How I Transformed My 10-Unit Apartment Building From Financially Failing to a Stabilized Asset


The primary function of a human brain is to learn. The progress — and indeed survival — of the human race depends on it. In spite of us real estate investors not exactly being the best and the brightest of what humanity has to offer, we too are hopefully capable of learning. Well, most of us anyhow…

Today, I am going to tell you a story of how I’ve succeeded in one battle, but having done so learned that if I continue fighting in this manner, I will undoubtedly end up losing the war. They call it falling forward, and I am particularly good at that.

Symphony 10-Unit

This is a story of one of my acquisitions. Those of you who have been following me for a couple of years must remember an article I wrote some time ago titled “How I Bought a 10-unit with 1.5% Down – A Case Study,” in which I described the circumstances behind my purchase of a 10-unit building in 2013. Please read the article for full details.

Here is a brief synopsis:

Symphony is two 5-units sitting next to one another. It’s in a subdivision, which lies in one of the two most desirable school districts in my town. The subdivision is not too old, having been constructed in the ’80’s. Ninety-nine percent of all dwellings in this subdivision are SFRs, with only a few other apartments in a duplex/triplex configuration.

The buildings themselves are 1980’s vintage. The units are all quite large 2-story townhomes. Four units out of ten are 2-bed/1.5-bath, and the rest are 2/1. The units are all-electric and are sub-metered. The water service is sub-metered to each unit as well. The sewer and garbage are billed to the owner.

Related: How to Buy a Small MultiFamily Property: A Step by Step Case Study

The condition of the buildings at the time of purchase was just OK; there were no crumbling basement walls, no broken windows, no 2-foot holes in the wall. I thought that there was about $15,000 – $20,000 of delayed CapEx in total, and my plan was to resolve all of it over the first couple of years by basically re-investing the cash flow. All of the units were full and leased-up on 12-month leases.

I thought that I was plenty conservative in my underwriting of Symphony. In fact, this was my most conservative underwriting to date. My underwriting resulted in an eventual purchase price of $373,500.

My financing package included an institutional portfolio note for 70% of the purchase price, as well as a private note for 25% of the purchase price collateralized with a blanket. This left me having to come up with 5% — the commercial lender insisted that I have some skin in the game on this one even though they knew that it’d be nothing for me to finance 100% same as I always do. I agreed, mostly because having done the math, it became clear that after all of the pro-rations and credits, I needed only about $5,000 out-of-pocket to close.

Thus, I purchased a 10-unit for $373,500 with 1.5% out of pocket… close enough to nothing down, I thought.

What About Cash Flow…?!

The cash flow, according to my “very conservative” underwriting, was to be about $1,000/month ($100/door) with my financing package in place. However, the reason I bought the building was because I saw some ways by which I thought I could push that number up to $1,250 – $1,500/door/annum – that was the plan…

2013 – Year 1

I bought Symphony in February of 2013, and as such, I had owned it for 11 months in that calendar year.

Question: How well do you think I did?

Answer: When I did my taxes that year, it became painfully clear that although I hadn’t lost money, I might as well have. Indeed, $3,000 was all I cleared on Symphony in 2013. I spent over $15,000 on CapEx right out of the gate. I encountered more evictions than I anticipated or had underwritten, which came with many more months without rents coming in than I’d thought would have been possible.

As it turned out, I wasn’t merely re-investing cash flow that year at all; indeed, I was borrowing from myself, and then slowly getting paid back, and while the building did pay me back in that first year, I never want to be on that roller-coaster again… extrapolate that!

In the middle of all of this, I remember doubting myself and my decision-making process as it relates to underwriting and real estate in general. I remember telling Patrisha, Why do I even bother…?! Granted, any time we buy a destabilized asset, there is an expected period of hard work and financial strain. But once this heavy lifting is done and the asset is stable, which in my previous experience had always been 3-4 months, the cash flow becomes much more stable, predicable, and passive. Eleven months into this deal, I was starting to wonder whether Symphony was going to ever turn the corner into behaving as a stabilized asset.

Thankfully, it did…

2014 – Year 2

Following last year’s fiasco, I put in place some rather rigorous tracking. I hadn’t realized how poorly the building had performed until my CPAs prepared our taxes. There was a lot of money flowing in and out on a monthly basis, and it “seemed” like I was doing better than that. I knew that I was working hard and invested a lot of my floats into the rehab, but I had no idea until very late in the game that year exactly how poorly I had managed this process.

This was not only unacceptable, but it was stupid! After all, we buy real estate in lieu of other investment vehicles specifically because it puts us in control and allows us to respond quickly to the realities on the ground. I completely missed the boat on that, and it was time to change my systems!

Nowadays, in the beginning of each month I check the trailing financials for the previous month and year to date P&L — for every property. I know exactly how every property is performing, how every unit is performing, and why. And from this, I am able to understand in real time which crucial changes are necessary. I am able to be proactive!

Current Financials

I can tell you that T12 P&L in 2014 sits at about $12,500. I went from $3,000 to $12,500 — not bad. The building is full with paying tenants. I haven’t had a delinquency in 6 months. Symphony is finally starting to behave like a stable asset.

The NOI in 2014 — and I am including all of the CapEx in that figure — sits at about $42,000. Further, there are a few points to note here:


Having spent more than $15,000 on CapEx in 2013, this year I spent $7,500. I am definitely moving in the right direction relative to getting control of the deferred maintenance, but I am not there yet. The stabilized CapEx on a building like this should not exceed $400/door/annum, meaning that once Symphony is fully stabilized, I should not need to allocate more than $4,800/annum for CapEx.

I am going to be conservative and project being able to operate Symphony in 2015 with $6,000 of CapEx, and if so, I should see the cash flow increase by about $1,500 relative to 2014, bringing it to about $14,000. This should also drive my annual CapEx-inclusive NOI to $43,500. And I do think that those are achievable numbers in 2015 relative to CapEx.

Gross Potential Rent

From looking at my T12, I know that I’ve left at least $3,000 on the table. I know which units are at fault, and I know why. More importantly, I am pretty sure that I can fix it, at least to some extent. I am going to assume that I can pick up 50% of that in 2015 — $1,500, which will further improve my annual cash flow to $15,500 and the NOI to $45,000.

Segue: Not that it matters much to this conversation, but NOI of $45,000 justifies a value of $450,000 at a 10% Capitalization Rate. I bought Symphony for $373,500. My current outstanding debt against Symphony is about $355,000. This means that I can stick almost $100,000 on my balance sheet — just an added bonus to go with the cash flow…


I financed Symphony, as you know, at 100%. The cost of the second-position note is about $700/month ($8,400) year. It’ll take me some time, but I could pay it off organically, at which point the entire $8,400/annum would flow into the cash flow. However, while this is doable and represents one exit strategy for paying off the private note, this would require substantive re-investment of cash flow, and due to time value of money, I would rather use this cash flow in other ways. And it looks as though I may have a better option.

I’ve been offered to refinance the building at 80% LTV, and have received a soft approval contingent on an appraisal. My financials, as well as the financials of Symphony, have gone through the entire underwriting process and have been cleared, which means that if Symphony appraises for around $450,000, which I obviously think that it will, I’ll be able to wrap all of the debt into one permanent loan. This will bring my outstanding balance back to where I started 2 years ago; perhaps $360,000, which is $5k more. But because the interest on the current second is substantively higher than the new note would be, I’ll actually lower my annual debt service by about $1,500+.

This $1,500 should find its way to my cash flow, potentially bringing the cash flow to $17,000 in 2015 and the NOI to $46,500. Thus, this is the goal for next year’s Symphony’s performance — $17,000 of cash flow. Granted, this is the best case scenario, and I have to do things right, but at the end of the day, it is achievable. I can’t ask for more; the execution is on me!

I’ll circle back next year to report on how well I did.

Lessons Learned

After having worked very hard and very smart for 2 years, I have not have reached my original value-add cash flow of $150/door/month. Seventeen thousand dollars, even if I can pull it off, will only be $141/door. There is a good reason for this failure to achieve my guidelines — LISTEN UP:

I did not underwrite the deal conservatively enough!

Last week I commented on Brandon Turner’s article entitled “How to Accurately Estimate Expenses On a Rental Property in 3 Easy Steps.” My comment contained a list of items that he “forgot” to include into the underwriting model he teaches you. His model is the same model I used for Symphony, with one exception – mine was more conservative. My final litmus test on any small-midsize multiplex has always been that it must cash flow $100/door under 100% leverage. This test is not something Brandon’s model accounts for, which makes it less conservative.

(Note from Brandon:  Since I’m too lazy to write an entire post in response to Ben’s post here, and since some folks don’t know Ben and I are great friends and he likes to pick on me, I thought I’d respond a few times throughout this post.  So, for starters, Ben is right – I don’t want $100/door under 100% leverage. I want $200, preferably. So, Ben, who’s  the conservative one now! 🙂 ) 

However, having lived through 2013 with Symphony, and having experienced the growing pains of 2014, I hereby declare that even $100/door under 100% financing is much too loose. Line items, such as Loss to Lease, Bad Debt, Concessions, and many others, indeed represent real dollars that could be in my pocket had I accounted for them in my underwriting, but are not!

Related: No Money Down Investing IS Possible: A Message to Naysayers & Skeptics

I’ll give you one example:

Loss to Lease

My handyman expressed a desire to move his family into one of the units on Symphony. Apparently, as he was finishing the remodel, his wife came by to drop something off and loved the unit. We’ve been working together forever, and he has always done good work for me. And besides, the process of stabilizing Symphony benefitted greatly from having me (through him) on site… extrapolate that!

But he asked for a small discount, and I gave it to him – about $1,200/year off of the market. This is $1,200/year that I could be making on top-line revenue, but I am not — it is a Loss to Lease (or non-revenue unit %, depending how you underwrite it).

Now, if you assume Gross Potential Income relative to the schedule of rents being $73,800, what percentage of that is the $1,200 that I am not getting due to this discount that I give my handyman?

Loss to Lease = $1,200 / $73,800 = 1.6%

Thus, the Loss to Lease due to this unit is 1.6%. Furthermore, there are still a few units where rents should be higher. My true Loss to Lease on Symphony is still running about 4%. I would have been well-served to assume that this would be the case in my underwriting, which assumed a value-add cash flow of $150/door!

And this is just one example of a very real cost that I did not account for in my underwriting for Symphony — I’ve learned! Brandon, when will you learn? And guys, which one of us are you going to follow: Brandon, who responded to me that just ’cause you’re buying a 4-plex and not 140-unit, you don’t need to worry about little things like costs of operating the building, or me, when I tell you that it doesn’t matter if you’re underwriting 4 units or 140? Operating costs of income-producing property are what they are, and not accounting for them is akin to sticking your head in the sand, while not knowing what all of the cost are is even worse. It’s plain stupid, and the fastest way to work too hard for too little, as I’ve had to on Symphony!

Learn from my mistakes!

(Note from Brandon, again: Oh, Ben, Ben, Ben. The funny thing is – we agree on this stuff almost 100%! I know you just like to give me a hard time, so let me clarify. Yes, I agree trying to analyze “Loss to Lease” on a 4-plex is a waste – because you shouldn’t have any (no resident manager needed on a 4-plex). If you do, you simply plug in the actual numbers you’ll be getting, not a hypothetical number that you use to analyze a large property. Loss to lease on residential is a non-issue.  OR you do as I do and include “loss to lease” as part of the cost of property management. When you analyze deals on a small scale, like your 10 plex, you did not include any calculations for property management. This is why you run into the trouble – because a property management fee would include loss to lease on a small scale like this.  And as for other operating costs – I think I accounted for them all and I made it very clear that every property has different numbers so it’s imperative to learn what the operating costs will be for the specific property you are buying.  Nice try, Ben! In the end, we both calculate these deals the same, we just lable things differently! But alas, you just like to ruffle my feathers! Well… we’ll meet again soon… 😉 ) 


I succeeded while failing with Symphony — I’ve won the battle, but I have realized that I will not win the war if every battle I fight is this close. I’ve sustained too many months of close calls in the first year, and in the process I have realized that in order to have longevity in this sport, I need to underwrite my deals to an even higher probability of success with a higher margin for error… ponder this, guys!

I am not happy with the privilege of owning real estate — not unless it makes me rich, and while Symphony was necessary and good enough as a learning tool, it is not how we get rich in real estate.

And then there is this: I work with private capital, which necessarily means that people trust me with large amounts of money. As a syndicator, I have to be able to project with a reasonable degree of accuracy the investment returns for my investors. As such, a swing of 3% makes a huge impact, and I would rather be too low than too aggressive!

Symphony is the best deal I’ve ever done, but it’s not nearly as good as the next one I’ll do! I’ve changed, my underwriting model has changed, my acquisition criteria have changed, and my outlook on investment real estate has changed as the result of Symphony.

BiggerPockets readers: Learn from this!

Have you been in a similar situation, and if so, how did you turn your property into a stabilized asset? Do you agree with my plan of attack outlined above?

Let’s discuss in the comments below.

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.


  1. serge s.

    Good work Ben! This level of detail should help the small multifamily investor understand the inner workings of these type of deals. Where I lose you and Brandon is your desire for $200 per door with 100% financing. I doubt you could get $200 per door with 70% financing let alone 100%. I also want $200 per door, actually I want $500 per door:) Unfortunately, the market doesn’t care about what I want when there are guys that get excited about a proforma 7% cap rate. Essentially what your saying is your looking for a deal that may have existed in 2010 but certainly doesn’t exist today. As such, I doubt you will be an active RE investor in the short term. I know that this is fine with you. I see the point of your story a bit different. Your essentially saying that the multifamily segment as an investment is not viable unless you can achieve nearly $200 per door. As this simply doesn’t exist, your premise here is that multifamily investing is not a viable/profitable asset class today. I would agree with that premise.

    The bigger question then is who are all these buyers flush with money buying with 25% downpayment at fictional 7% “proforma” cap rates? How long will it take for them to get hurt and how much pain can they withstand once they realize they invested at peak or near peak? That will be the time I will once again be interested in multifamily. As for today, I’d rather speculate on future contracts in oil or the default of the Russian Rouble. Now that’s something to get excited about. $100 per door with self management … not so much.

    • Ben Leybovich

      Seryga – spekuliant…hahaha 🙂

      I haven’t done a deal since 2013 – it’s not cause I haven’t been looking or wanted to. I am sure there’s a seller somewhere who needs to sell, but in general I am with you – multi-family is crazy right now. Small is OK, but mid to big is no go…

  2. “The primary function of a human brain is to learn.”
    -Says who?

    No, Ben, many functions could be called “primary functions of the brain,” but NOT learning. You can say homeostasis is the primary function, I would even take “body’s motor function,” since a large part of brain is controlling it. But “learning” – sorry, can’t take it. It’s one of the functions, but not it’s primary. This first sentence pretty much spoiled the whole article for me.

  3. I was able to ignore the first sentence and read the rest.

    A question: Ben, do you manage your properties yourself? I couldn’t figure it out, is your handyman is your manager too? And I thought I have read that you meet you tenants and do the screening. If your answer is yes, how much do you pay yourself for the management?

  4. Ben – I enjoyed the article and how it walked through the history of this deal.

    The article states that a $1,500 reduction in debt service would flow through to CF and NOI. Can you give some more details on how the NOI would increase through lower debt service?


  5. Based on your estimate of $5k out of pocket to close:
    Year 1: 60% Cash on cash return
    Year 2: 250% Cash on cash return

    I fail to see the issue here? Is $150/door low? Depends on who you ask (for me, yes). However, would your $5k have done better anywhere else? I highly doubt it.

    The title to this article is misleading for sure.

    • Ben Leybovich

      Hey, Rob. I didn’t write the title – that was all Brandon, who hijacked the article. And as to fail or not, I failed in my underwriting guidelines. Is the deal good enough – sure. Can it be better – yes.

      Thanks so much for commenting, Rob!

  6. Suzie R.

    Thanks for sharing your lessons on the Symphony deal. It’s very timely for a newbie who is facing potential cash flow problems on her first investment. I’m looking forward to getting an update on your plan in 2015.

    Makes you wonder if one can ever be too conservative.

  7. Brandon Sturgill

    Ben, good article…if you are still monitoring this, I have been wondering about the CapX ever since I saw this building and now see the complete financial picture. As a rehabber, my business is dependent on near perfect rehab costs (known as deferred maintenance to a buy-and-hold guy)…my impression with the buy-and-hold guys is that they buy for numbers; I see this as a chink in the armor (so to speak). Do you see a need to enhance your ability to more accurately assess initial CapX? And do you think that rehabbers that learn to underwrite commercial or small multifamily have a distinct advantage when acquiring property.


    • Ben Leybovich

      Hey Brandon,

      Yes, CapEx killed me in the first year. Yes I planned a lot of it out. Yes, I was prepared for a good fight. What I was not prepared was the speed! Having to do $15,000 of Capex is one thing, but having to do it with 30% vacancy 9 months running is something I did not plan on…

      It’s the vacancy, man 🙂

      • Deanna Opgenort

        Have you figured out why you got blind-sided by the vacancy factor on this one? Was it having to evict more tenants than expected? Longer to rehab units than expected? Underestimating demand (variations on this theme include “rent too high” or “too few good tenants avail in that market”).
        BTW, I think while you seem to look at the $100/mos discount for the handyman as “income lost” I’d be more inclined to put it under “problems avoided” and “damage prevented”.

  8. Keith K.

    Brandon S., good points. In my study of buy-and-hold as my preferred approach, it seems like I need to know how to find deals like a Wholesaler, know how much work may be involved in fixing the place up (forcing appreciation) like a Rehabber/Flipper and, on top of all that, know how to run a good rental business like a Landlord. Did I pick the most difficult of the REI strategies?

  9. I am working on a small apartment deal myself. I have concluded that I am not concerned with the cash flow because I have stable income and I would like to have this asset paid off in 15 years when I plan to retire. My deal is not cash flow negative but it is definitely not 100/door. Also, the building is 5 years old. What are your thoughts about this strategy for retirement.

  10. Ben, I really appreciate it when someone takes the time to run through numbers.

    When you look at a deal with deferred maintenance, do you put together a maintenance / reserve study, or pick some % based upon experience and hope it averages out? Even with my smaller multi-family properties (all of them fix-n-hold), since I was remodeling, I went the extra mile to break it all down. I have never seen how the cap-exp has anything to do with the current income (I see so many people put things at XX% of rents).

      • Kirk R.

        If you had two choices – do the deal as it happened or not do the deal at all. Would you do it or not?

        I wish I would have gotten a better price on my current place. But, I’m not sure whether I would or wouldn’t do it again. If I knew how hard many of the things in life I have done were going to be, I probably would have not done many of them. But I am kind of glad I did them now that they are over.

  11. Frankie Woods

    Great article Ben. Thanks for sharing and illustrating that sometimes, especially for us newbie investors (e.g., me), our great plans do not always turn out as expected. This is compounded by the fact that a lot of newer investors will “force” the numbers to make them “work”. Can you imagine the pain that would have been associated with this property if they weren’t as conservative, which initially I thought was a little too much, as you had?

    I’m glad that you have made substantial progress on this property. As usual, I learned a lot! Can’t wait for more!

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