Just closed on 32 unit apartment

Just closed on 32 unit apartment

Real Estate Broker · Flower Mound, TX · Member since 2012 · 58 posts · 30 votes

Hey everyone. Just wanted to share my success. It is a 32 unit apartment located in Dallas. It was built in 1983 and features 14 one bedrooms and 18 two bedrooms. The kicker about this property is that each apartment has its own garage. They are single car garages, but they are really long so you could maybe squeeze two small cars in them.

The property has a lot of deferred maintenance that I will be addressing in the next few months. The roof and gutters are the big thing. There is also a french drain system that is completely clogged up that we will have to clean out. The previous owner had just put in a mix of laminate and vinyl wood flooring throughout the units. The interiors are in pretty good shape, but the exterior is extremely neglected. The units have individual HVAC's and water heaters, about half of which were replaced within the last 2 years. The property management company I hired specializes in the value play. They have their own construction division to do all the work. They are a bit more expensive then the other companies I spoke to, but with all the deferred maintenance I feel it needs the extra attention these guys will give it. This includes a full time manager and part time maintenance person. Management cost will be about 10% plus one apartment.

It is in a section of Dallas called Vickery Meadows. It is a low income, mostly Hispanic area. It has the highest population density in the DFW area with approx. 44 units per acre. The area is in the beginning stages of gentrification with a new Walmart, Sams Club and Target having just opened up nearby. There have also been a few apartment complex's that have recently been torn down in order to build newer nicer complex's.

The purchase price was $850k with $50k seller credit to go toward the deferred maintenance so effectively a $25k per door purchase before figuring in deferred maintenance costs. I was able to get a local bank to finance it with a 80% LTV @ 4.625%. 25 year amortization. It is a 5 year note with a balloon at the end, but the bank has an option to extend for additional 5 year periods instead of re-financing. I wanted a longer term, but banks didn't want to go any longer without a steep rise in rates or larger down payment. Closing costs were $22,269.72 along with $2,100 for an inspection. Total cash in was $183k. Expected NOI (per property managers budget) $82,518.

I'm real excited about his deal. It is my first. I have a few other properties, but those are all partnerships that I inherited. This is the first one I have done on my own and will have control over. It is also my first multifamily, the others are industrial.

9Reply
141 views

Most Popular Reply

Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
13y

Let's call NOI 82,000.

So at 50% costs gross expected income is 164,000 or 427 a door per month

If landlord pays water 60% gross income is about 206,000 or about 536/door

The 5 year balloon is the killer. I see some banks go 7 or 10 years out at the low rate you have but ltv is 75% and not 80%. My buyers just usually get a seller held second to increase cash on cash but opt for the longer term debt.

The bank option to extend another 5 years does the bank lay out specifically what the options will be or do they leave it wide open?? We make projections on five year term balloons with exits to dump quick if you need to.

I find local banks only do the 5 years as they are worried about future interest payouts to depositors versus rising rates. Regionals and larger banks give more long term debt but are more picky on the property.

How much per door is estimated for immediate capex versus ongoing capex with the property??

See this reply in the discussion

91 Replies

Jump to latestLatest
  • Denver, CO · Member since 2012 · 350 posts · 175 votes
    13y

    Outstanding!!! I think small multifamily is a pretty sweet space to work in.

  • Investor · Orlando, FL · Member since 2013 · 11 posts · 4 votes
    13y

    David!!

    That is truly OUTSTANDING my friend. Keep up the good work..

    Eddie

  • Plano, TX · Member since 2013 · 35 posts · 3 votes
    13y

    Congrats, that is definitely a good location in Dallas to get a property to hold for the future!

  • Real Estate Agent · Orem, UT · Member since 2012 · 164 posts · 49 votes
    13y
    Congrats! You are an inspiration to all of us flippers wanna be apartment building owners
  • Nicole A.Pro Member
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    13y

    Wow, congrats! That sounds great! And with the big stores popping up nearby is an even bigger plus. Very excited for you!

  • Flipper/Rehabber · Eastpointe, MI · Member since 2013 · 18 posts · 12 votes
    13y

    David,

    Your excitement just spilled over....CONGRATS!

  • Greentown, IN · Member since 2012 · 140 posts · 18 votes
    13y

    Congrats! What a big step to take with your first actual purchase. I hope it goes well for you.

  • Investor · Member since 2009 · 132 posts · 30 votes
    13y

    Congrats @David Turner Can you provide a breakdown of your closing costs?

  • Plano, TX · Member since 2013 · 226 posts · 156 votes
    13y

    Awesome purchase David! Do you mind naming the property, I think I may have looked at that one!

    Where did you find 80% LTV?? I'm working with the main mortgage broker in town for C class properties and the best I've been seeing is 70-75%. I do know of some getting 80% non recourse Fannie loans, but not on value adds, and for sure not first-timers. I'd love to talk to them, I'll even say you referred me!

    You don't have to give actual numbers, but isn't 3rd party management costing an arm and a leg on a 32?

  • Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    13y

    congrats

    keep us updated regarding this property (pics, cashflow, and etc)

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Let's call NOI 82,000.

    So at 50% costs gross expected income is 164,000 or 427 a door per month

    If landlord pays water 60% gross income is about 206,000 or about 536/door

    The 5 year balloon is the killer. I see some banks go 7 or 10 years out at the low rate you have but ltv is 75% and not 80%. My buyers just usually get a seller held second to increase cash on cash but opt for the longer term debt.

    The bank option to extend another 5 years does the bank lay out specifically what the options will be or do they leave it wide open?? We make projections on five year term balloons with exits to dump quick if you need to.

    I find local banks only do the 5 years as they are worried about future interest payouts to depositors versus rising rates. Regionals and larger banks give more long term debt but are more picky on the property.

    How much per door is estimated for immediate capex versus ongoing capex with the property??

  • Real Estate Broker · Flower Mound, TX · Member since 2012 · 58 posts · 30 votes
    13y

    Thanks everyone.

    @Tom Lafferty Nobody really wanted to give me 80% but I played the banks against each other. First I had a local bank (Bank A) offer me 80% @ 5.5% which I wasn't really thrilled about especially because they wanted 15 year am. The bank I ended up using (Bank B) I was hooked up with through a mortgage broker. The mortgage broker said that 80% wasn't doable and I told him that I had this other bank offering it. He then said he would see what he could do and ended up coming back with this bank.

    At first Bank B offered 4.75% with a 25 year am. The Bank A came back and offered to match and their loan fee was 1% whereas Bank B was 1% to the bank and 1% to the broker. I told the broker I was going to go with Bank A and he said they would beat their offer. He came back with 4.625% along with .75% for the bank and .75% for himself for a total of 1.5% in fees. In the meantime the Bank A went and took a look at the property. They are a Denton County bank and prefer to lend in Denton County so that coupled with the deferred maintenance they decided it wasn't for them. So I ended up going with Bank B.

    They also had some additional stipulations. They require that the operating account is with them. They are also requiring taxes to be escrowed with them, but it is not a traditional escrow, it is just a savings account that we have control over, but we are supposed to ask for permission before we draw from the account. The $50k in seller concessions also has to be escrowed with them. They also require the mortgage payment to be auto drafted.

  • Real Estate Broker · Flower Mound, TX · Member since 2012 · 58 posts · 30 votes
    13y

    @Joel Owens Gross is $221k with 5% vacancy (building averages one turn over per month but has a backlog of potential tenants due to the garages) and with concessions and write offs the effective gross is $194k which includes the loss of one unit to the manager. The seller had a higher NOI, but he had an onsite manager/maintenance guy who wasn't doing a great job taking care of the building.

    Electric is individually metered with water, sewer and trash master metered. Water is the killer at about $2k per month, but apparently the city of Dallas has a program where they will provide free low flow toilets to apartments. Unfortunately it takes 4-6 months to get them, but that should help that cost.

    Immediate capex is $36k which will take care of the needed issues. Future capex is dependent on the neighborhood. Once these issues are taken care of the complex will be about in line with the customer base in this local. If the neighborhood continues going up in the next few years I could see putting another $5k per door into it. But only if the neighborhood supports it. If not they around $10k capex per year for the entire building. The only other major things will be the remaining HVAC's and water heaters that will need to be replaced as needed.

    The property management company went through every apartment during the due diligence phase and have estimated all needed repairs to the property. In addition to the $36k for capex they have estimated another $30k in minor repairs that will mostly be addressed during turn over which will take 2-3 years for the entire building.

    The bank has full control over the option to extend the loan. They say that they usually do, but you know how that is. I figure that I can always shop the loan around which might give them some incentive to extend it.

  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    13y

    Congratulations! What makes this deal a very good deal is your ability to obtain a 4.625 interest rate. Very simply your borrowing money at less than 5% and using it to earn a return of about 10%.

    Private Mortgage Financing Partners, LLC
  • Residential Real Estate Broker · St Charles, IL · Member since 2013 · 7 posts · 0 votes
    13y

    Congrats David! Very inspiring!

  • Brandon TurnerPro Member
    Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
    13y

    @David Turner I'm so happy for you I can't even express it!!

    How did you find the deal?

  • Real Estate Broker · Flower Mound, TX · Member since 2012 · 58 posts · 30 votes
    13y

    @Brad Z. My closing costs were:

    $206 Filing Fees

    $7,100 Origination Fee

    $3,500 Appraisal

    $16.00 Flood Certificate

    $1,810.32 Title Policy

    $2,537.40 Lenders Attorney Fee's

    $7,100 Mortgage Broker Fee's

    $10,428 Tax Escrow

    $10,036.74 Insurance

    And I received $15,374.66 for tax proration.

  • Real Estate Broker · Flower Mound, TX · Member since 2012 · 58 posts · 30 votes
    13y

    @Brandon Turner I had viewed some properties on the brokers website which had required me to sign up for an account. The broker saw that it fit my criteria and called me to see if I wanted to come take a look. The property was originally listed for $950k. I was a bit underwhelmed when I first looked at it due to the deferred maintenance I was looking for a value play so it didn't really bother me, I just felt it was way overpriced for the condition. Not to mention the pictures had made it look a lot nicer then it was.

    Seller had bought the property as a foreclosure back in 2010 paying only $250k for it. A few months later he refinanced for $500k. According to the broker he had put about $150k into it. At the time it was only 25% occupied.

    The broker stated that the seller was motivated and wanted to sell ASAP. Something about needing the cash for another deal. I told the broker I would be interested closer to $800k and he just laughed. Said the sell had already turned down multiple offers around $850k. A couple days later I checked in with the broker and he said it was under contract.

    Spent the next few weeks looking for another deal. Ended up finding another I liked, but not as much. During negotiation on this building the broker called me up and said it was back on the market. I told him I would keep it in mind, but I was going to see where this other deal went. A couple weeks later we still didn't have a deal on this new building and I received a mailing list update showing a price reduction to $880k on the first building. I immediately called the broker and told him I was still interested. After some back and forth ended up settling on $850k.

    The inspection then uncovered more issues I wasn't aware of: roof needed to be replaced, drainage clogged, some wood root in a few places, a lot of the exterior lighting was non functioning. One semi big thing I hadn't even thought of was the stair and balcony railings. When I started calling around for insurance I kept being asked how far apart the railings were. During the inspection I found out they were about 6 inches apart. Insurance companies are starting to require less than 4". Apparently this is a hot button issue, so now I have to spend $10k to fix this.

    So once I found out all of this I went back to the seller asking for $75k back. The broker got a little angry saying I should of known the condition of the property and I should have assumed all these issues were there since it had fallen out of contract once already. I told him I knew there were some issues, but I didn't know the extent of it and that it required to much work for the price. The seller offered $30k back and I said no deal. Said the lowest I could accept $50k. Broker said $30k was the best I was gonna get so I told him I was going to have to walk. He then came back another 2 or 3 times until finally agreeing to the $50k. I didn't want to retrade like that, but after I got the inspection report I felt there was to much work for $850k.

  • Investor · Portland, OR · Member since 2013 · 133 posts · 88 votes
    13y

    Very nice job for your first multifamily deal. You were very disciplined and stuck to the numbers. Great job.

  • Rehabber · Fairfax, VA · Member since 2013 · 26 posts · 2 votes
    13y

    @David Turner . This is fantastic ! Thanks for sharing the details of your experience.

  • Real Estate Agent · Orlando, FL · Member since 2013 · 270 posts · 40 votes
    13y

    major congratulations @David Turner you stuck to your guns with that broker ha!

  • Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    13y

    congrats ! It's always interesting to hear the numbers on apartment buildings . It sounds like the value could go up significantly too with the new development in the area .

  • Investor · Wichita Falls, TX · Member since 2010 · 3k+ posts · 603 votes
    13y

    @David Turner Awesome and congratulations on this deal!

    Ask around BP for opinions/reviews on the low-flow toilets etc. I have read many people complain of too many plumbing issues when using them.

  • Investor · ATL-MOB-DFW-STL-IND, AL · Member since 2011 · 87 posts · 13 votes
    13y

    @David Turner Congrats! May you have more.

    Best,

    Jose

  • Investor · Washington D.C. · Member since 2013 · 94 posts · 18 votes
    13y

    First of all, well done. Sounds like $25k per door in a solid market like Houston with good financing terms is a good deal (assuming you correctly assessed deferred maintenance).

    Wanted to ask about management fees -- isn't 10% plus one apartment a bit steep? I get that it's a fairly small complex, but sounds expensive.

Join the conversationCreate a free account to reply, vote on answers and follow this thread.