All Forum Posts by: Michael Ealy

 You're very welcome Tyler.

How's the Orlando FL market doing?

 Thanks Janice. I also sent you a PM

Yesterday, we closed on this 41-unit apartment deal and netted $627,643.32 in profit (just from the sale). We actually made MORE than that because we've made good cashflow from the apartment building during the time we held it.

Here's the HUD Settlement statement:

Here's the picture of the front of the building:

True No Money Down Deal - No Capital Raised

This is a TRUE "no money down" deal as we did not need to raise private capital or used OPM (Other People's Money). It's a LAND INSTALLMENT CONTRACT (also known as Contract for Deed) with $0 downpayment. 

How Did We Find the Deal

This is a property we found through our relationships/network. We were already managing this property for the owner. We recommended 18 months ago that he increases the rent by about $200/month and we estimated that he needed to spend about $200,000 to improve the units to justify the rent increase. 

Even though he could invest the money, he was hesitant in increasing the rents. Given other things happening in his life at that time, he decided to let us just take over the OWNERSHIP and have us spend our own money in renovating the units ourselves. Of course, we structured it so that, we get the benefit of increased rents by structuring a LAND CONTRACT (this happened 15 months ago).

Through a land contract, it's totally passive for the owner and he does not have to worry about repair overruns. We took on the risks and hassles of ownership as well as its benefits as you can see below.

It Gets Better!

Going into the deal, we really thought we needed to come up or raise the money for the renovation. But, we were able to renovate the units as they become vacant USING THE CASHFLOW FROM THE PROPERTY! In other words, we acquired the building no money down and renovated it without any cash coming out of our pocket as well.

We increased the rents of the vacant units and then took the risk by announcing the higher rents for those with expired leases. We got some tenants to move out but most of them stayed and paid the higher rent especially when they see their improved apartments.

Our Profit from the Sale and Structure of the Deal

As you can see from the HUD-1 Settlement Statement, we received $1,620,947.06 from the sale. Our land contract to buy the deal from the owner is $1,250,000. On the HUD-1, an amount of $256,696.06 was sent to the owner's lender (as he stil has a mortgage on it). However, the owner's mortgage is "wrapped" with our $1,250,000 purchase (land contract). So the math works out the following:

Proceeds from HUD-1: $1,620,947.06
less Land contract: $1,250,000
add back Mortgage pay-off: $256,696.26
equals: $627,643.32 PROFIT FROM THE SALE!

What Did We Learn from This Deal

1.  Importance of Track Record - due to our track record of successfully operating apartment buildings (I've been doing this since 1999 and own 1,000 apartment units today), we were asked to manage this building and then later on, to be its owners. It takes time but the better you become at operating properties, the more deals and money you will attract.

2.  Importance of Being In-Tune With Your Local Market - knowing what your rents are for different bedroom types for section 8 and non section 8 (or market) tenants is key. You have to know which submarkets in your area are hot- that is where rents are trending up. And you have to be willing to increase the rents when justified by the market and your apartment quality.

3.  Importance of Cashflow Management & DELAYED GRATIFICATION - through disciplined cashflow management, we utilized the cashflow from the property in improving the apartment units in order to justify the $200/mo per unit rent increase. We did not pay ourselves for many months - in fact, we only started taking cashflow distributions about 6 months ago when we the property's financial performance has stabilized.

4.  Importance of Having the Right Relationships - aside from getting such an awesome deal from the seller (which is a client who became a friend as well), we were able to sell the property through one of our real estate brokers. We even structured the deal such that the higher the price he gets for the property, the higher the percentage commission he gets - and that's exactly what happened. Even though I am a licensed real estate agent, I let him have the entire $79,500 in commission to sweeten the deal to my broker.

That is BUILDING RELATIONSHIPS - it's not lip service or a pat on the back. It has to affect people's wallets. My broker made almost $40,000 more because I was willing to have him get ALL THE COMMISSION.

5. The more ways you know, the more deals you do and the more money you make. Good thing we know what land contract is and how to structure it. I realized that money is made when you have specialized knowledge and you implement that specialized knowledge creatively and diligently.

Maybe the reason why you're struggling in doing a deal is because you don't know some of these techniques so you're entry and exit strategies are limited.

Hope this helps and inspires you.

If so, reply to this and if you have questions, let's have a discussion here.

 Michael,

How are you man?

Here's my perspective:

1. 100-unit and larger apartment complexes is more efficient than smaller apartments because 100-units or larger can afford a full time PM and full time maintenance personnel. So I agree that 100 units is a good threshold when one syndicates an apartment deal

2. HOWEVER, since you have more competition for 100-units and above specially from institutional investors, the cap rates and profits from big apartment complexes like those are squeezed - you buy them at higher price per unit and therefore your cap rate and over-all profit tend to be smaller (or the profitability coming from the economies of scale is 'canceled out' in some cases)

In fact, what my partner Nate and I found is that we can buy better deals with apartments less than 100 units (but bigger than 29 units to achieve enough economies of scale - so we're getting great deals with apartments 30-90 units).

3. Do you have to start with 100-units + and just be passive if you can't? Not necessarily. It depends on your market, your goals, your skills and what resources you already have or can have access to.

For example, If you're a super busy brain surgeon making $1M a year in income, buying a 10-unit building is a waste of time. You're making $500/hour and if all you make on a 10-unit building is $2,000/month cashflow...and you have to spend 5 hours a month managing the manager of the building - you're actually losing money and it does not make sense. 

In addition, you a busy brain surgeon might not even have that 5 hours a month. Hence, it makes sense for him to let his money make money for him. He invest $1M in a good deal backed by an experienced syndicator, he could easily make 12-15% IRR or $120K-$150K/yr without spending any of his time.

But, if you can devote 20 hours a week in active real estate investing, you have several hundred thousand in cash, great credit, good leadership and networking skills, sure do it yourself. That's especially true if you can find great deals with 10-unit apartments in your market. 

4. To minimize risk with active investing like investing in apartments, it makes more sense to invest with OTHERS who are more experienced and are better capitalized than you.  You want to minimize your risks by leveraging on other people's experience and network. They already know what mistakes to avoid as well as who are the right contractors, property managers, etc to hire. Moreover, successful apartment investors have more cash than you so if the deal needs more cash than anticipated, they can help infuse liquidity into the deal.

Makes sense?

Originally posted by @Remington Lyman:

Background: This was one of the first rental properties I purchased, so I made every mistake underneath the sun and I am still dealing with the consequences. I purchased this quad for $247,000. It is in Columbus, Ohio just north of The Ohio State University in a B location. I put about $30,000 into it and now I have it rented or about $3,700 but now it is all falling apart. 

Unit 1: 1bed 1bath - Tried to raise the rents from $350 but he could not afford it. I vacated it and paid a contractor way too much to remodel it. I have it rented out for $920 now.

Unit 2: Vacant. Got someone in there within 6 days for $800. We were not running background or credit checks and we had to find a new tenant after a few months. We should have stopped when she said she needed time to get the full deposit. We collected all of our rent, but she left some human feces behind that our cleaner had to deal with. We took it from her security deposit.

Unit 3: Raised rents from $350 to $750. I need to raise it to market rent which I think is $920 but I may just leave him for another year. I have too much stuff going on. 

Unit 4: The unit you have all been waiting for!

The Story: My college roommate and I were just getting into the real estate investing game 1 year after graduating college. We had house hacked a duplex and a quad in less than 4 months (we took turns getting the loans). We then took the rest of our money and got an investment loan on this 4 unit.

The 4th unit needed substantial work to get rented to the market value of $1,200. We figured we would offer the current tenant a chance to pay $1,100 as-is. He agreed and paid us rent on time for the next 8 months. When it came time to release, he did for another year. Shortly after releasing, he starts drunkenly calling me about petty things like the tenants putting trash in his trash can. He caused the bottom unit to flood by unscrewing his toilet water valve. Luckily, I fixed it in time to prevent a lot of damage. And now I get the below messages. What would you do? I do not plan to release him when his lease ends in July. How should I break the news to him?

 Sorry that this happened to you.

And to think this is in a "B" area. I've seen crazy things specially when I owned apartment buidings in the "war zones" (F areas) but I've seen bad tenants across different areas (A, B, C, D, F).

As others suggested, you can call the police on him if he does not back down on his threats after you post the notice. 

This is one of the reasons, when I used to manage my properties myself, I tell the tenant I am just the manager (and technically, it's not a lie because LLCs own the properties and most of the time I have partners in those LLCs). I also have a PO Box where the rents can be sent instead of them sending it to my office (for the few who can't pay online).

You have to protect yourself from these "crazies".

Goodluck!

 Hi Thomas,

I am an experienced apartment investor and since I cannot speak for the sponsors you're talking about, I can only speak about my experience and what I am doing.

Just like the other sponsors you described, I have a few big investors who repeatedly invest in my deals. They are the bigger investors who can write $1M checks and I actually prefer it that way.

It's only last year that I've opened the "doors" to smaller investors . 

There are 2 reasons for this.

1. I am expanding not just my apartment portfolio (I currently own 1,000 apartment units) but I am also expanding into hotels. Last year I closed on $100M worth of properties and this year, I want to acquire $300M worth ($150M in apartments and $150M in hotels). Hence, I need more capital. 

2. With the advent of investor-management app (for example, there's a built-in app in Crowdstreet), sponsors can now update/manage/pay hundreds of investors without the need to hire a full time investor-relations executive. The process is more manageable and hence, a lot more sponsors are open to getting many smaller investors vs. a few big investors.

Hope this helps.

The Opportunity
I have formed a strategic alliance last year with a great property management company which now allows me to acquire apartment buildings in 50 cities across the United States. All of my apartment buildings are in Cincinnati Ohio but now because of the strategic alliance I mentioned, I can expand nationwide.

I need "boots-on-the-ground" partners in these cities to help me with acquisition, due diligence, putting the team together, etc.

This is your opportunity to partner with a highly experienced apartment investor and syndicator and generate massive, passive income through apartment investing. I can coach the right person so he/she knows exactly what I am looking for.

BUT Wait...
I can only partner with a few people and with the right people. 

So fill in this survey and if you're one of the few I think I can partner with, I will email you back.

https://forms.gle/11vwV2z7fLc8...

About Me
I have been investing in real estate since 1999. I have acquired hundreds of millions of dollars of apartment buildings. Last year (2019), we closed on about $100M of properties. 

My goal this year (2020) is to acquire $300M worth of properties (apartments and hotels).

To enable this, I formed the strategic alliance I described above.

Cities I Can Buy In
NORTHEAST/MID-ATLANTIC
Baltimore/Washington D.C.
Highland
Milford
Philadelphia
Stamford
West Greenwich

MIDWEST
Ann Arbor
Detroit
Grand Rapids
Lansing
Pittsburgh

SOUTHEAST
Charlotte
Charleston
Atlanta
Savannah
Cincinnati
Cleveland
Columbus
Indianapolis
Louisville
Greenville

NORTH CENTRAL
Chicago
Kansas City
Minneapolis/Saint Paul
St. Louis

SOUTHWEST
Austin
Dallas
Phoenix/Scottsdale
Dallas
Phoenix/Scottsdale

The answers you've received so far are GENERALIZATIONS and per every general statement others have made, I can cite examples from my and other syndicators' experiences that will contradict those generalizations.

"A" apartments in "A" locations are bought for a premium because they are newer (20 years old or less), have lower (and more predictable) repairs & maintenance (with little to no capex for the next 1-5 years) and therefore gives a more predictable yield on investor capital. Because the risk is small, investors are more than willing to pay low cap rates (and their CoC return is low as well).

Having said that, I bought 2 apartment complexes last year in "A" areas of Cincinnati. One is in Wyoming and another in Mariemont. They BOTH cashflow nicely - comparable to "C" properties.

How come?

It all comes down to the deal.

In both situations, the previous owners did NOT increase the rents as they should have done. We can increase the rents by $100-$200/month even if we don't do anything. However, we decided to improve the apartments as they become vacant and by doing so, we are able to increase the rents by more than $300. In fact, in both cases, we can increase the rents by as much as $500/month and we plan to do that over the next 2 years or so.

We also look at other ways to look at these "A" deals to ensure we're getting the highest and best use of them. For instance, in our Mariemont deal, we're exploring condo conversion since the units are townhouse in style and there's also an extra lot to build more apartments. Just the condo conversion alone will result in us being able to sell the condos for $24-$28M (our purchase price was $10.3M and renovation is about $4M).

So although we did pay a good price for it (we paid 6% cap), the right deals in A areas can:

1) cashflow; and

2) produce a great return on investment

 These are great questions Rhett.

1. What I tell my investors - I tell them the projected exit but I also tell them a back up exit strategy (usually refinance and keep). Again, I want them to be prepared for the worst. Most of the time, my investors really don't care given that they make money whether we exit early or we exit later than expected.

2. Yes - this will work on new build but it all depends on how good the deal is, the location, etc. Done right, new builds can be very lucrative and can deliver project IRR of as much as 50%.

3. As far as being in an OZ, to be honest, I don't really focus my investing strategy on it. @Greg Dickerson might want to chime in about it.

 Hi Eric,

I don't have one set up yet although I've looked into it in the past. Instead of me hi-jacking this thread, I will reach out to you. Thanks!