I just purchased a 52 Unit complex-is this a good idea?

Multi-Family and Apartment Investing
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I just purchased a 52 Unit complex-is this a good idea?

Todd Kruger
Flipper/Rehabber · Albuquerque, NM · Member since 2019 · 61 posts · 64 votes

I just purchased a 52 Unit apartment complex for $1,975,000. I put 20% cash down and got a 7 year fixed rate of 4.55% amortized over 25 years from my bank with .25 origination and receive approx. net cash flow of $6,500/monthly. This complex is about 3.5 hours away from my home and has (2) employees: On site Property Manager & and on site Maintenance person. The complex is a B type property in a smaller town (40K) with an Air Force bace. There is a very strong rental history and always fully occupied with a waiting list. The property generates approx 19% cash on cash ROI and 9.23% CAP rate. The Monthly gross income is $26k and expenses just under $19k. Rents are about 10% under market and have room form increases as units turn.

My question:  Does anyone do a sort of reverse syndication?  Selling off a portion of my existing deal to get back my $400k cash and repeating the same model over & over?  Should I even be considering this if I don't necessarily need the cash back to move forward on my next purchase?  Should I just own & operate as was my original plan or is there another more lucrative avenue syndicating to get my $400k back and having $0 cash in the deal?  THANKS BP!

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
6y

Hey Todd.  Congrats on the purchase.  Couple of comments.

$500/month rents are typically not B class

At $10k per month ($19k - $9k mortgage), your expenses look lean, particularly with 2 employees.

Need to include a vacancy factor and cap ex reserves in your figures.

Another way to get your cash out is to raise the rents (which raises the property value) and refinance.

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  • Boris GrinbergBusiness Member
    Lender · Paramus, NJ · Member since 2016 · 118 posts · 33 votes
    6y

    @Todd Kruger

    I would keep this deal and sell properties with smaller unit counts. Easier to operate/manage/oversee this type of property.

    It is not easy to find good deals with 50+ units.. So why complicate it with partnerships..

    My two cents.

    3Reply
  • Todd Kruger
    OP
    Flipper/Rehabber · Albuquerque, NM · Member since 2019 · 61 posts · 64 votes
    6y

    @Boris Grinberg

    Thank you Boris! I don’t like to sell anything I don’t have to-my current flip business is predicated on this model.

    This is my first 50+ unit deal and I am not scored to see what the future holds and how I can manage this better to maximize everything.

    I always considered this to be a legacy deal and the reasons behind this original post is to just maximize everything out of the deal.

    I appreciate your response!

    0Reply
  • Dave Klein
    Rental Property Investor · Eastern Wisconsin · Member since 2017 · 30 posts · 7 votes
    6y

    I don't know much about the syndication game but I'm pretty sure that this is the way Grant Cardone does it. He buys the deal, improves it and then syndicates it after he already owns it.

    0Reply
  • Michael H.
    Rental Property Investor · Houston, TX · Member since 2017 · 144 posts · 42 votes
    6y

    @Todd Kruger not sure on the reverse syndication. Most will refinance after 3 years and get equity out. If this is your first multifamily you should focus on being an efficent operator. Youll always need to manage the mangers, atleast until you are big enough to hire an asset manager. Rod kheilf has a "deal deck" where for 300 bucks his team will Analyze your deal ans give an opinion. He only does multi family. Give that a try

    0Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    I don't know enough about this deal to really analyze it.  Smaller town properties generally should have higher cap rates beacause they are more risky - the employment and population base is limited.  Also, one must analyze the population trends of such towns;  some are slowly losing population, especially in the Midwest.

    Your onsite employees, if they are reliable, are going to allow you not have to travel 3 hours to the property all the time.

    What I like about the deal is the size.

    2Reply
  • Al Pat
    Rental Property Investor · Atlanta, GA · Member since 2016 · 325 posts · 253 votes
    6y

    @Todd Kruger Congrats on your acquisition. I am like you, I hold all my units without any partners. Your COC @ 19% is pretty respectable. Why do you want to bring in partners? You can pull your cash out by refinancing in few years down the road just by raising rents (May be 3% a year) and restating your cap rate. Seems like you don't need cash and don't need partners so why bother? Just my 2 cents, keep it solo and increase the COC.

    3Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    6y
    Todd,
    My original advise still stands. Evaluate the options with professionals! My personal preference would be to search for investors and/or partners for your next deal and not touch this one. 

    Originally posted by @Todd Kruger:

    @Alina Trigub

    Correct, I own this property in a LLC specific for this investment. A reverse syndication was probably misstated. I guess it is more like a syndication after the fact.

    1Reply
  • Lucia Rushton
    Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes
    6y

    @Charlie Rushton

    0Reply
  • Simcha Davidman
    Rental Property Investor · Baltimore, MD · Member since 2014 · 408 posts · 209 votes
    6y

    @Todd Kruger congrats, this sounds great!

    This decision is really personal, and depends a lot on what your goals are. You mention in one of your later comments that the plan was for legacy wealth. In that case, why bring in other people to take any of that away.

    But if your plan is to grow even larger, then it could make sense to get capital back asap. I'm sure you already thought of this, but you could "sell" interests in this deal so that investors earn a 10, 12, 14, etc % return, as opposed to your 19%, and you can keep a larger portion of the equity while getting more of your money back.

    Keep us posted on what you decide!

    2Reply
  • Noah Mccurley
    Belfast, Northern Ireland · Member since 2018 · 128 posts · 56 votes
    6y

    @Todd Kruger

    If you put the property in an llc you should be able to sell shares of the llc which is the kind of thing you are thinking of.

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    6y
    Originally posted by @Todd Kruger:

    @Jay Hinrichs

    In your opinion is it better to have a lesser return with $0 cash in a deal and bring on maybe 1 or 2 investors and get an intimate return on cash or retain 100% of a deal and getting a 19% cash on cash return?

     I know you asked Jay this question but if you are confident with your numbers (and it sounds like you are) an almost 20% annual return to me is just about a no-brainer to hold. Your original plan was to hold 5-7 years; in 7 years even with hiccups you're whole with benefit of appreciation. It really just depends how bad you need access to that 400k and how confident you are with your numbers. I think as Jay said most syndication runners don't have enough/any cash so they have to pull partners. There are lots of "infinity yes please" people out there but that assumes there's 20% annual return deals to be had all over the place with low risk. 

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  • Todd Kruger
    OP
    Flipper/Rehabber · Albuquerque, NM · Member since 2019 · 61 posts · 64 votes
    6y

    Thanks!

    0Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y

    If you don't necessarily need the cash to move on to the next deal, then keep it alone.

    Also, since this is your first BIG deal, don't bring in outside investors. Even though you're experienced with houses, MF is a different animal and you don't know what you don't know.

    If I were you, keep it alone. See if you can make it perform better than projected. If and when you do, you can refi, pull your money out and do another one (hopefully 100 units). Make that successful too without investor-money. Then and only then, syndicate and buy a bigger deal.

    By doing the above, you risked your own capital not an investor's. You've proven you can do big deals. You have a track record and it becomes easier to raise capital.

    1Reply
  • John Corey
    London · Member since 2019 · 722 posts · 386 votes
    6y
    Originally posted by @Todd Kruger:

    I just purchased a 52 Unit apartment complex for $1,975,000. I put 20% cash down and got a 7 year fixed rate of 4.55% amortized over 25 years from my bank with .25 origination and receive approx. net cash flow of $6,500/monthly. This complex is about 3.5 hours away from my home and has (2) employees: On site Property Manager & and on site Maintenance person. The complex is a B type property in a smaller town (40K) with an Air Force bace. There is a very strong rental history and always fully occupied with a waiting list. The property generates approx 19% cash on cash ROI and 9.23% CAP rate. The Monthly gross income is $26k and expenses just under $19k. Rents are about 10% under market and have room form increases as units turn.

    My question:  Does anyone do a sort of reverse syndication?  Selling off a portion of my existing deal to get back my $400k cash and repeating the same model over & over?  Should I even be considering this if I don't necessarily need the cash back to move forward on my next purchase?  Should I just own & operate as was my original plan or is there another more lucrative avenue syndicating to get my $400k back and having $0 cash in the deal?  THANKS BP!

    Coming in a bit late to the thread. And with a narrow focus.

    1. Any sale of shares could be considered a securities offering. So, we can ignore the words and focus on what is going on. You can get great legal advice from a securities attorney about what is or is not allowed when promotion or selling shares in a passive investment. Google 'sec howey test'.

    2. If we park the SEC issues ...

    What is your vision and goal for your business/brand? Ignore the specific property and tell me what your vision is. Would bringing in investors help get you to your future goal? 

    My opinion is to bring in investors when you do not need them if you want to grow larger than you can fund out of your own funds. Warm them and you up on the process of building an investor network (how to manage the, legal process, reporting, nurturing them from deal to deal). When you have an attractive deal, it is easier to build a successful track record. You want them begging for more investments before you need them for your next deal. 

    0Reply
  • Anthony Johnson
    Real Estate Broker · Dunedin, FL · Member since 2015 · 74 posts · 43 votes
    6y

    Bring in the new investor and take $400,000, you could even ask $500k, and keep 25% ownership interest and go and do more deals. You seem to have the pedal down and two years is a long time to miss out on other deals waiting for a refi. Then after two years you can still do the refi and take your 25% then also. I would be scared to death of the AFB closing, make sure it is not on any DOD lists for review. In full disclosure I have only done SFR deals and I just started syndicating deals 400-600k. Just my initial intuitive thought when I read your post. I take 20% equity and put no skin in as I sign for the loan with recourse, doing my first deal now.

    0Reply
  • Chris Salerno
    Rental Property Investor · Charlotte NC · Member since 2019 · 306 posts · 183 votes
    6y
    Originally posted by @Todd Kruger:

    I just purchased a 52 Unit apartment complex for $1,975,000. I put 20% cash down and got a 7 year fixed rate of 4.55% amortized over 25 years from my bank with .25 origination and receive approx. net cash flow of $6,500/monthly. This complex is about 3.5 hours away from my home and has (2) employees: On site Property Manager & and on site Maintenance person. The complex is a B type property in a smaller town (40K) with an Air Force bace. There is a very strong rental history and always fully occupied with a waiting list. The property generates approx 19% cash on cash ROI and 9.23% CAP rate. The Monthly gross income is $26k and expenses just under $19k. Rents are about 10% under market and have room form increases as units turn.

    My question:  Does anyone do a sort of reverse syndication?  Selling off a portion of my existing deal to get back my $400k cash and repeating the same model over & over?  Should I even be considering this if I don't necessarily need the cash back to move forward on my next purchase?  Should I just own & operate as was my original plan or is there another more lucrative avenue syndicating to get my $400k back and having $0 cash in the deal?  THANKS BP!

    Todd, Congratulations on the first deal!  I would speak with a syndication attorney to make sure you are taking the proper steps. If the numbers make sense and the investor feels comfortable with you operating a deal, I would go that route to get the money back I need for the next deal!

    1Reply
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