All Forum Posts by: Steve Olafson

Here is the example that you asked for.....

So the properties that I look for would probably be next to impossible to find these days.  I have stated multiple times on this forum that I am not buying multi-family right now.  The switch was made to retail strip centers about a year ago.

Let me give an example though.  This is a deal that was purchased just over a year ago while the market was HOT.  I have other examples from a time when the market was not hot that made way more that 100% per year. 

So this is a 24 unit deal in an EXCELLENT location that was not making money for the long-time owner (about 20 years).  It was filled with tenants that did not make a lot of money.  The management company was charging a lot and it was costing the owner a lot to do repairs and maintenance.  I paid 50K/unit and it was around a 5 cap.

The initial rents were $460 for the 1 bedrooms and 550 for the 2's.  The initial goal was to upgrade the floors, paint, counter-tops, clean the outside, raise the rents up to 675 for the 2br's and sell it.  Since that time, I have seen other properties in the area that have had much more thorough upgrades selling for over 100K/unit.  I pulled it off of the market and talked to the investors about adding another 250K to the upgrades.  We are in process now and expect to get $1100 for rents.  Maybe even more.  We also expect to sell it for 110K per unit once we finish.  On top of this, the bank is going to give us the $250K and add it to the loan.

Anticipated proceeds after 7% cost of sale = $2,455,000

Loan outstanding = $1,100,000

Proceeds after loan is paid = $1,355,000

Original investment = $365,000

Anticipated hold time is 2.5-3 years.

This is about 300% after 3 years.

I have other examples of deals that have been completed and sold that were much greater than this.  It takes too much time to detail them all out.  The others were purchased during the downturn and I paid more like 18K per unit.  In some cases there was no money down at all.  Not even for fixup!  It was all included in the loan.

Is that 121% for 5 years?  My goal is usually a minimum of 300%  Most turn out to be greater than 500%. 

One of the problems right now is that these types of investments are too popular right now.  There are just too many buyers.  This makes it difficult to find deals that have enough upside.

I have told all my investors that we are not buying deals until some of the high desirability goes away.

That does not mean that you can't find something that fits your criteria.

btw... Your model here is one that I have been using successfully for years.  You are thinking along the right path for making millions!

Very doable if your projections are correct.  It takes time and effort to increase rents across the board.  You can expect vacancy to occur and people to be upset.  Plan on having some "churn" during the process.

If you can find a deal with a greater spread between the current income and future income, your results would clearly be better.  I tend to purchase properties with much lower cap rates and worse performance but much greater upside.  The drawback to these is finding financing but it is out there if you can show a track record.

I did not look through all your numbers but have a couple of comments.  The cost of sale will likely be higher once all is said and done.  If you are coming onto a property to turn it around, expect higher expenses.  Holding them to 1% annually would be tough if inflation is higher than that.  I usually target 3% growth in expenses.  Rent increases should be in line with your projections for the area.  I would not buy if the market would only dictate a potential for 2% increases.

@Tyler W.

I liked two books.  They are old and the examples are outdated but the information is still relevant. 

How to Buy and Sell Apartment Buildings by Vollucci

The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges.

I certainly agree with you on the apartments vs. retail strip centers.  It seems like the opportunities are slim until you hit the 3M purchase price though. 

I have been selling apartments for the past couple of years and moving to retail as you are aware.

Thanks for your help!

That's funny because in the commercial world cash means that there is not a financing contingency.  Nobody is concerned where the money comes from after that.  They just care that the earnest money is non-refundable after the inspection period.

And you telling us something that we already know makes us foolish how? 

I like this answer because it makes me feel very wealthy. 

At this point in life, I do not need to work at all if that was the choice and could live out the remaining years comfortably.  Can't afford a jet though.  :)

Oh yes, how could I have missed... @Account Closed

He evaluates more large multi-family deals than most of us combined!