117-Unit Value-add in Phoenix Closed Today

Multi-Family and Apartment Investing
7yFollow

117-Unit Value-add in Phoenix Closed Today

Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes

Ladies and Gents,

We don't do too many deals, but when @Sam Grooms and I do a deal, it's something special.

Today we closed on 117-unit in Phoenix's South Mountain neighborhood. The complex is named South Mountain Square. 

Some Details:

  • Purchase Price:  $10.75M
  • Reno Budget:  $1.5M
  • Per sq.ft. Blended Price:  $140/sq.ft.
  • Financing: 70% LTV on the PP and 100% LTV on the Reno
  • Equity Raise:  $4.5M
  • Unit Mix: Essentially 50/50 of 1x1 and 2x2
  • Value-Add: $300 per door +
  • Going-in Cap Rate on T12: 4.1%
  • Cap Rate projected by end of Y1:  5.2%
  • Cap Rate projected by Y3:  8.25%
  • 5-year target IRR: 17%+
  • 10-year target IRR: 14%+
  • In-place LTL to reno Bump Ratio:  About 65/35

I want to thank our many partners in this deal. I am very bullish on this acquisition. We will do very well at South Mountain Square.

Feel free to reach out if anyone has questions.

35Reply
341 views

Most Popular Reply

Sam Grooms
Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
7y

To give you an idea of how conservative we underwrite, even with the $300 increase in rents: 

We met with the new manager at the property this morning, and she says our post-renovation rents need to go up another $50 on the 1x1s. We knew that going in, but it provides an additional $700K of upside to help us outperform. 

Don't be too aggressive with your underwriting; give yourself some cushion. 

10Reply
See this reply in the discussion

109 Replies

Jump to latestLatest
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y
    Originally posted by @Victor S.:
    Originally posted by @Ben Leybovich:

    We don't do too many deals, but when @Sam Grooms and I do a deal, it's something special.

    Instantly pictured that meme of the Dos Equis guy. We now have our own most interesting man on BP lol Congrats, guys!

    How is your other deal coming along, btw?

    Like Ben said, its going according to plan. All of our renovated units are being rented at our target rates. In fact, we're considering pushing them further here pretty soon. All of the exterior is now complete and the new fitness center we're adding is almost ready. 

    2Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y
    Originally posted by @Travis Kemper:

    @Sam Grooms I tried to buy a triplex in that area a few months ago for the same reasons. I'm a new investor and you guys just made me feel really intelligent for attempting that purchase. Haven't seen anything else we liked down there, but will keep looking with increased confidence now. Only a few miles from a crazy tempe market too.

     That's awesome, definitely keep looking. I think the proximity to Tempe and Downtown Phoenix is the biggest draw for this area. 

    1Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y

    @Anudeep Yapala @Tommy Hoang @Drew Wiard @Peggy Liu @Account Closed

    Thank you for the kind words. Glad to have you all as partners! 

    2Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y
    Originally posted by @Ray Johnson:

    @Ben Leybovich and @Sam Grooms Congrats Guys!

    How aggressive are you on the remodel of the Unit turns? I didn't see what the current occupancy rate is, Will you get to do any substantial turns early on due to any vacancy? I see you get a 1.1% cap change by end of year 1, then it's more than doubled by end of year 3 at 8.25%, Am I correct to assume not many vacancies to turn in year 1? 

    I see your 10-year IRR target is 14%+, What did you underwrite as the holding period on this deal for exit?

    To add to what Ben said, you can actually remodel an entire property in one year even if its fully occupied at closing. Very few tenants, if any, have a ease longer than 1 year. So you simply don’t renew leases as they expire over that year. They move out, you renovate the unit, and place it back on the market at your higher rent. Now, you have to have a renovation team to handle the size of your property, have enough cash reserves to handle the increased economic loss, and have a lender willing to take on that risk with you. You would have to execute perfectly to be able to do this. We can’t underwrite to perfection, so we underwrite it taking 2 years. Realistically, it’ll take about 18 months. We'd like to be out in 36 months or less. 

    2Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y
    Originally posted by @Yonah Weiss:

    @Ben Leybovich & @Sam Grooms Congrats on this property! Was your syndication seminar last month instrumental in pushing this deal through? 

    Very impressed with your conservative underwriting, and I'm sure you'll do great with this property as planned. #keepemcoming

     Thanks, Yonah! Actually, we were fully subscribed the day before the Phoenix Syndication Workshop started. Ready for another cost seg? (I saw your email; I'll get everything over to you soon)

    2Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y
    Originally posted by @Ben Leybovich:

    Just received this message (edited but you get the point):

    "Hi Ben,

    Just saw your post on the new complex you guys just got. That’s amazing! I live in Glendale. I know a new Chick-fil-A just opened in the South Mountain area and they wouldn’t do that if Chick-fil-A didn’t know that it was a good area..."

    There's that, an LA Fitness, Target, Walmart, and all kinds of Class A infrastructure. This, ladies and gents, is what the path of progress looks like :)

    That Chick-fil-A is only half a mile away, too. It’s interesting, less than two miles away is what I considered the best location in the submarket. There’s a few golf courses, some very expensive houses, and some apartment complexes built between 1998-2005. However, everyone we’ve talked to thinks our location is better, since its so close to all of the new retail. From the prior manager, to our regional manager, and even tenants. 

    0Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y
    Originally posted by @Chris K.:

    @Ben Leybovich @Sam Grooms

    Great job --- so proud of you guys! 

    Question: I heard it snowed in Phoenix, AZ. Does your underwriting account for such adverse weather conditions?

    Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

    Everyone did freak out a little last week. While Ben’s right in that there wasn’t any snow in Phoenix (we only saw hail),15 minutes away got blanketed with snow (Scottsdale).

    1Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    7y
    Originally posted by @Sam Grooms:
    Originally posted by @Chris K.:

    @Ben Leybovich @Sam Grooms

    Great job --- so proud of you guys! 

    Question: I heard it snowed in Phoenix, AZ. Does your underwriting account for such adverse weather conditions?

    Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

    Everyone did freak out a little last week. While Ben’s right in that there wasn’t any snow in Phoenix (we only saw hail),15 minutes away got blanketed with snow (Scottsdale).

     Oh Look, everyone. Sam decided to join the conversation. I was beginning to wonder if he thought he's too good for us :)

    And in Phoenix, they freak out when there's no sun visible. If God forbid it rains people begin wondering the streets in distraught. Snow is...well... 

    2Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y
    Originally posted by @Ben Leybovich:
    Originally posted by @Sam Grooms:
    Originally posted by @Chris K.:

    @Ben Leybovich @Sam Grooms

    Great job --- so proud of you guys! 

    Question: I heard it snowed in Phoenix, AZ. Does your underwriting account for such adverse weather conditions?

    Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

    Everyone did freak out a little last week. While Ben’s right in that there wasn’t any snow in Phoenix (we only saw hail),15 minutes away got blanketed with snow (Scottsdale).

     Oh Look, everyone. Sam decided to join the conversation. I was beginning to wonder if he thought he's too good for us :)

    And in Phoenix, they freak out when there's no sun visible. If God forbid it rains people begin wondering the streets in distraught. Snow is...well... 

     It's much more efficient this way. Let the questions pile up and come in and knock them all out :D

    1Reply
  • Scott Morongell
    Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
    7y

    @Ben Leybovich congrats brother!

    0Reply
  • David McLean
    Investor · Chattanooga, TN · Member since 2013 · 53 posts · 24 votes
    7y

    Congratulations!

    0Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    6y
    1Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    6y
    0Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    6y
    1Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    6y
    0Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    6y
    0Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    6y

    Looking GREAT Ben!

    Did you guys use a service to design the leasing office or did you do it yourself?

    1Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    6y

    We've been busy!

    1Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    6y
    Originally posted by @Scott Mac:

    Looking GREAT Ben!

    Did you guys use a service to design the leasing office or did you do it yourself?

    It's a mix. We did the design (including the glass wall), but we used a service to decorate and pick out furniture. 

    2Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    6y
    0Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    6y

    There was a show on TV two decades ago called Designing Women...3 older ladies living life to the fullest.

    @Sam Grooms and I need someone to step into the 3rd role. Any takers? lol

    Not sure what I'm saying, but it seems funny :)

    0Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    6y

    @Travis Kemper sounds like you are on the trail brother! Congrats on trying.

    1Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    6y

    @Ben Leybovich very nice guys. I need to get educated on deals like this. I will be checking out your website.

    0Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    6y

    @Ben Leybovich can you recommend any articles on this subject. I just did an 8 plex deals where rents are also close to 300 low. I would like to get a different class of people in and get to market rent.

    0Reply
  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    6y
    Originally posted by @Ben Leybovich:

    We've been busy!

     Nice work, did you do LPV flooring or is that wood look tile.  

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free