254 Unit Complex as My First Deal, any advice?

Question

I am looking for constructive advice on how to get this deal under my belt. I know it's big but these type of deals keep comming up and I see alot of opportunity here. I am in Houston, TX and the property has a existing loan on it that I can assume. I am a buy and hold type of investor so the prepayment penalty means very little to me. I will hold on to the apartment complex for at least as long as the penalty exists. I'll need about 2 mil to get my hands on the asset and I can increase it's value by at least 2.5 mil in 3 months. I know this equity will not be immedaitly availble to me but the extra cash flow will help me pay down the debt that much quicker. I know if I can get this deal out the gate my investing career will be on the fast track to success.

I have VERY Little money and just below fair credit. I am interested in working with partners and private investers.

Account Closed · Answer

Thomas;

I commend you for going big on your first deal. Actually, in many ways going big is easier because you can surround yourself with many qualified professional and assemble a team that can make-up for your lack of experience and add credibility to your project.

Challenges:

1. Assumability does not mean you do not need to qualify. Your financial condition may impede your ability to have the team qualify.

2. Sorry, but a $2M bump in 90 days is not the kind of thing that happens on a project this size. Assuming that you your $2M is 20% of the deal, then a $2M bump would mean one of the following:

A. NOI has to increase by 20%

B. Assuming expenses stay the same (big assumption), the Rent across the board needs to be raised 10% and collected. Not likely without major turnover. Additionally, most leases run six month or longer so raising them is just not possible.

C. If the property is in need of major rehab, then are you saying that the $2M includes the purchase and rehab?

D. Your strategy is flawed with respect to value creation.  If the property has a yield maintenance or prepayment penalty, then increasing the value will not result in a realizable gain in the near term via a sale or refi. If your strategy is to create cash flow, your rapid rise in rent would most likely be detrimental in the short term. Well managed properties usually do not have radical changes without a very strategic long term plan in place. If the property is being mismanaged, then your turn around will be much longer and costly. If you are going to hold, focus on the long term value creation. If you really can double your money in 90 days, you would be a fool not to cash out.

Do not take my comments as negative, I am all for you succeeding in this deal. What you need is to understand is the dynamics at play. Multifamily and projects like this require the ability to look through the problems and truly understand the market conditions and what investors are looking for. Much of your comments and those of others above come from a single family mentality. In this deal, the sole focus is on revenue. Your plan of action to get investors on-board is to layout a plan that is realistic on how revenues are going to increase.

Knowledge is power, I would suggest that you first assemble a team consisting of a property management company, accountant, lawyer, engineer, and merchant/mortgage banker to help you do ANY deal. Then go find the deal. Closing deals like this is as much about managing the process as finding the deal. Those with 20 years experience have these teams and whether you are just starting out or doing your 10th deal, the mechanics are the same.

"When you are going through hell...keep on going..". Winston Churchill

Jim Keller · Answer

Thomas

I know product like that is very specialized,  I haven't any experience at that level.  What I would recommend is you partner with a pro, or even wholesale to one.  I see people asking for multi unit deals in your state all the time.  I would think just getting a chance to meet with a few of them would be a step in the right direction.

In my experience if your having a hard time getting support when the profit potential is over 2 million....... Your missing something, some detail.  Get a seasoned veteran involved, If you found one 2 million dollar deal you will find others.

Good luck

Ahmad H. · Answer

I am all for going big but you might have to slow down a little bit. Try to get a 20 to 50 unit and then build experience and wealth to scale bigger. Unless you have tremendous experience and a network of wealthy private investors, I do not really see this going anywhere.

Is this a pubic or off market deal? If its off market have you considered sharing the deal with an investor that can handle it for a finder's fee?

Derek T. · Answer

Thomas too much.   No funds + no experience + below average credit = not a good idea.  Start small,  learn the industry then grow and scale. If you want to do something with this then find the buyers of large apartment buildings in the area and present it to them for a finders fee. Make sure you have the property locked up before you do.

Account Closed · Answer

@Thomas Usher

with no experience, how do you plan to raise the value of this asset by $2.5 million in 3 months?  What is your game plan?

Alberto Camacho · Answer

A deal of this size relies less on credit rating and more on liquidity, experience and creativity. If you want to go big I'd recommend joining a syndication with a seasoned investor that is open to showing you the ropes. You'd be passive but it gives you time to grow your funds while you build your experience.  Work your way up from there and you'll have your own 600 unit deal in no time.

BTW a syndication could be done with the deal your looking at right now. A deal of that size needs capital to keep it a float when a surprise hits. Find yourself a lead and you'll be on the fast track.

Christopher Brainard · Answer

@Thomas Usher

Hi Thomas and welcome to BP.

I have to agree with the posters on this thread, when you're first starting out, you really need a couple deals under your belt to understand the ins and outs of the business. A deal of this size will require great knowledge of management of large scale commercial assets, which I don't think is a 'learn as you go' type of thing, especially when you're using investor's money.

With that being said, I'd recommend that you post your calculated value based on income, list all the expenses you're aware of, vacancy, condition of the property, etc. I'm sure there are many people on here who would be happy to chime in on the juiciness of the deal. It may be a gem, but it may also be a dud when you take everything into account.

Just remember, you need to crawl before you walk.

-Christopher

Thomas Usher · Answer

I see the majority of the wiser investors would say bring some one more seasoned into the deal or wholesale it to them. I will have to agree "Where there is no counsel, the people fall; But in the multitude of counselors there is safety.". So thank you all for the help. Now I would love to know more about how to set up a wholesale deal for a property like this.

Should I out line the possibilities with the deal, I did all the reasearch for it to be a profitable venture but I realize my experience is lacking. I also realize many investors would not be as interested in this property because it is a long term investment due to the prepayment penalty on the assumed loan.

Thank you all again for the help.

Leonid Sapronov · Answer

I don't mean to sound negative, but all the people who would consider partnering on a deal like this would want to see experience and a track record. So if you don't have either, then you would need to have some pretty amazing skills that you can bring to the table. Also, what makes you think that this apartment building is a good deal? If you did the analysis, I would highly recommend running your numbers past some of the seasoned commercial investors here. I think there's even a special section on the forums where you can post them for people to look over.

Linval T. · Answer

@Thomas Usher

- Congrats with securing your first deal.

Now, the real test is to anchor it to your portfolio. However, you mentioned that insufficient funds and low credit score are roadblocks to getting this deal nailed down without investors.

This is a massive bone to chew on with your little/limited experience in handling such a large scale project.

You might want to offload it to other investors for a fee and revisit your steps to get a smaller deal done.

There are several moving parts for you to synchronize and make it happen.

I am not saying it can't be done, but, you have a steep hill ahead.

Good luck, best wishes and please keep us informed about you positive or negative success in closing this deal.

254 Unit Complex as My First Deal, any advice?

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