I apologize in advance, this is going to be a little long. I hope it’s worth the read!
I've seen many a success story on the forum that was pretty impressive… 100 units in 2 years and such. My story is a little more modest. I have taken a slow and steady path, while also remaining successful in my "other" career (software). I bought my first investment property in December of 2013. It was a 2 bedroom, 2.5 bath condo near the Domain area in Austin, TX. I had around $30K in cash to cover the down payment, closing costs, and any rehab necessary. I found this property by reaching out to property mangers in the area, and eventually finding one that would work with me. The condo deal was a right place, right time kind of scenario. We got it for a steal at $92K, and we put around $10K into it. The property cash flowed around $250/month. We held it for 3 years before selling it and completing a 1031 exchange (more on that later). That property provided us with a 50% IRR (I have the Austin market to thank for that).
A couple years after purchasing the condo, we started looking for our first duplex. By now (2015) it was pretty difficult to find a deal worth buying in the Austin market. Investors had bid up the price of small multifamily, and not much was cash flowing. After about 6 months, we found a duplex where the numbers worked. It wasn’t an amazing deal, but it was the best we came across, and it cash flowed. On the bright side, I have had the same 2 tenants in the property since we bought it (no vacancy!). On the downside, rents have been flat in the area, and property taxes have been screaming upwards.
After closing this deal, I knew it was about time for a change in strategy. I was no longer going to be able to find decent deals out of the MLS in Austin. I began to look at out-of-state investments, as well as considering other strategies. I ended up finding a local partner off of BP, and together we were able to find a distressed duplex, and we put about $60K into rehabbing it. I brought all the capital, and he did all the work. He also manages the property. Since I don't have to pay for management, that duplex cashflows much better.
Back to the 1031 exchange. When our first, and only, tenant decided to move out of that condo, we decided it was a great time to sell. We were able to sell that condo and purchase 3 SFR's in KC, MO with the proceeds. We tripled our monthly cash flow by doing this. We worked with a turnkey company in the area to make this happen. I talked to a few different companies before I found one that worked for me. I have since acquired one more SFR from them.
At this point, after months of consideration, I arrived at the conclusion that residential properties did not scale the way I wanted them to. The financing becomes difficult, and I would have to acquire many, many individual properties to achieve my goals. I knew it was time to start looking at multifamily properties. I was not in a position to buy an apartment building with only my own capital, so I reached out to a few old friends who were into real estate, and pulled together a partnership with 3 other partners. We targeted the Cincinnati, OH market. I lived there for 31 years, and 2 of my partners are there. The market is much more approachable than the Austin market, and there is solid growth and development happening there.
I jumped on loopnet, and started finding brokers to call. Eventually I found a deal that we were pretty interested in. We ended up submitting an LOI, and having it accepted. There were several other interested parties. We came in around $15K above asking, but another buyer came in after our LOI was accepted with a higher offer, and the seller signed a PSA with them before telling us they had another offer. We were pretty shocked by that, but an LOI is non-binding. After that happened, the listing broker felt like they owed us. We continued to work together, looked at several other deals, and made a couple offers. We just weren't able to get a signed PSA. Finally, a year after I pulled the partnership together, we found the deal we were really looking for. It was 15 units, in an area that had been on the upswing for several years, with room to grow. That deal ended up being an enormous pain to get closed (because of the seller). We almost walked away a couple times. We managed to get it done, though, and we closed in June of this year. We have been executing the business plan - rehabbing and increasing rents. The project has been going well.
A couple months after closing on the 15 unit, the broker brought us a pocket listing that he had just come across. It wasn't in the best area, a C class neighborhood, but the numbers on it were great. It was 17 units, and the property was in pretty good condition for the area. I can't say all the units are in the best shape, especially those that have had long term tenants, but that's OK. By my underwriting, the property had a 17% CoC return on the actuals at close. You don't really find that much anymore. We closed on that property this week.
Right now we are putting a plan together to syndicate our next deal. We have had several friends, colleagues, and family members express an interest in investing. We will be targeting a $3 - $4MM deal, with a $1 - $1.5MM raise. This is a whole new learning curve, especially having to deal with the SEC and securities attorneys and all that. We are looking forward to taking the next step in our investing careers!
