How to Buy a $5.6 Million Dollar 62 Unit Apartment With No Money
I want to hear the story of some of your creative real estate purchases and I'll share one of my own. I hope it inspires newbies to get creative and not be held back by the cash on hand in their bank account.
1) Found a $6 mil 62 unit apartment complex that I negotiated down to 5.6 mil.
2) The earnest money deposit PLUS the due diligence was $156,000. Instead of using cash on hand, I use a combination of 0% interest business credit cards, equity lines of credit, and other General Partners to help me put the deal together.
3) The total investor capital I had to come up with was roughly 1.5 million. This part WAS a little stressful, because if I didn't come up with this capital within 20 days, I would have $25,000 go HARD. I was $400,000 short at the 20 day mark, but made a decision to press on and risk the $25,000.
4) To get investors, I structured the deal favorable to the investors- 75/25 split between the investors and myself with a 6% preferred return (the investors get 6% cash on cash return on their money BEFORE the rest of the cashflow is split 75/25).
5) I ended up with 13 investors that came in anywhere from $50,000 to $350,000
6) Monkey wrench came in 10 days before closing- they wanted me to show $450,000 liquid. Most of my money is in non liquid assets, so I didn't have it. Spoke with an investor and agreed to give him a 1% transaction fee to move $450,000 into my account for a week. Moved the money into my account, gave it to the lender, and passed that stage, then moved it back into the investors account and paid him interest.
7) Another monkey wrench came in 2 days before closing when they gave us the HUD settlement statement and told us the green fee would be $60,000 instead of the $5000 they originally told us. Additionally, they were requiring that our insurance be paid 14 months UP FRONT, which again, was not part of the initial underwriting. So I had to give up my acquisition fee, dilute investor equity by gaining additional funds, or find a another creative solution. We opted to offer an investor the opportunity to give us a personal loan for the additional funds, paid back at 10% over 2 years. We would pay this with a combination of what we WOULD be paying per month for insurance, and from our Asset Management Fee. It wasn't ideal, but it still left plenty of meat on the bone.
8) CLOSED- With the $56k Acquisition fee I paid off the credit lines, and BOOM: now own a $5.6 million 62 unit.
Moral of the story- Money is never the problem. Creativity and Resourcefulness are ALWAYS the problem to accomplish your goals. Good news is, those are easy to solve. Is it easy? no. But it's not hard either.
What have been your CREATIVE Real Estate Purchases?
