Posted almost 3 years ago

94 Unit Multifamily Purchase and the Many Take Aways

I want to share about our purchase because I'm proud of what we just did and also I want to help others who may be at similar position to where I started in this process.

A little over two weeks ago we closed on our first large apartment complex. A 94 unit, Class C complex in Louisville, KY. There was a ton of effort to get to the finish line and now the real work on the property begins as we implement our repositioning plan. This is a huge jump as the largest property prior to this that I had ever purchased was a duplex.

Here are the many takeaways both good and bad that we learned from this experience:

--Taking the first steps:

I found mentors- Simply put, I found people already doing what I wanted to do and actually followed their steps.

I found a partner- I have had a few business partners before and this can be a tricky step but I was able to find a great partner who's strengths complemented my strengths. What I have realized from past business relationships is that you need to make sure from the start that your goals and vision are aligned. Also that each of you are equally willing to fully commit to reach this goal.

Understand the market - I live in New Jersey but the numbers here did not work for the criteria I am looking for. I focused on a market that has good population growth, good job diversity and job growth.

Boots on the Ground - The key piece is that I have friends and family that live in the markets I am looking in. Going forward as I research other markets I may not have people locally but for this first deal this was definitely crucial for getting to the finish line.

Constant and Consistent - Constantly be speaking to people in the market, understand the terminology and be specific in your criteria. We found this property through our property manager, whom we met through a broker, who we met through a friend. The property had been listed prior but was taken off the market some 8-10 months earlier.

Management - Find a third party professional management. We vetted a number of different companies to find a company that was not only situated to take on this kind of asset but also can handle more properties as we grow our holdings in this market in the future.

The Numbers - Stick to the numbers and don't be emotional. From first offer to acceptance of contract was a little over 8 months and we were able to get asset under contract for $900,000 below original asking and $100,000 below our Max Allowable Offer (MAO) based on our analysis. What did we feel made the difference? With our initial offer we provided reasoning for our substantially lower offer than their initial expectations. Later in the process and after a long negotiation we showed the seller a summary of our financial analysis to explain why we couldn't go higher in our counter.

The Money - Lastly we syndicated the deal using a 506B. We learned and are learning a ton about syndication as this was our first one. We took the time to analyze the difference between the 506B and 506C and found the 506B was better for this property. Our reasoning behind this is that all of our funds came from Family, friends and/ or relationships from prior business relationships. The 506B also allowed us to have sophisticated investors / non-accredited investors in our deal. The 506C allows you to publicly showcase your offering however all investors needed to be accredited.

Again surrounding myself with mentors was the crucial piece. Mentors can show you the way to the promise land but if you don't take the steps you will never get there.

--What we are going to do with the property now:

We have several value-add opportunities including increasing occupancy and rents and adding "green" initiatives. Our team plans to implement a program over the next twelve months dedicated to renovating the interiors of the units, raising the rents approximately twelve to fifteen percent, and deploying a water savings program which will help reduce expenses. The water savings program and implementation of other utility efficiencies will all be part of our green initiative approach.

We will also implement other income generators that surrounding properties already have in place, here are a few:

-Pet fees

-Move-In Fees

-Cable, trash and laundry contracts

-Raise Rents to market - Rents are on average $75 below market. With turns we will bring rents up to market and with existing tenants we will increase rents 25% to start.

--What was really tough:

The money raising aspect- The main reason is we started late and when you are trying to juggle so many pieces our focus was not always there. We also should have raised much more than we needed to cover the few people that ultimately needed to drop out for personal reasons and / or didn't have the money available as they had previously thought. Lesson learned is to always be raising money. We are already raising money for our next deal even as we have offers out but nothing under contract.

Due Diligence- The items from the sellers were less than stellar to say the least. Prior rent raises were recorded on a napkin for the last three years. It took time and some of the information we wanted just simply didn't exist but we had to really hunker down to get to the bottom of what was really happening here.

All the moving parts- The first deal was an all-hands on deck approach. Both my partner and I wore many different hats to get to the finish line. Going forward we will make sure to continue to refine our roles as our company grows.

--What's next:

We are going to continue to grow our multifamily holdings in Kentucky and look to add 500 units in the next 8 months. That said... Only when the numbers work.



Comments (12)

  1. Hi Jason,

    I just read your post.  I'm not sure how I missed this one.  Sounds like a great deal.  Is there any chance you can give us an update?  Also, I think it would be great to have a Bigger Pockets meet up next time you are in Louisville.  

    Thanks,

    Mike Vanover 


  2. Hi Jason,

    Just came across your post — warmest congratulations on your acquisition. Sounds like an excellent learning journey, which I know continues daily. We've been investing in and managing SFRs and C-class multifamily primarily in the South End of Louisville for a number of years. I was especially interested to read about your proposed water saving and green initiatives for the property, as we’re also keen to explore ways to greenify our multifamily operations. We would love to sub-meter the water, for example, since water is such a costly expense that would be significantly decreased through sub-metering. This is still a town that includes water in the rent on one single meter rather than making it a resident-responsible utility, but I feel our multifamily industry needs to make the collective shift to individual responsibility.

    All the best with the new project!

    Ian


  3. Hi Jason.

    I hope things are going well one month in.

    I am going to assume that the maintenance guy will not be able to do, for instance, bathroom/kitchen rehabs, balcony rehabs, install new windows, etc. while tending to day to day clogs, leaks, door knobs/locks, stove burners, refrigerator seals, etc.

    So are you going third party for total apartment rehabs? If so, what do you expect to pay for a total rehab, that is, replace bathtub and tile surround, toilet, vanity, tile floor, exhaust fan, kitchen cabinets, range hood, and new energy efficient windows? 

    Thanks! 

    DL

    p.s. I'm assuming that the complex is 1960's/1970's vintage and you were able to buy $900k under ask because of deferred maintenance.  Flat roofs? boilers? Through the wall AC units? 


  4. Jason,

    Thank you for posting this and sharing your story. I really want to get into multi family and what you shared was full of great information and only added to my learning process.

    Great article.,


  5. Congrats!!! Great info!


    1. Thank you!


  6. Wow that's awesome! Bet you are going to be sticking to bigger multi family now rather than duplex huh?
    Would you say it's (simplified) the same amount of work to find that deal as it would be to find a duplex?

    Saving your blog! 


    1. Thank you. I most definitely will. It becomes easier as the economies of scale begin to work in your favor. Where as you may need to hire an outside maintenance tech to come fix your sink in 1 of 2 units, I now have an onsite maintenance person that the property is set up to be able to afford and he can service all 94 units when needed.


  7. Wow!  Congrats.  Thanks for sharing your lessons.


    1. Thank you!


  8. So, when you say you got a mentor, is this someone you know in your area or is this a paid mentoring program?


    1. Hi Andy I did both. I found people around me that were willing to share great info and also used a mentorship program. Key point here is that both helped and were amazing resources but neither would have been useful if you don't take the action steps provided.