they are both located near Oklahoma City University, right next to the Asian District near North Classen. I actually got onto this deal back in March. And you're right - good deals are getting harder to find. (Suppose it also depends how you define a "good deal.") I looked in Texas but didn't think the value was good enough to make me move on any - and that includes some off-market properties that brokers sent me. (I had reached out to them on some of their listed properties which led them to send me some off-market stuff.)
For those of you considering doing the same, I did research into several dozen MSAs, looking for those that had steady employment and population growth and had recovered pretty well from the recession. I then looked at MF construction activity. OKC, KC, Huntsville AL and some others were good prospects. Set up appointments to look at properties in OKC and went up in mid April. Looked at about a dozen that met my criteria and these two were in a good location and easily the cleanest (i.e., condition and lack of needed cap ex.)
The seller had reduced the price once from their initial November listing. I made an offer, they countered at a price where I thought the deal would work with a reasonable amount of leverage, and I told them I would take it if they threw in an adjacent house for a buck - deal!
Sorry for that double post!
Big time congrats!! And using a 1031x that’s the cherry on top of the Sundae!
that is a good area overall. most streets and neighborhoods are improving there. you should see some increase in value soon but i think you will have alot of work ahead if its the place i am thinking of.
@Rhett Tullis , the lender in their inspection identified some issues that need to be corrected within the first year - funds to complete those put into escrow. My inspection identified a few other issues, including a need for a new roof on one. Seller reroofed prior to closing.
Appreciation would be nice but that was a secondary consideration. I had a net income target in mind as this will be a good portion of our retirement income. So long as we maintain it, update as needed, keep it fully leased and peg rents to the market we will do fine.
that fully leased one could be the kicker for you. with that many units the odds of all being rented are slim. you should be able to have most filled most of the time though as long as you stay at market rates and condition of the property.
@Rhett Tullis not to worry. I ran various stress tests/scenarios. At 20% vacancy I can cover debt service, put funds in reserve for cap ex, and still have a decent income. My leverage is pretty modest.
@John Umphress how did you come across this package?
Congratulations to you. We office in the Asian district and it's nice to see the area coming along.
Congrats @John Umphress . Mind sharing some of the financials on the deal? What is the current state of the property? Who were sellers? current vacancy and cap rates? deferred maintenance? What does your pro-forma look like a few years out?
Congratulations John, great job!
@John Umphress - Congrats on the 36 unit - must be very exciting. Would you mind sharing how long you held the 8 unit?
@Drew Eldridge , it was on Loopnet. After I visited the property I asked for and received historical income and expense data from the seller. They had had a dip in income that was reflected in date provided per the listing. Income/expense over time showed that the property had good potential.
@Alex V. , the owner was a contractor who bought the properties in 2010. Didn't dig into ownership history too deeply, but there were a lot of bank-owned MF properties trading at that time. They did extensive upgrades post-purchase, so a lot of the elements have been updated. Current state of the property is pretty good for 45yo buildings. Have some repairs that the lender required to be completed in the first year but loan funds were placed in escrow to cover those. Vacancies, except for a period in 2015 - 2016 (management issues) has been below 5%. Cap rate at purchase is 7.6. Biggest deferred maintenance item is one parking lot needs to be resurfaced. Rents are maybe 4 - 6% below market - we will gradually increase them to market but it's more important (at least to me) to keep them fully leased.
@Account Closed , we still own the 8 unit in SA which we purchased in 2017 (another 1031 exchange.) I looked pretty hard there this year but couldn't find a property that was a good enough value or a good fit with the funds we had to spend.
@John De La Garza, we still own the 8 unit in SA which we purchased in 2017 (another 1031 exchange.) I looked pretty hard there this year but couldn't find a property that was a good enough value or a good fit with the funds we had to spend.
Sorry I made an assumption there. Just trying to figure out the strategy and timeline. You started with a smaller property in Austin, then 8 unit in SA, then 2x36 units in OK, is that about right? Just trying to figure out how long it took you from the time you first invested till you bought the 2x36 units. Also If you wouldn't mind sharing - did you use an equity partnership?
@Account Closed , It didn't exactly happen overnight! We bought a house in downtown Austin in 1995, lived there for six years, moved when we outgrew it, and then rented it out as a residence. In the meantime (2003), we bought another house just down the street from that one. Over time the neighborhood was rezoned and our first residence became a bar and the second a restaurant. The restaurant sold last year and the bar this past May. So not exactly a get-rich-quick scheme! We ran negative cash flow on the house that became a restaurant for nine years (we knew that was likely going in) and during the bust our first house was vacant for 15 months. Cashed in some of our retirement funds to make payments, drove older cars and didn't take expensive vacations but we knew we would come out ahead in the end - so far, we have!
@Account Closed , neglected to answer one of your questions. The only equity partners are my wife and I.
@John Umphress - Great Story here - would love to see you as a guest on the podcast. Congratulations to you on your wife on your success and more to come.
Congratulations on your recent purchase. You are doing what most on this forum want to be doing and it appears by your correspondence that you have your ducks in a row and have planned for most of the problems you will face in the near future. Good luck in our market her in OKC.
@Jason Seay , thanks! The OKC market looks pretty solid or I likely would not have looked at it. I had a certain amount of money to invest and a net income target - also wanted to limit my leverage. (At my age I'm not looking at growing a portfolio via leverage.) Appreciation? Probably, but that will be for my kids to worry about!
@John Umphress First of all congratulations! Secondly, thanks for sharing. It is very helpful to hear stories like yours for guys like me working to get into MF REI. It sounds like it was a journey for you. What emotional or temporal obstacles did you have to overcome to purchase that first 8 unit? Did you have similar obstacles going from the 8 to the 72?
@Price Paramore , thanks! The biggest potential obstacle (stumbling point, really) was whether I could find competent property management. Hire the wrong one and a good purchase can go sideways - it can then be a lot of work to get it back on track. The broker who helped us purchase the 8 unit in SA is managing it (or, his company is.) The PM we hired in OKC is the same one who is managing some MF for the attorney I had assisting me.
Worth repeating that if you are purchasing OOS property, you really should hire a local attorney. They know the laws, regulations, probably know the title company, and they know the landscape. I paid a lot for 6 weeks worth of work and it was worth every penny. We likely would not have closed by the contract date had he not been involved.
Thank you. I will make sure to remember that for future use. Good luck in your future endeavors!