All Forum Posts by: Joe S.

@Joe S.

I found the property by driving around border towns. I called on a fsbo sign in front of a large Victorian home. Turns out it had been converted to an 11 unit building and the building next door ( a 19th century hotel converted to 10 units) was for sale aswell. They were asking 750k. After inspecting the property I negotiated them down to 550k. The buildings needed lots of work. One needed a full electrical upgrade from knob and tube. Foundations rebuilt, electrical, plumbing replaced in pex, 3 units needed to be rebuilt, interiors refreshed etc...

The sellers were running a 20% vacancy. I self manage and live in one of the units. My vacancy is close to zero as I get units turned within a couple weeks of them becoming open. I do this by requiring a 30 days notice prior to move out and marketing/showing the unit immediately upon the tenant notifying me. That way I have someone ready to move in almost right away.

Numbers:

PP - $550k

DP - $65k

Seller financing - $485k @5% interest, 20 yr Amtz, 5 year balloon

Purchase cap rate - 13.5%

Market cap rate - 8.5%

Repairs to date - $150k ($80k funded by rents)

Electrical, 1/2 plumbing, 3 units rebuilt, foundations, refresh of 4 other units, built laundry facilities in each building, long list of misc deferred maintenance

At time of purchase,

Gross - $116000

Expenses - $42000

NI - $74000

One year later,

Gross - $156000

Expenses - $42000

NOI - $114,000

Financing - $36912

NI - $77088

Present value - $1.2m?

Not bad

Today is my 23rd birthday. I spent the last year managing various contractors, planning repairs, managing the property, doing a lot of the work myself. I am also an amazon delivery driver full time. I work 70-80 hours per week. Discipline is key. I had to cut out video games and going out with friends to make this happen. I have a few more months of the intense work phase left until the properties are to my satisfaction. Then I will be ready to quit my job and move to the next deal. I started looking for my next deal 2 months ago. I have a strong lead already on a 42 unit portfolio of various small multi/sfh and a few commercial strip malls. Hopefully it works out! If you have any other questions don’t hesitate :)

~LK

Amazing story and good for you!!

@Joe S. If the goal is that you want to be able to step away and have someone else manage it so you can be more passive, what about investing passively in multifamily syndications? 

That way you can continue doing what you know in SFHs and also diversify into different markets and large-scale multifamily, all while partnering with experienced multifamily operators. 

And, through investing passively, you will also get to learn more about the process of investing in multifamily and see if you want to go down that path yourself. 

@Joe S. I love that you’ve found success through SFHs. That in and of itself is a huge achievement and shouldn’t be discounted just because there are so many out there touting the benefits of multifamily and economies of scale.

I started out with house hacking duplexes, then moved on to investing in small out-of-state multifamily 4-8 units.

Then, because my friends and family wanted to invest alongside me, I started to explore syndications and have been able to co-sponsor dozens of large-scale multifamily deals across the country.

I think scaling up to multifamily comes back to your goals and what you’re trying to achieve. It seems that you’re seeing quite a bit of success with SFHs. Is there a certain pain point that you’re looking to solve through investing in multifamily?

I just completed the 1031 exchange from a 4 unit property I owned into an 8 unit property. Next year my intention is to do another 1031 exchange of another 4 unit property I own and use the proceeds to buy another 8+ unit property. Down the line I want to 1031 exchange the 8 unit property into an even larger property. This is part of the strategy I am using right now. The other part involves using cash out refinances and a HELOC to purchase additional rental properties.

I personally don't do syndication or partnerships but I still wanted to expand into multi-family.

@Joe S. Yes, multifamily does have a high barrier to entry. Yet it still seems over-saturated with tons of competition. 

It's all about connections and who you know in the space. Nurturing relationships goes further than anything else. Good deals are acquired off-market as pocket listings from brokers. For the 10-50 units space, you can still market to "mom and pop" owners, but once you go bigger to the 100,200,300+ units, those all trade via brokers. You have a higher chance of finding a true, heavy value add with the smaller mom and pop deals.

Every market, there are about 5 brokers that control 80% of the deals. Find out who those brokers are and network with them. But don't approach them too early when you're not ready.  Be sure you can raise the funds if you are syndicating and actually close. Don't expect pocket deals to start. There's a long line in front of you who have a better relationship with that broker (unless you're targeting under 50 units as not as many people target those).

For the smaller ones (10-30) you can talk to local credit unions or banks, but once you get above $1M loan amount that's not financed through banks. Those will be agency debt (Freddie or Fannie) or CMBS. Loan brokers service those loans.

Another thing I see is those coming from single family are out of touch with today's multifamily market. They come in expecting 10 CAP on a C-class property. In San Antonio and Houston, a stabilized C-class with mild-moderate value add is trading at a "as is" 6.5 CAP. Even lower in Austin and Dallas.

I think your best bet is target off-market 10-50 unit, mom and pop ones, especially now with many tenants not paying during COVID.  

I closed a 32-unit right as COVID hit and still took it from 90% occupancy to 100% occupancy in 1 month (Apr 1 - May 1).
Found it off-market direct to "mom and pop" seller. 25% down payment. Ferddie Mac SBL loan 75% LTC, 10 year term, 3.89% interest rate with 30 year amortization and 2 years interest only payments. Step down pre-pay penalty. 1% origination fee

@Joe S.

We started 4 years ago. My favorite thing to buy is groups of duplexes.

We have 2 side-by-side 4 units (8 doors)

A group of 6 duplexes and one SFR all together in a small neighborhood (13 doors)

A 7 unit and a 2 unit across the street from each other (9 doors)

A triplex

8 duplexes all near each other in a small neighborhood (16 doors)

We are currently n the process of closing on a 10 unit - 2 buildings one with 4- three story townhouses and one with 6 three story town houses and a shared entrance and parking area.

Great share!! If you did all that in 4 years your really moving at top speed.:)

Would you mind describing the way you are financing these purchases?

@Joe S.

Seller financing if your friend in multi family acquisition. You can combine bank/seller financing to lower your barriers to entry. I set out to target tired landlords who are interested in selling but also want to keep an income stream. These people are usually retired or close to it and want to get out of managing their property’s. I look in border towns of major cities as there is less attention from other investors and prices are usually lower. I specifically target 10-30 unit properties because I find that they are usually too intimidating for smaller investors and are not as attractive to large multi family investors. It’s an interesting niche with good opportunity. The hard part is finding these deals. Again they are much more common in border towns ~50-100 miles outside of a major city. Usually these owners are well connected in their city and can be tracked down fairly easily. Ex: call on all the for rent signs, news paper ads, parcel lookup, talk to people on the street...etc. I started 2 years ago with this strategy in mind and purchased a 21 unit last year that fits my description exactly. it works. My barriers to entry were fairly low with 90% seller financing and getting a loan for the down payment from family (you could use a bridge loan for DP if need be).

@Joe S. OK I forgot the numbers. I paid 645k cash for the building; total rents at the time were 74k, or thereabouts. Today the rents are about 106k and we have spent about 25k doing some rehabs. Maintenance and vacancies have been modest and everyone is fully paid up. I had cash from the sale of properties in California.

Buildings with 10-20 units have been very rare in my area and I was looking. The day it was listed on the MLS I drove out and hung around the building getting a feel for tenants and so on. I spoke to a nice lady as she was closing her garage door and got favorable feed back on her experience and she was someone I would want as a tenant. I hoped they would all be like that and they pretty much were.

I did a lot more digging, my agent was able to come up with recent and accurate financials, she called to check utilities, taxes, verified there were no liens. So I decided to make an offer contingent upon inspection of the building and all financials. I wanted the seller to not even look at other offers, so I offered all cash, quick close and only dependent on the outcome of the inspections. Shortly thereafter we toured all the units and systems with an inspector, we took pics, videos and notes etc. 

The seller handed me 5 years of complete financial records, leases, etc. He actually offered 30 years of financials! A few days later we met again went over some items in the inspection report. He took some that we agreed on, fixed them and we had everything re-inspected. 

We agreed on a closing date about a week out. He had all the deposits and advance rents accounted for and I got a check at closing and he got mine and we were done. It all went very smoothly, we went out and celebrated afterwards, and I can still call the seller up if I need any historical information on the building-or whatever. A genuinely good guy.

The seller actually helped build the building with his father and uncle-he was a teenager at the time.

The tenants are all on MTM leases, the building was making money at the time of purchase, but it is making a lot more today. We have turned about half the building in 2 1/2 years; we did some improvements on those units-flooring, paint and appliances-raised rents heavily on those and modestly on the remaining long term tenants. 

The building is 60 years old, very well maintained, 2 story brick construction with UG garages for 7 tenants, the rest park on the street.