30 month Multifamily Flip in Riverside CA.

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30 month Multifamily Flip in Riverside CA.

Jason Mak
Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes

Hello BP,

Just closed on a two year flip of a multifamily deal in Riverside CA.  I don't usually like to publicize my deals but BP has been a nice resource and I thought I would contribute with my experience and answer a few questions.  

Summarizing the deal (please note, I'm giving approximate numbers and dates):

July 2013 - Purchased an 81 unit apartment bldg in Riverside CA for $3.1mm equity.  At the time of purchase, the building was mismanaged and in bad shape - it was 60% occupied and collecting 30% of rents due.  

Immediately went to work with a large scale transformation including tenant management (evictions), capital improvements including roof, interior/exterior painting, landscaping, elevator, construction of leasing office, community outreach and many more items.  

December 2013 - Refinanced the building and took out $2.1m so at this time I had approximately $1m equity left in the building.  

Continued to operate the building for over 24 months and got the building up to 95% occupancy and relatively stabilized operations.  Over this time, between the rental income I earned and the capital expense that I ploughed into the building, I probably ran a loss of $100k so at this point, my equity in this building is about $1.1m.

Two months ago I sold the property for $5.5m.  After paying back the loan principal and commissions, netted proceeds of $3m or a profit of ~$2m.   

Roughly speaking my returns were 200% ROE / ~60% levered IRR

Although this was a nice deal and I made some money, there were some mistakes and lessons learned:

  • didn't pay attention to my loan prepayment and ended up having to make the decision to pay a hefty prepayment penalty when I sold the property
  • I am a licensed broker and in this market I probably should have marketed the property on my own.  However being busy with other deals and projects I opted to use a broker and pay the commission
  • Should i have sold?  I was lucky to find a 1031 exchange but in the event that I couldn't, I would be paying a hefty capital gain tax.  I'm also not buying into a particular exciting property but its closer to my target geographic area

Overall pretty happy with the outcome of this deal and looking forward to the next!

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Makenzie Kelly
Investor · Livermore, CA · Member since 2015 · 122 posts · 36 votes
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Holy cow!!  That is such a great accomplishment.  Kudos to you for sticking it out for the three years.  I just decided to take the leap into Multi-fam.  I have other commercial/office but Multifamily will be new for me.  I'm still on the hunt, but will keep looking.  =)  

It's posts like this that inspire me to reach just a little beyond my comfort zone and do a BFD...big fat deal.  You are a baller!  Love it.  Great job Jason...and I kinda like your last name too. 

Makenzie

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  • Makenzie Kelly
    Investor · Livermore, CA · Member since 2015 · 122 posts · 36 votes
    11y

    Holy cow!!  That is such a great accomplishment.  Kudos to you for sticking it out for the three years.  I just decided to take the leap into Multi-fam.  I have other commercial/office but Multifamily will be new for me.  I'm still on the hunt, but will keep looking.  =)  

    It's posts like this that inspire me to reach just a little beyond my comfort zone and do a BFD...big fat deal.  You are a baller!  Love it.  Great job Jason...and I kinda like your last name too. 

    Makenzie

    4Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    Here are some pictures:

    BEFORE - Entryway

    AFTER - Entryway

    BEFORE - Rear Patio

    AFTER - Rear Patio

    4Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    @Makenzie Kelly  Thanks for the nice comments.  I like your name too...it's pretty sweet. Many people complain that there are no deals in CA but you just have to look and work a little harder to find them.  I've been actually moving some of my portfolio into commercial/office in the last few years but still have a focus on multifamily - best of luck

    1Reply
  • Ron H.
    Investor · Orange County, CA · Member since 2015 · 136 posts · 57 votes
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    Very impressive, Jason.  Thanks for sharing the numbers and the pictures.  That really helps make your experience come to life for readers.

    0Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    @Ron H.

    Thanks Ron for the kind words 

    0Reply
  • Bruce Olsen
    Lender · Pasadena, CA · Member since 2013 · 74 posts · 11 votes
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    Nice  job @Jason Mak. It's very inspiring.

    Can you share how you located it, and how long did it take to locate/negotiate the price?

    0Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    @Bruce Olsen

    Actually located it through a broker. Apparently the property was originally listed at $4.1m and had a lot of tire-kickers but no one ever came through. I was fortunate enough to be exiting another deal so happened to have the cash sitting there. I did negotiate hard and use my all-cash offer and fast closing to my advantage. I also own many units in that geographic area so I was able to portray the ability to close.

    0Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    in regards to how long it took - probably a few days.  Basically went in and did a visual inspection with my maintenance guy, understood all the risks and made the strong offer the day of

    0Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

     A few more pictures:

    Before: office/lobby

    After: office/lobby

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Jason Mak Thanks for sharing! I think most successful SoCal investors have never heard of BP or would care to post a word on Bp even if they have. The only ones I hear that post the west coast has no deals left have something to sell you thousands of miles away. It is easy for a newbie to fall in the initial cash flow trap if that is how investments are presented. Your example shows how vision can be equal or perhaps even more important than initial CF alone.

    Congrats on your vision and impressive execution!

    4Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    @Matt R.

    Yeah man - people ask me all these questions and how to get started in RE and I always point them to BP but they rarely take my advice. Laziness? BP is such a great resource - you can get answers for almost everything including larger commercial deal questions

    I have no problem with out of state investing but I just like to know the geography more intimately.  I agree, there definitely is a cash flow trap - cash flow is easy to depict/maneuver on paper.

    0Reply
  • Kevin Bellavance
    Investor · Sherbrooke, Québec · Member since 2015 · 52 posts · 50 votes
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    @Jason Mak, This is very impressive! Would you mind explaining the financing behind it? I know you paid all-cash, but where does this cash come from? Your personal wealth, private investor, fund, private loan, so on so forth? 
    Feel free to decline to answer.

    I'm just really interested into the financing behind such a monster building.

    Thank you and awesome work!

    Kevin

    0Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    @Kevin Bellavance

    Good Question - not everyone has a few million in their back pockets.  I've been in the business for a while.  For this particular deal - I happened to have this $$$ available at the time because I had recently sold a land development deal that I was holding and developing over the years.  On other similar sized deals we typically have partners (i.e. Friends and Family) and a first trust deed loan.

    0Reply
  • Kevin Bellavance
    Investor · Sherbrooke, Québec · Member since 2015 · 52 posts · 50 votes
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    @Jason Mak,

    Remarkable. Thanks for sharing.

    I hope hearing about your other projects! 

    Best regards,

    Kevin

    1Reply
  • DL Martin
    Rental Property Investor · Cincinnati, OH · Member since 2013 · 292 posts · 280 votes
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    Originally posted by @Jason Mak:

    Two months ago I sold the property for $5.5m.  After paying back the loan principal and commissions, netted proceeds of $3m or a profit of ~$2m.   

    Wow. That is quite an accomplishment. 

    I hate that complex and everything about it. Trying to gain access after a shooting or stabbing is a nightmare. Kicking on the door and/or adjacent window until a tenant or resident drug dealer opens the door for you was pretty much the only way to gain access. (The KnoxBox key was so high that it was impossible to reach without a ladder). And the elevators are dreadfully slow. 

    On the positive side, all of the interior walls are concrete block which limits peripheral damage when shooting occur inside the buildings or tenants set their units on fire. 

    I am amazed that you had the guts to take that on and I admire your determination to see it through until a successful sale. 

    At $68,750 per unit, I do not envy the new owner. 

    Congrats on a job well done.

    DL

    0Reply
  • Account Closed
    Indianapolis, IN · Member since 2013 · 77 posts · 5 votes
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    @Jason Mak

    What was the property cashflowing before the sale? What was your thought process on flipping it rather than holding it?

    0Reply
  • Lisa Misuraca
    Tucson, AZ · Member since 2014 · 134 posts · 43 votes
    11y

    Fantastic deal,I don't think I could live through the stress of having that much invested but the return was awesome.Maybe someday it won't scare me so much.Great Job!

    1Reply
  • Emanuel Wilson
    Real Estate Lender · Anaheim, CA · Member since 2015 · 15 posts · 4 votes
    11y

    Jason, thanks for sharing, you did an amazing job on this deal!  Please share your next project.

    0Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    @DL Martin  I didn't know you were familiar with that property.  Yes, when I bought it, it was literally inhabitated with drug dealers and prostitutes so there was a lot of $$$ spent on legal fees to evict.

    Funny you mention shootings because when I bought it, one of the hallway windows did in fact have a bullet hole.  

    One thing we did get done there was getting very involved with the Riverside police station and letting them know that our intent was to clean the area up, in fact we went as far as getting the property certified as a Safe Housing by the city of Riverside and had a police officer assigned to our building.  We were able to get before and after 911 call records and it was nice to see the dramatic decrease.

    For "rougher" tenants, the concrete walls definitely make a big difference.

    3Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    @Account Closed

    Thank you Dave.  The property was cash flowing between $5-10k per month after expenses depending on if there were any big ticket expenses.  We were able to minimize most of these big  ticket expenses but every now and then we'd have a pipe get clogged or an AC unit go out.  My gut, is that if I had operated it for another 6 months that I could have stabilized more and continue to push the cash flow.  

    This is the first building I have sold in a very long time and I am typically a buy and hold guy.  But my rationale was that I wanted to take my chips off the table and move the equity into a higher quality building both physically and geographically.

    2Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    11y

    @Emanuel Wilson thanks for the kind words and best of luck

    @Lisa Misuraca

    @Lisa MisuracaIt's definitely heart pounding when you purchase the property and signing away your money but once you get in with conviction there was no looking back.  I always have a plan B and margin of safety.  Mine was simply holding a multifamily building for the longer term

    0Reply
  • Account Closed
    Santa Clarita, CA · Member since 2014 · 40 posts · 25 votes
    11y

    Hey @Jason Mak

     Thanks for sharing!

    If you don't mind me asking, how long have you been in this business and what sort of trajectory did you follow to end up working with large apartment units and hotels? Did you start out with single family flips and build your way up? I only ask, because large apartment complexes and hotels are a long game goal of mine, and I'd appreciate some insight on your own personal experience.

    Alex.

    1Reply
  • Lisa Misuraca
    Tucson, AZ · Member since 2014 · 134 posts · 43 votes
    11y

    I think you dangled a big hook and caught a really big fish,lucky you!

    As to buy and hold,as long as you have GREAT management in place,you've got a cash flowing cow.

    1Reply
  • Monique Correia
    Investor · Laguna Beach, CA · Member since 2015 · 17 posts · 4 votes
    11y

    @Jason Mak thanks for sharing your experience.  And congrats on producing and completing such a great product In the face of adversity.  

    Can you share any of your gross costs, including money spent on evictions, marketing and rehab?

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @DL Martin:
    Originally posted by @Jason Mak:

    Two months ago I sold the property for $5.5m.  After paying back the loan principal and commissions, netted proceeds of $3m or a profit of ~$2m.   

    Wow. That is quite an accomplishment. 

    I hate that complex and everything about it. Trying to gain access after a shooting or stabbing is a nightmare. Kicking on the door and/or adjacent window until a tenant or resident drug dealer opens the door for you was pretty much the only way to gain access. (The KnoxBox key was so high that it was impossible to reach without a ladder). And the elevators are dreadfully slow. 

    On the positive side, all of the interior walls are concrete block which limits peripheral damage when shooting occur inside the buildings or tenants set their units on fire. 

    I am amazed that you had the guts to take that on and I admire your determination to see it through until a successful sale. 

    At $68,750 per unit, I do not envy the new owner. 

    Congrats on a job well done.

    DL

    So you lived in this building?  For reals?

    I'm no stranger to ghetto and war zone properties.  But if the OP made $2M by being willing to take on the stabbing/shooting building, doesn't it make you wonder what else is out there.....right under our noses?  Or in your case, right under your mattress?

    4Reply
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