18 unit apartment off market deal and I need help!

Multi-Family and Apartment Investing
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18 unit apartment off market deal and I need help!

James Johner
Developer · Beaufort, NC · Member since 2014 · 75 posts · 67 votes

Have found a solid off market deal and need help! Details below.

Off market deal.

18 units.

3 buildings.

2 bedroom 1 bath units

Estimated purchase price $825,000

Fully occupied.

Value add opportunity during tenant turnover.

This building has a huge potential with cash flow.

Rents are way to low. Average is $500. Units across the street are same 2/1 renting for $850

Recently had a lot of exterior upgrades (new roofs, new paint, new vinyl on gables, a couple units have new hvac units).

Landlord currently pays for water. (Another value add opportunity)

Long story short, this deal has a a lot of green lights. I have 2016/2017/2018 PLs they are consistent. No real indication on why the current owners want to sell. I am looking at bank financing 80/20 split and struggling to come up with capital. What are some other finance options so I can make this thing work??!

Thank you all!

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
7y

Look up the sales history on your county assessors site.  See when they bought it and for how much.

Purchased a long time ago means probably own free and clear and need tax mitigation. Perfect for seller financing.  

Draft a friendly letter of intent/interest.  Offer a cash/mortgage scenario price (low) or a seller-financed price for more.  I usually offer 10% down at a 10% higher price.  Then make sure you own it while making payments.  Good luck.

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  • William Kyle Walker
    Rental Property Investor · Atlanta, GA · Member since 2013 · 119 posts · 28 votes
    7y

    You post leads to a lot of questions.  

    What is your closing window? 

    Do you have it under contract? 

    How much EMD do they need?

    What grade would you give the neighborhood (A-F)?

    Why are they selling? 

    Do you have contractor relationships that will handle the interior renovations?

    Do you also need someone to sign for the loan?

    Have you had your mortgage broker vet the deal and financials yet? 

    Have you modeled it?

    2Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    7y

    @James Johner

    In addition to @William Kyle Walker questions, here's an additional list:

    1) Have you estimated the repairs?

    2) How long it will take to do such repairs?

    3) How old is the property?

    4) If under contract, have you scheduled/done the inspection?

    5) Have you calculated at least roughly how much capital do you need to raise?

    6) Have you researched the area to ensure this is where you want to buy at this time (meaning that it's not at the top of the market?) 

    7) What is the current vacancy rate?

    8) What's a typical vacancy rate?

    9) Are you planning to self-manage or hire a PM?

    10) If planning to self-manage and have no prior MFH experience, may be tough to obtain a loan.

    I can probably come up with a ton more questions once you respond to the ones above.

    Best of luck!

    1Reply
  • Chase Louderback
    Real Estate Agent · Luray, VA · Member since 2016 · 459 posts · 293 votes
    7y

    Also, have you had the mortgage broker quote you for bank financing at 80/20?  Those properties under $1MM usually will require 25-30% down, but will probably be able to wrap in the renovation costs.  Sounds like a great deal though!

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    7y

    Look up the sales history on your county assessors site.  See when they bought it and for how much.

    Purchased a long time ago means probably own free and clear and need tax mitigation. Perfect for seller financing.  

    Draft a friendly letter of intent/interest.  Offer a cash/mortgage scenario price (low) or a seller-financed price for more.  I usually offer 10% down at a 10% higher price.  Then make sure you own it while making payments.  Good luck.

    3Reply
  • Oleg Shalumov
    Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
    7y

    @James Johner looks like a good value-add ... you would need at least $200K for downpayment and some reserve. Some options:

    - You may ask seller if he would offer seller finance for the full amount or at least downpayment (banks may ask for more than 20% on commercial property)

    - borrow money from HML. A bit riskier and I would not do it but it is an option.

    - partner with another investor for downpayment money and give them some % of the property. It could be from 25-50% of the deal. 

    If you could put in some of the money, if would make investor/partner feel more comfortable knowing you have the skip in the game as well

    0Reply
  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    7y

    @James Johner Does it have a lien?...can you structure a purchase money mortgage?...this should be your starting point on this deal and will dictate anything downstream.... 

    937-979-7000
    Realize Multifamily Group11 Review
    View Page
    0Reply
  • James Johner
    OP
    Developer · Beaufort, NC · Member since 2014 · 75 posts · 67 votes
    7y

    @William Kyle Walker

    Great questions and this is why I made the post. More questions!

    First let me clarify a few items that will answer a few of the questions.

    We are making the offer Tuesday. We will request a 45 day due diligence. With a 30 day closing window to follow.

    EDM $15k

    Neighborhood is A- building is a C.

    The seller is not disclosing a reason(we have asked) they are a big player locally and purchased the property in 2003 for 300k.

    I am a licensed GC and currently manage 9 commercial tenants. So we have this handled internally.

    We have several relationships with Commerical loan sources and are having each take a look. We are tight on cash right now due to a new development deal we are just finishing up on, which is currently under contract to close early May.

    I've ran the numbers every way I can and they make good sense. Current rent roll averages $625 per unit. Currently fully occupied. Rents should be in the 725 range. 80/20 loan at a purchase price of 825k yields an 11% CoC return.

    0Reply
  • William Kyle Walker
    Rental Property Investor · Atlanta, GA · Member since 2013 · 119 posts · 28 votes
    7y

    Wow an A- area with 725 rents, I need to move there haha. The loan size is too small for a small balance Freddy Loan. I would put together a presentation ASAP (I can share our deck if you want an example) and line up meetings with regional banks and potential LPs. Most regional banks here in ATL won't do 80/20 the will probably do 70%. 

    Is the plan to hold for long term cash flow (11% CoC)? if not what are the sales comps/door?

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    7y

    You said the building across the street with similar 2/1 units is renting for $850 so why should rents only be $725 for this one? I also agree that those rents sound awfully low for an A- area but then again I’m not familiar with your market.

    2Reply
  • Niels Bjørn Toppenberg
    Denmark · Member since 2018 · 90 posts · 56 votes
    7y

    @William Kyle Walker

    Hi William

    Not to hijack the post but could you send that presentation to me?

    I am in a simular situation and would really appreciate the help :)

    Fingers crossed and many thanks!

    Niels

    0Reply
  • James Johner
    OP
    Developer · Beaufort, NC · Member since 2014 · 75 posts · 67 votes
    7y

    @William Kyle Walker

    Great questions again.

    I would LOVE to be more specific on location but being an open forum I’m going to avoid that. But being born and raised here this property is 3 blocks from the ocean, across the street from a new Harris teeter grocery store, 3 marinas and the neighborhood through the woods has 500k+ homes.(which is high for our area). This property is in a premium location IMO.

    I would gladly take a look at your presentation deck.

    The plan is to hold long term on this one.

    @Brian Garrett

    Tricky question but great point. The property across the street was built in 2003 has nicer kitchens. Slightly larger etc. I might be able to get closer to the $775 mark but would need to spend some more on the units during turnover to get there. Maybe in time.

    0Reply
  • James Johner
    OP
    Developer · Beaufort, NC · Member since 2014 · 75 posts · 67 votes
    7y

    Just got done meeting at two separate banks. We both are willing to do a 80/20 loan to purchase price. (Pending commercial appraisal) and could close in 60 days from contract.

    Struggle now is capital. What would be the process of part of the down payment was hard money? I’m assuming the banks wouldn’t like if we did any thing with hard money for the down payment??

    I’ve got a few leads on possible partners but am not loving the idea of an “active partner”

    0Reply
  • William Kyle Walker
    Rental Property Investor · Atlanta, GA · Member since 2013 · 119 posts · 28 votes
    7y

    Yea most loan docks won't allow hard money, Our bridge loan won't even allow pref equity. 

    Yea, shoot me a direct message and I can share it. We paid about $8k having it made by our marketing company. It's a nice deck. 

    0Reply
  • James Johner
    OP
    Developer · Beaufort, NC · Member since 2014 · 75 posts · 67 votes
    7y

    @William Kyle Walker

    Thanks a ton for the help. Spoke with a few private investors today and think I am good with capital. We plan to make an offer Tuesday to get in to this deal. I am putting up half of the equity so will be well invested in the deal as. We are excited about this deal but am trying to keep emotions out of it but as most know that can be tough. This is an awesome opportunity is my home town and am stoked to even be in front of it. Thanks again for everyone’s help and I will update accordingly.

    2Reply
  • Catherine Coy
    Huntington Beach, CA · Member since 2012 · 73 posts · 57 votes
    7y

    James, you won't be able to use any borrowed money--hard or otherwise--for the down payment.  You'll have to show seasoned money in a bank account--yours or a partner.

    0Reply
  • James Johner
    OP
    Developer · Beaufort, NC · Member since 2014 · 75 posts · 67 votes
    7y

    Quick follow up with this. We are under contract!  I have several partnership oppurtunities and have several financing options on the table. 

    I am, however, Leary about the partership approach. Curious if anyone has offered a “short term” partnership option with an investor?  Something along the line of a 24 month buy out, 8% return, with a 10% kicker at the buy out. Paid on a quarterly basis?  Seems like something a passive investor would be interested. thoughts?

    0Reply
  • William Kyle Walker
    Rental Property Investor · Atlanta, GA · Member since 2013 · 119 posts · 28 votes
    7y

    That can be negotiated, Its called a buy-sell agreement.  The investor just has to determine if their willing to give up the upside potential. 

    How is it coming along, do you have a closing date set?

    0Reply
  • James Johner
    OP
    Developer · Beaufort, NC · Member since 2014 · 75 posts · 67 votes
    7y

    @William Kyle Walker

    Thanks for reaching back out. I’ve got the deal under contract and was able o raise enough capital to work a 70%ltv deal. Negotiated with about 5 different banks and was able to score a 25yr am, 7 yr balloon, 4.99% rate. Closing late June. Just completed property inspection. Property is in great condition, as expected, needs some lipstick in a few spots but again this is as expected.  I was able to maintain 34% ownership in this deal and am stoked! 

    NOI on this deal will be $95k +\-

    I was able to work an intersting deal structure with some passive investors and it is a win-win for everyone involved. We have two more off market apartment deals in the works now that this one is under contract as it perked a bunch of unexpected interest from individuals wanting to put their money in real estate. 

    0Reply
  • William Kyle Walker
    Rental Property Investor · Atlanta, GA · Member since 2013 · 119 posts · 28 votes
    7y

    Awesome, Good to hear! 

    0Reply
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