Just closed second multifamily deal

Just closed second multifamily deal

Real Estate Agent · Baton Rouge, LA · Member since 2017 · 82 posts · 85 votes

Yesterday, I just closed on our second multifamily deal.  I can honestly say that almost every part of this deal was influenced in some way by what I have learned on this forum, in the webinars and, especially, on the Bigger Pockets Podcast.

To begin with, this deal was not on the market.  I found it by using one of @Brandon Turner's methods recommended in podcasts and webinars:  I saw a for rent sign and simply called the number, asking if they would want to sell the property.

I analyzed the property using methods discussed on Bigger Pockets, using a lot of the criteria discussed on this site to push myself to make this as good of a deal as possible, while working to find a win-win for the seller and myself.

Throughout the negotiations, I used techniques directly taken from lessons in the Chris Voss podcast (in fact, I had this podcast playing in my car for the days leading up to the meeting I had with the seller as part of my preparations).  I've listened to that podcast at least 3 times; I highly recommend it.  It is podcast #260.

I then got a second opportunity to try out my negotiation skills when we renegotiated after inspection  and got a significant amount taken off the purchase price plus a huge amount of credits at closing.

And then, to top it all off, I closed the deal using none ($0) of my own money.  Well, I did pay for the inspection and the deposit - which I reimbursed myself for  out of the first month's of rent checks : ).

Now, I am working my way through The Book on Managing Rental Properties to ensure I am doing all that I can to maximize profits and minimize risk.

Basically, the reason for this post is a "thank you" to this forum and the folks at Bigger Pockets for the wealth of information provided here. 

-Nathan

P.S.  Our first deal was three units, and this one is six. Can you say STACK Method? Here's to hoping this trajectory continues!

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Foreclosure Specialist · Woodland Hills, CA · Member since 2016 · 2 posts · 7 votes
7y

Really Nice Work Nathan, 

This is a real inspirational post. I am currently in the process of finding my first rental property (Tri-Plex or Quad-plex); however, most friends and family think I am crazy  and wasting my time. So it’s always motivational to read success stories of new investors. 

Keep it Up...

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  • Foreclosure Specialist · Woodland Hills, CA · Member since 2016 · 2 posts · 7 votes
    7y

    Really Nice Work Nathan, 

    This is a real inspirational post. I am currently in the process of finding my first rental property (Tri-Plex or Quad-plex); however, most friends and family think I am crazy  and wasting my time. So it’s always motivational to read success stories of new investors. 

    Keep it Up...

  • Real Estate Agent · Baton Rouge, LA · Member since 2017 · 82 posts · 85 votes
    7y

    Thanks.  I can't say that I have ever gotten the "you're crazy" or "you're wasting your time" responses from folks.  I mostly get deer in headlights or glazed over expressions from folks that can't comprehend all that goes into this or who find it exceedingly boring.  

    I think that for me REI is the most rational and understandable forms of investing, and it is about as interesting as it gets!

    Best of luck to you.  Be patient and stick to your criteria - remember that buying no deal is much better than buying a bad one.

  • Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
    7y

    @Nathan McBride, congrats.  Sounds like you are well on your way!  Good luck moving forward.

  • Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
    7y

    @Nathan McBride congrats man!

  • Patrick RowePro Member
    Investor · Baton Rouge, LA · Member since 2011 · 133 posts · 13 votes
    7y
    @Nathan McBride Congratulations Nathan I’m in the Baton Rouge, La area. What area did you buy in?
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    Numbers?

    In particular, what did you use for financing since you said "none of my own money" was used?

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  • Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes
    7y
    @Nathan McBride congrats and way to tie it up using what you’ve learned! Hopefully you wouldn’t be opposed to sharing some of the details of the deal that we can also learn from how you structured it!
  • Real Estate Agent · Baton Rouge, LA · Member since 2017 · 82 posts · 85 votes
    7y

    @Patrick Rowe, this property is in the Garden District.

    @Nathan Gesner and @Bjorik Mutize here are some details:

    • The property consists of an old, very large (~5,200 sqft) house that is split into five apartments and a garage apartment, for a total of six units
    • Purchase price of $478,500 with $51,500 in seller credits (we started at $488,500, but renegotiated after finding knob and tube wiring and other issues during inspection)
    • $565,000 appraised value
    • Current gross rents ~$6,000/mo (with a little room for improvement once repairs are made) plus revenue from onsite coin laundry
    • Cash on cash return will depend on how/when we decide to make improvements to the property (see below), but at least 10-12% in year one
    • Financed with a commercial loan (80% of purchase price, 20-yr am at 5.5% on a 5-year lock), but the kicker is that the bank let me apply the seller credits toward the down payment
      • Oh, and to help out with cashflow while making repairs, the bank hooked me up with 6 months of interest only financing as a nice surprise at closing - it definitely pays to develop relationships
    • The remainder of the cash to close was provided by a silent partner in exchange for 50% ownership

    The bank has offered to extend me a line of credit secured by the equity to perform improvements. I am currently evaluating the pros and cons of accepting the LOC and completing repairs/improvements upfront vs. reinvesting the cashflow generated by the property and completing repairs over the next couple of years.

    The area will support improvements to the property in both rental revenue and property value (this is a very large house on two full size lots and two addresses in a high demand, stable part of town), so I know any wise investment in the property will pay off.  I just need to work out the timing.

    Looking forward to seeing where this one goes!

    -Nathan

  • Patrick RowePro Member
    Investor · Baton Rouge, LA · Member since 2011 · 133 posts · 13 votes
    7y

    Ok thanks, I currently have 5 SFR's and a 8 plex under contract to close at the end of this month. I would like to setup a meeting and see if we could share our resources.

  • Real Estate Agent · Baton Rouge, LA · Member since 2017 · 82 posts · 85 votes
    7y

    @Patrick Rowe, our other property is near LSU (E State St area). Where are yours located?

    I’ll message you my contact info so that we can get together. 

  • Rental Property Investor · Jacksonville, FL · Member since 2008 · 784 posts · 528 votes
    7y

    @Nathan McBride Atta boy! The best deals are the ones that are not advertised, but you did it, you went and found a great deal. I live and die by the fact that "NO" - Does not mean No, it means, "Not right now".  Stay in touch, build relationships, you never know when they have a life moment and need to say yes. Sounds like you got a great project. 

    Always get an inspection done, it makes sense to get it done. Start a relationship with the bank, the right way. 

    The question you need to ask yourself regarding the bank loan - Is this the last loan you will have on the property? Most commercial loans never go the full term, you may refi in 3 years, pull cash out and go buy another property. I'd look to bump up the rents each year, add value where you can and start building relationships with other owners of similar properties in the area, so you can look to acquire them as well. 

    I would leave the LOC alone unless you can use the cash to get a better rate of return than what it will cost you. Having cash is the golden goose, so hold onto as much as possible, as cash becomes a weapon when buying more properties in the future. You don't have to use it, just need to show you have it.

    Well done! Thanks for sharing! 

  • Real Estate Agent · Baton Rouge, LA · Member since 2017 · 82 posts · 85 votes
    7y
    @Jack Bobeck Thanks for the advIce and encouragement. If I drew from the LOC, it would be for the minimum amount I could get by with to make high-ROI improvements to the property just in time to justify higher rents at the time most of the exIstIng leases expire. The other option would be to reinvest the cash flow from each month, but this option may not quite get me where I want to be in the next six months. First thing, though, is to get a solid work list together and get quotes to know what I’m really looking at in terms of investment.
  • Chicago, IL · Member since 2017 · 81 posts · 87 votes
    7y
    @Nathan McBride the book on managing rental properties is a straight up textbook to me. Got a rental property, did everything it said, everything is going pretty well. You’ll find it pretty useful!
  • Investor · Saint Louis, MO · Member since 2013 · 87 posts · 32 votes
    7y
    @Denver Mack - It’s never a waste of time to pursue your dreams. I too was discouraged from it. It took me a long time to get enough courage up to just DO IT. I finally did and I’m two properties in and now sitting here mapping out plans to literally purchase a block, one house at a time. You can do it and this is a great forum to help you. Good luck!!
  • Baton Rouge, LA · Member since 2018 · 39 posts · 28 votes
    7y

    @Nathan McBride congrats, man!! Love to see the progress!  I'm still working on my first flip with an equity partner/family friend, that I hope to reinvest the profits for buy-and-hold like this.

    Financed with a commercial loan (80% of purchase price, 20-yr am at 5.5% on a 5-year lock), but the kicker is that the bank let me apply the seller credits toward the down payment

    MIND BLOWN!  I have a new negotiating tool.

    Oh, and to help out with cashflow while making repairs, the bank hooked me up with 6 months of interest only financing as a nice surprise at closing - it definitely pays to develop relationships

    Which bank is this, if you don't mind me asking?

    Thanks and congrats again!

    Garrett

  • Real Estate Agent · Baton Rouge, LA · Member since 2017 · 82 posts · 85 votes
    7y

    @Garrett Ellison

    Thanks man! The bank was Citizens Bank and Trust. Note that this is a commercial loan; I doubt you could apply credits like this on a conventional loan. 

    I really like the flexibility of commercial loans. The 20-yr am and slightly higher rate do hurt cash flow, though, but I look at it as motivation to make sure the deal is good enough to still meet my criteria for cash flow and ROI.

    Where in town is your project?

  • Baton Rouge, LA · Member since 2018 · 39 posts · 28 votes
    7y

    @Nathan McBride

    Nice!  Yes, that makes sense - I doubt that too.  On a conventional, I think the bank would only allow seller to cover closing costs and funds for minor repairs on the inspection.

    5.5% isn't bad at all for a commercial loan!  That's usually the rate I figure in today's market anyway, when performing CF analysis.

    It's a block off Government.  I love the area and where it's heading - right by BR High, French Truck coffee, Elsie's Plate & Pie, etc.  The area is ripe for turning homes around right now.  You already have the commercial investment in improving the area, and certain pockets have skyrocketing home values.  Yet, there are still many old homes with abundant character for great prices.  They all need TLC, but that's what flippers are for, haha.

    I never thought I'd end up flipping, as I didn't consider it as a real "investment," per se, but I love the idea of reinvesting the funds into buy-and-hold.  Great way to get great investment capital!  I also think it's much easier to find a flip deal that makes sense to 50-50 split with a partner than a buy-and-hold deal.

  • Real Estate Agent · Baton Rouge, LA · Member since 2017 · 82 posts · 85 votes
    7y
    @Garrett Ellison That’s a great spot for flips. Tons of potential upside, especially as the city really gets going on the Government St improvements. Commercial investment continues to flow into that area, too. I think doing some flips to raise cash for a buy and hold purchase is a great strategy. I sometimes wish I would have done a flip or two for the experience and the contacts you develop in the process.
  • Baton Rouge, LA · Member since 2018 · 39 posts · 28 votes
    7y

    @Nathan McBride We haven't done too much on this project yet (just closed at the end of last month), but I'd definitely say flips are equal parts fun and stress, haha!  I can't wait to see how it turns out.  I'll definitely make a post about it.

  • Stephen KeigheryBusiness Member
    Rental Property Investor · New Orleans, LA · Member since 2018 · 716 posts · 555 votes
    7y
    Congratulatuons @Nathan McBride, very inspirational how you are applying what your learnings!
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  • Member since 2018 · 6 posts · 2 votes
    7y
    @Nathan McBride Hi Nathan, I would like to know how you did it without using your money. Thanks!
  • Real Estate Agent · Baton Rouge, LA · Member since 2017 · 82 posts · 85 votes
    7y
    @Ben Sosa It was a commercial loan, so I was able to apply seller credits toward the down payment. The rest of the cash to close came from a silent partner in exchange for 50% equity.
  • Brooklyn, NY · Member since 2018 · 39 posts · 18 votes
    7y

    Thanks for the  info and congrats!

  • Real Estate Investor · Takoma Park, MD · Member since 2011 · 74 posts · 38 votes
    7y

    Way to go @Nathan McBride this is awesome!

  • Accountant · CO · Member since 2018 · 195 posts · 23 votes
    7y
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