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.