Posted a couple years ago about building a portfolio on the side.
Just sold a 22 unit couple last month in the midwest. Thought I'd provide an update. Might be some haters, but fuck em, I'm out there getting it done and I value transparency. Lots of grifters who don't know the difference between NOI and FCF.
About the asset:
22 unit, late 60's vintage in tertiary suburb in rust belt city.
Nitty gritty numbers:
Acquisition + reno = ~$1.3mm
Sale price = $1.47mm
Capital raised = $400k from F+F
Net proceeds ~$80k
Cash on Cash = 20%
Rent roll at acquisition ~$11k/month.
Rent roll at sale ~$16k/month
NOI post acquisition ~$5k/month
NOI T-3 @ sale ~$11k/month
Cap rate 8.9% going-in.
Renovated 6/22 units. Prev ownership renovated 14/22. Spent about $7k/unit on renovation.
Why we sold?
Capture equity gains + return investor money + build track record
Happy to answer any questions.
To date, we've bought about 45 units. Currently selling all of my properties + looking for 50-100 unit properties in Tier 2 cities in B- areas.
Thanks for sharing this!
Do you mind sharing how you got into real estate investing? Did you have a career in real estate before starting to invest yourself?
I worked for a top REPE firm and interned for brokerage. Figured I always wanted to own property so start small and contain risk with "cheap" multifamily properties.
Congrats.
How did you manage the asset (I’m assuming from afar.)
How was it owning a 1960s vintage? How was the deferred maintenance and how often did things break that you didn’t expect?
It sounds like you did an amazing job driving NOI. How much did cap rates expand during your hold? What drove the exit price you achieved?
Thanks – we had full time PM that also helped execute renovations. We'd been through 3-4 property management companies and it's great to find someone that works.
1960's was the "newest" we'd owned. Stuff broke and we had some issues with a boiler, but overall, wasn't too bad. I wouldn't hold this asset long term and am trying to buy newer (late 70's or early 80's).
We bought it around a few 9.5% going in and sold it at 8.8%. Market cap rate for this type of asset was probably around 8.5-9% selling. We created a new comp for this zip code when we sold.
Had 2 offers that fell through for 1.515mm.
Thanks for all the info!
What hold period/IRR/EM did you originally project? Besides cap rate moving, what else really went wrong? Sounds like you did a lot right increasing the rent roll.
Congrats.
How do you balance this with work? Or have you quit your job and this is now your full time job?
If you're still working, what are your hours?
And if you don't mind me asking, how much cash did you have saved before you dove into something this big?
It's not too time consuming if you have full time property management and send monthly reports to our investors. We email + text + call our PM and that doesn't take up more than a few hours per month.
I'd done a few deals before this, saved up about $100k between both of us.
Good job escaping unscathed from this. I'm assuming cap rates expanded which destroyed a lot of your value add work. Looking at the final numbers, risking 400+k to make 80k in proceeds doesn't seem worth it considering the risk involved with a older vintage asset in a tertiary market but great work regardless. Despite rates skyrocketing you had a successful exit. I'm curious as to what was unexpected with executing the business plan that you would watch out for on your next asset? ( besides rates going up) ?
100%, was a lot of risk for $80k. Wasn't worth it for the net dollar amount, but rather the experience + track record. Could have made more money in PHX or Tampa or Orlando but I like steady markets, not boom and bust.
Before cap rates rose, we probably could have gotten $1.6mm for this asset.
Rates rose, but also 60's construction was starting to show its age w/galvanized piping. Our insurance premiums didn't go up as much as FL, AZ, TX and property taxes remained steady.
I want to create track record + learn lessons in smaller markets and make real money in tier 2 and tier 1 markets eventually. Sam Zell started in Ypsilanti, MI and ended up making a ton of money in T1 and T2 markets.
Thanks so much for sharing! Curious as to how you found your deal? I'm looking to get started on small (5-12 units ideally, but open to 2-4 units) multifamily properties in my local market. I've got plenty of dry powder from my own savings and from my network, but the main problem is finding anything that even remotely shows an acceptable CoC return with current rates. I'm planning on doing some direct mailing and possibly cold calling and also reaching out to some brokers in my area. Any advice here on how to proceed? Much appreciated and happy new year!
I'd been working on deals with a broker. We'd done a few deals together so he knew I could close.
I hired a cold caller from Pakistan and we found some leads, but they didn't go anywhere. Reach out to as many brokers as possible in your market. I'd go on Loopnet and find the ones with most of the listings. I also hired a guy off upwork to find all commercial brokers and emailed + called most of them.
Did you face any issues of tenants not paying rent? If so how did you deal with it? I know laws in certain regions make it difficult and time consuming to evict, did you have to deal with that at all?
If someone doesn't pay rent, we evict them. Midwest states are generally more landlord friendly and have shorter eviction timelines.
Congrats, and thank you for this post as well.
Curious as to how your equity was split with you and your investors when you sold the asset.
What did your "waterfall" look like? Did everyone get an equal split relative to what they put in? Did you have "promote" of some sort for being the operator?
Equity splits are dependent on how the agreements are structured. I've seen some with 70/30 split with 8% pref with GP puts in 10% coinvest.
We did 80/20 no pref, straight split. Cleaner for our investors to understand and put in money. For the LP side, it was a % of capital contribution. GP put in 50% of allocation + guaranteed loan and got LP shares too.
Hope that helps
@OP Now that you are looking for 50-100 unit buildings in Tier 2 cities/B- locations, what is your due diligence process looking like to find your next project? Always curious to hear what the driving factor is to make an investor pull the trigger on a specific property.
DD is the same... just network with brokers and look for markets that have heavy capital investments from companies and buy in their suburbs surrounding that.
For property DD, it has to be 1975 or newer, renovated or have some capex done (ideally not cosmetic), and B location.
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