My First Small Apartment Building- Success Story

31 Replies

Investment Info:

Large multi-family (5+ units) commercial investment investment in Dayton.

Purchase price: $350,000
Cash invested: $35,000

This property was listed on loopnet.com for over a year. The owners were retired, out of state, and ready to be done with this property. The deferred maintenance was significant- 3/4 of the roof needed replaced, the hallways were incredibly dirty, 3 vacant units that needed complete rehab, residents had anything from holes in their ceiling to faucets shut off because they were leaking so badly, landscaping overgrown and/or dead, and the entire building smelled like cigarettes and urine. We immediately replaced the entire roof with money we received cash-back at closing, rehabbed all of the common areas (lobby, hallways, cafeteria, entrance), rehabbed the 3 vacant units, addressed the landscaping, resurfaced and lined the parking lot, implemented third party management (Vic Green Realty), and added a $25/m utility bill-back. The residents were thrilled with the transformation of this property that they call home. We did have 3 residents move out so we rehabbed their units as well. In less than 1 year, we have been able to completely transform this property and it is now cash-flowing very well. We believe this property is worth at least $700,000 and plan to sell very soon so we can take our profit and do this again.

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

I was looking for a small apartment building as my first commercial deal. I wanted something close to home. I wanted a property that needed a lot of work and had a lot of value-add potential. I was afraid of overpaying, so I was looking for properties where I would have leverage over the Sellers. This property fit all of these criteria.

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

The property was listed for $440,000. We offered $350,000. The Sellers countered at $395,000. We offered $395,000 if Sellers would do seller financing, but stuck with $350,000 if traditional financing. They agreed to $350,000. We also received $100,000 cash back at closing because we discovered 3/4 of the roof needed replaced (even though the owner had received $145,000 over the past few years from insurance for storm damage to the roof) and the quoted cost was $135,000.

How did you finance this deal?

80% LTV from U.S. Bank- 25 year Am, 5 year fixed interest at 4.25%.
Money partner (father-in-law) brought $100,000 to the deal- $70,000 for closing and $30,000 for rehab).

How did you add value to the deal?

We immediately replaced the entire roof with money we received cash-back at closing, rehabbed all of the common areas (lobby, hallways, cafeteria, entrance), rehabbed the 3 vacant units, addressed the landscaping, resurfaced and lined the parking lot, implemented third party management (Vic Green Realty), and added a $25/m utility bill-back.

What was the outcome?

We still own this property and in the past couple months we have finally turned the corner. We are now cash-flowing really well for the first time and we have 100% occupancy. We plan to sell this property so we can take our profit and do this again with a bigger MF property.

Lessons learned? Challenges?

I was not prepared for the amount of money we would spend on residents that didn't leave. I knew we'd spend $3,000-4,000 on the vacant units that needed turned, but I didn't think we'd spend >$1,000 on some of the units that were not vacated.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Mark Hutton mentored me. He leads the Cincinnati REIA and Columbus REIA Apartment Focus Groups. I could not have done this without him.
Vic Green Realty manages this property. They have been a great partner for managing the residents and assisting with the rehab.

Thanks @Michael Reisman ! Yes, I totally agree. I love the power of increasing value (and therefore increasing wealth) through increases in the property's NOI.

@Justin V. I would say I bought it at a 9% Cap based on the financials provided by the Seller, but we had residents move out early on and we haven't really made any money up to this point. Based on our purchase price (plus the capital we put in for rehab), I guess I would say it's operating at a 14.5% Cap.

It's a 16 unit and yes, it does have a cafeteria. We actually have a church renting out the cafeteria so that's been really cool

Originally posted by @Lee Yoder :

Investment Info:

Large multi-family (5+ units) commercial investment investment in Dayton.

Purchase price: $350,000
Cash invested: $35,000

This property was listed on loopnet.com for over a year. The owners were retired, out of state, and ready to be done with this property. The deferred maintenance was significant- 3/4 of the roof needed replaced, the hallways were incredibly dirty, 3 vacant units that needed complete rehab, residents had anything from holes in their ceiling to faucets shut off because they were leaking so badly, landscaping overgrown and/or dead, and the entire building smelled like cigarettes and urine. We immediately replaced the entire roof with money we received cash-back at closing, rehabbed all of the common areas (lobby, hallways, cafeteria, entrance), rehabbed the 3 vacant units, addressed the landscaping, resurfaced and lined the parking lot, implemented third party management (Vic Green Realty), and added a $25/m utility bill-back. The residents were thrilled with the transformation of this property that they call home. We did have 3 residents move out so we rehabbed their units as well. In less than 1 year, we have been able to completely transform this property and it is now cash-flowing very well. We believe this property is worth at least $700,000 and plan to sell very soon so we can take our profit and do this again.

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

I was looking for a small apartment building as my first commercial deal. I wanted something close to home. I wanted a property that needed a lot of work and had a lot of value-add potential. I was afraid of overpaying, so I was looking for properties where I would have leverage over the Sellers. This property fit all of these criteria.

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

The property was listed for $440,000. We offered $350,000. The Sellers countered at $395,000. We offered $395,000 if Sellers would do seller financing, but stuck with $350,000 if traditional financing. They agreed to $350,000. We also received $100,000 cash back at closing because we discovered 3/4 of the roof needed replaced (even though the owner had received $145,000 over the past few years from insurance for storm damage to the roof) and the quoted cost was $135,000.

How did you finance this deal?

80% LTV from U.S. Bank- 25 year Am, 5 year fixed interest at 4.25%.
Money partner (father-in-law) brought $100,000 to the deal- $70,000 for closing and $30,000 for rehab).

How did you add value to the deal?

We immediately replaced the entire roof with money we received cash-back at closing, rehabbed all of the common areas (lobby, hallways, cafeteria, entrance), rehabbed the 3 vacant units, addressed the landscaping, resurfaced and lined the parking lot, implemented third party management (Vic Green Realty), and added a $25/m utility bill-back.

What was the outcome?

We still own this property and in the past couple months we have finally turned the corner. We are now cash-flowing really well for the first time and we have 100% occupancy. We plan to sell this property so we can take our profit and do this again with a bigger MF property.

Lessons learned? Challenges?

I was not prepared for the amount of money we would spend on residents that didn't leave. I knew we'd spend $3,000-4,000 on the vacant units that needed turned, but I didn't think we'd spend >$1,000 on some of the units that were not vacated.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Mark Hutton mentored me. He leads the Cincinnati REIA and Columbus REIA Apartment Focus Groups. I could not have done this without him.
Vic Green Realty manages this property. They have been a great partner for managing the residents and assisting with the rehab.

Congrats!

 

@Account Closed   The tenants were paying $540/m for 1-bed and $415/m for studios. We've increased that to $635/m and $520/m which is market rent. We've only increased to market rent on the 6 units we've rehabbed. For the residents that we inherited we implemented a $25/m utility bill-back and we charge $25/m for a pet. We will continue to slowly bring them up to market rent, but I don't want to have a mass exodus.

We knew the roof needed some repair when we made our offer, but I was thinking $20-30k to repair, not $135k for replacing 3/4 of the roof (that was the original quote we received from the roofing company that had done work for the previous owners). This quote that we received is what helped us get $100k cash back at closing. The Sellers could see that it would cost them $135k if they fixed the remaining 3/4 of the roof themselves. They might be thinking they saved $35k by only giving us $100k at closing.

My money partner brought $100k to this deal: $70k for closing and $30k for rehab. We've spent closer to $40k on rehab.


@Michael Barnhart I've definitely thought about refinancing instead of selling. I'm still thinking about it. My end goal though is to buy and hold Bigger apartment buildings. By selling, I'll have the capital to trade up. And/or I can use the capital to allow me to work on my apartment syndication business.

@Lee Yoder great example of adding value and explaining your experience. Your story is my next step in scaling my portfolio. I will use your experience as a definite outline! Continued success

Hi @Lee Yoder

Thanks for sharing your story. I'm in contract for a similarr property here in California. Can you tell me what the total gross rents are now? Also, what are your expenses? Vacancy, repairs, capex, ins, taxes, utilities, management. I would really like to understand your capex and NOI. Thank you again for helping us learn through your deal.

Jeff

@Lee Yoder thats awesome that you have multiple "outs" in consideration. Trade up and tackle your goals! Good luck, would love to hear what you end up doing! After building some credibility in BRRRRing smaller properties, I plan to jump into BRRRRing larger multi-familes.

@Travis Hill Thanks! If I can do this, anyone can, so I'm sure you'll be able to take this next step. Just keep taking small steps toward your goal every day. You'll look up and suddenly, you'll be there. 

@Jeff Kennedy , @Michael Barnhart and anyone else who would like to see more specific data, here is my current monthly numbers:


Rental Income $8,621.00
Utility Bill-back $275.00
Other Income (pet, storage, cafeteria, late fees, laundry) $505.00
Total Income $9,401.00
Commissions -$752.08
Leasing Commission
Electric -$634.04
Gas -$364.26
Water -$605.82
Internet/Cable -$343.07
Trash -$76.75
Cleaning -$91.81
Lawn/Snow -$196.11
Maintenance -$295.17
Legal $0.00
Property Taxes -$1,022.35
Insurance -$203.92
Total Expenses -$4,585.38
48.78%
NOI $4,815.62
Mortgage -$1,526.51
Cash Flow $3,289.11

Congrats. You added $25 bill back. Do you pay all utilities? How does it heat? If tenants are paying there own electric, I would hold onto property and just pull money out for larger complex. I'm kind of in identical situation as you, mine was only 12 though. Great job, and keep killing it.

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