New-B, looking to scale

4 Replies

1st Post (a bit of an introvert on all things Social media) - bare with me. Thanks to BP for all their work, resources and continued encouragement. I have never been more motivated to become financially independent through RE thanks to BP!

Recently purchased my first 5 unit complex - 1st month (water line burst = most cash flow gone). Found another 4-plex with good/great numbers (>$200/unit CF) which I am now under contract and moving fwd with inspections and a lengthy close secondary to seller (as you read further, should I consider getting out of this contract - only $500 in earnest).

Have always dreamed of owning the apt complex my single mom and I spent a few years in growing up (yes, there's an emotional element here). Looked up the owner (took some digging), but was able to have a conversation with him yesterday. Fairly optimistic he is willing to work with me. I am having some troubles running the numbers - I don't have all the details, which I know is part of the problem (no NOI, rent rolls, expenses). Additionally, I am struggling to rationalize the $3 million asking price. While I know this is not a large number to some/most here, it is definitely a different tax bracket than what I've dealt with. No, I do not have the even close to 10% of a down payment and I would likely need to get creative in financing the deal. Nor do I believe this is a crazy number/asking price for the area. Additionally, I believe there is some significant room for 'value-add' on the property (would also take more capital/creative financing). I know this is possible and can be done, I am asking for guidance on a more thorough valuation (NOT A MENTOR).

I have read, listened and done a bunch of digging through the forums trying to get a solid starting point. I have called the county assessor and determined last year's tax numbers. The seller is hoping to have another conversation next week - I'm hoping to have a better handle on the next step/consideration, knowing I will need to try and get more info from him (NOI and expenses). He is wanting to 1031 exchange into another property closer to his residence and doesn't sound as if he's willing to move fwd until he has identified another property (I think I have some time, but also want to be prepared). Thanks in advance for reading this and any info/advice.

@Joshua Williams

Create a plan and strategy for how you will go about this. Will you be renovating and repositioning the property to add value? Will you partner or try to bring in investors for the purchase? Can you get lending? Will you need property management or self manage? Do you have Contractors?

You need to get the numbers. You definitely need the NOI, and find out what the cap rates are in the area.

You’re correct, you can’t rationalize the price, or irrationalize the price, until you have more information to do your due diligence.

Thanks Mr. Coleman - I have been actively contemplating your questions and my next email is to the potential seller: 

Create a plan and strategy for how you will go about this. This may well prove to be the hardest part for me - yes, this would be my ignorance shining through. The plan in how to go about the financing and funding the rehab is slightly overwhelming to me.

Will you be renovating and repositioning the property to add value? I do believe a rehab is in order, and there could be some significant gains realized. 

Will you partner or try to bring in investors for the purchase? I don't have the capital not to, unless I pursue other financing options.

Can you get lending? I don't believe I can qualify for conventional lending - as I don't have a qualifying down payment.

Will you need property management or self manage? Would hire an onsite property manager for the 64 units.

Do you have Contractors? I do not currently have a significant relationship with contractor(s).

Thanks again!

@Joshua Williams - reformed introvert here.

So 64 units is a different game than even a 5 units. Yes its commercial but when you add in the fact that you don't have the equity to take it down on your own you are getting into partnership,JV, syndication world.

You also mentioned you don't know the next steps on how to finance it and raise the equity. 

I would say your next step is to educate yourself. I know that's the go in 1 ear and out the other answer. However in order to raise money, finance it and ultimately run it you do need to know if you have a good deal on your hands. I know it can be exciting to actually get a seller on the phone and have them want to sell an off market property to you. But you do need to understand the mechanics of this 64 unit machine start to finish.

You have the equity structure set up (down payment, initial capX needs, reserves) partnership and returns structure set up with within your OA, your operating agreement with your investors. That does mean you need to raise money and in order to raise money you need to know how you are going to set this up. Also how many investors will you need? Do you have access to a capital network that can be one funder or many?

Then you have the debt financing, you need a loan. is this a bridge loan or a perm loan. Both of these debt arms will ask you where your equity is coming from and thus you go back to step 1 the equity.

Then you pull that off and you had to know this was a good deal from the numbers on a 64 unit deal and the capital needs in order to pull off your business plan. Which take you to the step before step 1 which is, is this actually a good deal and are you able to understand that it actually is a good deal.

My parting advice first is Kudos!, you are an introvert who contacted an owner and got them to give you a price. You have conquered what people that are educated cant pull off or are not willing to pull off which is to a seller. Sounds like you are less of an introvert or an inner extrovert fighting to come out. 

But now you need to make sure you can pull all this together before you enter into what I call the tommy boy stage. Dont rush into this on excitement only to tommy boy it. Search pretty little pet tommy boy on youtube.   

Now there are good education programs and I am not going to point you to one so you know my post is authentic. Go get educated and then take down 64 unit deals. Or find someone that knows how to figure out if the deal is a good one and you get put into the deal and get a small finders fee and get to say you found a 64 unit.

Good luck 

Hi @Joshua Williams ! In all honesty, it's tough to give him a fair evaluation of the property without having any of the financials to move forward with. But these also present great opportunities to discover a gem under a rock. If you're not to sure of the market and what the valuation would be, lean on brokers and local property managers to give you a run down on properties that are similar in age and quantity of units what the avg expenses per door should be and what are properties selling for per door in the area. This may get you started on the right path. Good luck