Dilemma - buying too many properties?

28 Replies

Because of my track record of investing profitably in apartment buildings, I am one of the first phone calls that apartment owners and brokers make when they're selling their properties in Cincinnati.

And that's good. I am getting properties in areas/suburbs where I know rents are increasing and I am creating substantial value-add relatively quickly with low cost upgrades (and since we're vertically integrated, our cost of renovation is 30% cheaper than our competition).

For example, I owned a 40+ unit apartment not even 12 months and I already received several offers that will net me over $400,000 in profit. 

I am encountering a lot of deals that where the above business model (of increase the rents with low cost upgrades in good areas) is very repeatable.

I just closed on the purchase of a 347 unit apartment portfolio and another 42-unit apartment building. I already got rent increases of about $150/mo per unit with section 8 for example with the 42 unit.

My DILLEMMA is this: I am acquiring TOO MANY good deals.

In addition to the above recent acquisitions, I just put under contract a 4-property portfolio comprising of 534 units. And another 91 unit in Mariemont -an "A" area in Cincinnati.

I was convinced by my partners to just wholesale the 534 units. But the rent increases on those 534 units range from $150 to $300 per month per unit. I am having second thoughts but at the same time, we can't possibly manage too many properties coming in all at once. (Just the same though - I am raising capital for the 534 units just to be sure we can close on it if we can't find a buyer)

So what do you think? The options I am thinking are...

1. Wholesale the 534 units, just take the profits from that, close on the 91 units and focus on increasing the rents on the 347 units and 42 units?

    2. Or figure out how to raise the capital on all these acquisitions (total of 1,014 apartment units) and hire out the property management so I don't overwhelm my PM team?

    or is there a 3rd option?

    What would you do?

    @Michael Ealy   It is great that they come to you, but you can't say yes to everything.  What about hiring more people on your PM team and bringing in more partners?  You can also sit down and look at each property to see how it is doing, how much equity you have in it and decide if you want to sell any of the existing properties to lighten your portfolio.

    I wish I had your problems. In the future, I think you will wish that you kept them all. Refinance your increased equity deals in order to finance the other deals. At some point, sell the dogs and keep the good ones.

    Originally posted by @Theresa Harris :

    @Michael Ealy  It is great that they come to you, but you can't say yes to everything.  What about hiring more people on your PM team and bringing in more partners?  You can also sit down and look at each property to see how it is doing, how much equity you have in it and decide if you want to sell any of the existing properties to lighten your portfolio.

     That's very sound advice Theresa. I just hired a very smart guy (engineer by background and real estate investor as well) to actually look into my over-all portfolio and see which ones we should let go. Also, I've partnered with a group that has more PM expertise to handle the additional properties coming online. I guess great minds think alike ;)

    Originally posted by @Anthony Dooley :

    I wish I had your problems. In the future, I think you will wish that you kept them all. Refinance your increased equity deals in order to finance the other deals. At some point, sell the dogs and keep the good ones.

     Anthony, that's what I was thinking also. The whole reason for buying properties is to keep them for cashflow. I have free and clear properties that I have held onto for 12 years and I love 'em :)

    But at the same time, I like the HUGE capital gains which allow me to buy even more units. I can definitely refi the good ones in good areas. Thanks man!

    Originally posted by @Danny Randazzo :

    @Michael Ealy find a partner or two to work with so everyone can focus on what they are good at individually to make a powerful team so you can start taking down all of the opportunities!

     Thanks Danny. I didn't want to wholesale these great deals. To me wholesaling is just a distraction and even though the immediate cash gain can be good, the real money over the long term as you said is taking down all the opportunites and keeping them for the long term.

    I need a partner who have the problem of raising "too much money" so that I can combine it with my problem of buying "too much properties" ;)

    If you or someone you know have that problem (too much money), PM me and let's talk. Thanks again man!

    It's a good problem to have. I'm kinda in the same situation just with SFR. I get calls and texts daily and even people who know I can buy houses with cash that track me down.

    The problem I have is we have very high cashflow for my small portfolio and are just more interested in paying them off at this point.  That being said a great deal is a great deal and I can't stop buying.  LOL 

    Originally posted by @Clifford Paul :

    It's a good problem to have. I'm kinda in the same situation just with SFR. I get calls and texts daily and even people who know I can buy houses with cash that track me down.

    The problem I have is we have very high cashflow for my small portfolio and are just more interested in paying them off at this point.  That being said a great deal is a great deal and I can't stop buying.  LOL 

     I know - this "buying itch" is hard to scratch

    I bought properties during the recession and I thought I would stop buying but I am buying more and more. It's crazy...

    @Michael Ealy , If you have the necessary resources and network to raise the capital for these projects, why not? If the bandwidth is not there to get it done, then it seems to me you have some viable options to get out of the deal and still make money by wholesaling the projects to an end user. Or simply partner with the end user. You found the deal. Have them cut you in on the equity as a GP. You still get paid passive income and still receive all distributions and fees on the GP side

    Originally posted by @Tj Hines :

    @Michael Ealy, If you have the necessary resources and network to raise the capital for these projects, why not? If the bandwidth is not there to get it done, then it seems to me you have some viable options to get out of the deal and still make money by wholesaling the projects to an end user. Or simply partner with the end user. You found the deal. Have them cut you in on the equity as a GP. You still get paid passive income and still receive all distributions and fees on the GP side

     You're one smart dude TJ.

    That's a third option - JV with a partner that has some capital...maybe buy out 50% of my interest and qualify for the bank loan? Let me discuss that with my partners.

    Originally posted by @Scott Pearson :

    @Michael Ealy Just curious, what are you doing to the units to allow an increase of $150-$300 a month?

     Scott,

    We upgrade the units - a lot of it are cosmetic upgrades. Newer kitchen/ newer bathroom and probably newer windows. Nothing major - about $3,000 to $5,000 per unit. In these areas, we KNOW the rents are undervalue and we were able to get section 8 rent increases as well. So all we need to do is do the work and increase both market and section 8 rents as we turnover the units.

    @Michael Ealy I’m pretty new to this whole RE thing, so take what I say with a grain of salt, but from a business standpoint it looks like you have a great opportunity to scale. You appear to be very good at the acquisition portion of real estate. It’s fantastic that you are top of mind for so many people and they’re just throwing deals at you. Find a way to bring in more people to execute on things like rehabs, PM etc. and keep doing what you do best. I’m sure there’s plenty of competent people in your market who would LOVE to work with you.

    @Michael Ealy

    First, congrats on your success.

    In my opinion, you should unload some of your properties, use the cash to deleverage your other ones and increase your cash flow. Keep the better ones.

    When the downturn hits, you will be able to keep your properties because your cash flow is not thin. Just in case there is a sudden and severe drop in rents. Nothing goes up forever.

    @Michael Ealy I agree with @Danny Randazzo and @Tj Hines about finding partners to take down the deals together. There is a lot of money out there and a lot of hungry investors looking for deal with good returns.

    You have already completed one of the hardest parts--getting them under contract! Congrats on that.

    Perhaps @John Casmon can help, he's invested in Cincinnati. @Heshel Mangel too :)

    @Michael Ealy Congrats on your success. I currently own, operate, and purchase large apartment communities in the Cincinnati Market. I do this by raising capital through syndications. My companies bottle neck is quality deal flow. 

    I'm not sure if you're based out of Cincy but I and I live in Cincinnati. I'd enjoy meeting up in person or a call to discuss how I may be able to be helpful to your "dilemma".

    Looking forward to hearing from you. 

    Originally posted by @Mitchell Rusten :

    @Michael Ealy I’m pretty new to this whole RE thing, so take what I say with a grain of salt, but from a business standpoint it looks like you have a great opportunity to scale. You appear to be very good at the acquisition portion of real estate. It’s fantastic that you are top of mind for so many people and they’re just throwing deals at you. Find a way to bring in more people to execute on things like rehabs, PM etc. and keep doing what you do best. I’m sure there’s plenty of competent people in your market who would LOVE to work with you.

     You're exactly right Mitchell.

    I did exactly that for example when I got the 346-unit apartment portfolio. I partnered with a company that is better than my company at managing properties (and they have more capacity). I just wrote a post on it here on BP - 

    https://www.biggerpockets.com/forums/432/topics/744841-joint-venture-and-how-to-buy-more-apartments-actual-experience

    Originally posted by @Andrei Zamfir :

    @Michael Ealy

    First, congrats on your success.

    In my opinion, you should unload some of your properties, use the cash to deleverage your other ones and increase your cash flow. Keep the better ones.

    When the downturn hits, you will be able to keep your properties because your cash flow is not thin. Just in case there is a sudden and severe drop in rents. Nothing goes up forever.

     That's the argument of some of my partners who persuaded me to wholesale the 534-unit portfolio. You are right - we need a balance between being cash-rich and equity-rich. You can't be equity-rich but cash-poor. That's just trouble when the market changes. Thanks!

    Originally posted by @Yonah Weiss :

    @Michael Ealy I agree with @Danny Randazzo and @Tj Hines about finding partners to take down the deals together. There is a lot of money out there and a lot of hungry investors looking for deal with good returns.

    You have already completed one of the hardest parts--getting them under contract! Congrats on that.

    Perhaps @John Casmon can help, he's invested in Cincinnati. @Heshel Mangel too :)

     Thanks Yonah for mentioning these 2 folks.

    Originally posted by @Heshel Mangel :

    Thanks @Yonah Weiss for the mention. 

    @Michael Ealy I was in touch with your business strategist. I would love to talk with you about either buying out your contract or bringing my available capital to the deal as @Tj Hines suggested, and have you stay on as an equity partner. 

     Thanks Heshel. One of my partners found a buyer already for the 534-unit portfolio. We'll give you a head start on the next one :)

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