Large multi-family (5+ units) buy & hold investment.
Purchase price: $1,200,000
Cash invested: $350,000
Acquired a 20 unit multifamily property in Midtown Memphis, TN.
Target return profile:
10% preferred return to investors
2x equity multiple at exit
What made you interested in investing in this type of deal?
I've worked in real estate for over a decade now, with a few billion dollars in commercial loans underwritten and managed at a large regional bank in the southeast as well working on the equity side for a firm with over $300M in assets under management. I've seen a lot of deals and I always wanted to branch out and start on my own and this was a perfect deal to launch my business to another level!
How did you find this deal and how did you negotiate it?
I built a strong relationship with a local broker in Memphis after a few years of chasing deals. Listening to BP podcasts are very inspirational, but for me it was easier to keep working my job instead of taking the risk. I knew how to underwrite deals no problem and finally just decided to blindly put and offer on a deal because the numbers were good. Ended up not getting the deal, but I showed my broker I was serious and she found my first deal for me, a duplex, and now this one!
How did you finance this deal?
Working on the debt side, I know a lot of lenders, so financing this was pretty easy. Raising the equity was the challenge but I actually found it fun. I put in a solid amount of my own money and raised the rest from friends and family.
How did you add value to the deal?
So far the plan is to finish the turnover units the seller didn't finish and we'll be at 100% occupancy with strong cash flow. Rents in the submarket have grown 50% in the past five years, so I'm holding off on renovations until it's necessary. The cash flow is very strong and the area is exploding so I can be patient.
Lessons learned? Challenges?
People really want to see you win. It's crazy how many people jumped to help make sure I closed this deal once they learned about it. My biggest concern was raising the equity, since I didn't have it on my own. Going hard on such a large amount was also an added stress, but it just motivated me to make sure we saw the finish line.
Go do a deal! That's the only way to do a deal!
Congratulations on the investment! I look forward to working my way to doing deals like this in the future. I am just starting out and focusing on multifamily, so I love it when I see success in this space. I am also looking to invest in locally in TN.
I would love to know a little more about how you structured your deal with the private investors that are getting the 10% preferred returns. Was it through syndication or other means?
Thanks! It was definitely an interesting ride start to finish. This was a syndication of friends and family. My first deal I offered a 10% pref return and 50/50 equity split at exit. I figured I'd keep it the same on this deal since it was a broader raise and I was more focused on securing the equity to get the deal done than making a ton of money off the deal since I still have a full time job.