Investment Info:

Large multi-family (5+ units) buy & hold investment in Phoenix.

Purchase price: $600,000
Cash invested: $400,000

1950 drive-in motel. 90% gutted. Only the brick walls remained. New everything including water main, roofs, asphalt, power lines. Sub-metered each unit.
$950,000 construction loan. $1.38MM Lien. ARV appraisal $2.135MM (low).

What made you interested in investing in this type of deal?

28 doors at about $21,000 per door. Located In the next revitalization area of Phoenix. Tip of the spear as this area begins to turn around. 3 schools (1block away), postal facility and possibly a new VA hospital. Great potential tenants.

How did you find this deal and how did you negotiate it?

Business partner has been trying to purchase this property for over a year. After a negotiated price the city shut the property down for safety violations. We lowered our price more and they accepted.

How did you finance this deal?

Owner financing unti we realized nobody would loan us construction funds in second position. Refinance whole package with hard money.
2.5pts, 10.5% interest, 9 months

How did you add value to the deal?

New everything (low maintenance), sub meters (minimal electric bills). Purchased very cheap.
1.35MM lien. 2.1MM appraisal ARV

What was the outcome?

Still under construction. First units ready to rent Feb 1, 2019

Lessons learned? Challenges?

Plan for the worst. Extensive termite repair $50,000 that was not anticipated. Water main was “good” when inspected but bad when we started connecting in. Power company charged $18,000 for new power poles and lines (unanticipated) and held up project 2.5months due to their schedule.

24 units complete with 22 units rented. Laundry, vending, rentable storage room complete. 3 more units coming on line any day with two being 2 bd. Tenants waiting on the 2bd. Collecting $800/month on the one bedrooms. Due to unexpected repairs we will be into this at 2.5MM but at 6CAP new value is 3.4MM+. Hot market may see 4.0MM at sale. Rents scheduled to go up to $900 for 1 bed in 2020. Looking for a equity partner to bring needed capital to push this to the finish.

Congrats on the project going well so far! I'm a property manager in Oregon and am looking to buy multifamily out of state, and am looking seriously at Phoenix. Where is your project located? Are you planning on doing more like it?

How much additional capital are you looking for? What kind of equity position are you offering? Is it a long-term hold or do you plan to sell as soon as all the units are occupied?