No go on 30 unit in Portland, OR.

[Nick Alvarez]

What a ride the last 3 months have been! Been involved in attempting my first deal but we walked away this week as we didn't want to overpay on the building. Despite not closing - I was able to get some great experience and made great contacts up in Portland Oregon. **(If anyone needs a killer PM- we connected with a great company who really helped us out during due diligence-message me for their info)** Just thought I'd post about my experience.

My uncle has been involved in REI for a long time & I told him I wanted to help on the next deal he cam across. Back in November, he showed me this 30 unit complex he was interest in just outside downtown Portland. It was in a decent area with super close access to public transit to access downtown and surrounding areas, rents were under market vs. all the nearby comps. Of course the broker's pro-forma will always paint a rosy picture so I ran the numbers & preliminarily it seemed like it could be a good possibility- built in some healthy reserves and were looking at a 6.5% cash ROI yr. 1. It was listed a bit high but were able to get it under contract in December for $200K under list price. We reached out to a pm to help us do some preliminary work before we flew up for our walk-through, he was really great in getting us up to speed on the market & showing us improvements he had done on other properties to increase rents. We had seen an older appraisal before heading up there & were aware that there was some deferred maintenance needs.

We were finally able to fly up around christmas and do our walk through- and man was that an experience.  Based on our previous information we gathered from discovery & previous appraisals- we knew the building needed work, but after walking through the all the units, deferred maintenance was an understatement!! Tons of life/safety issues & too many interior/exterior issues to list. I'm surprised owners let their properties get like this- its not only bad for tenants but a big risk on the owners side... Our capex estimates increased substantially based on what we'd need to do to pass code but also to raise rents (somewhere to the tune of $500K-$800K). Thus we reduced our asking price & found out recently the owners wont budge. 

C'est la vie ~ Yeah its a bummer it didn't close, but learning firsthand to walk away is a good lesson. I loved being able to participate & get my feet wet in RE and am looking forward to finding better deals out there.

[Anthony Chara]

Sorry to hear that Nick. Remember, even if the Seller won't budge now, it doesn't mean that they won't budge in the future. So always let them know you're still interested if something changes down the road.

Lastly, one thing you might ask the Seller if you haven't already, is if the Seller would carry-back a note around the same amount or more than the money you think you need for CapEx. This may work in the long run because it gets the Seller their asking price and gives you the extra money you need to do the work, but you don't have to pay the Seller for years to come. This strategy only works if you can prove to yourself that the property will be worth substantially more than the purchase price in the future once the work is done and you increase rents. That way, even though it may appear that you're over-paying now, you pay the Seller the balance with dollars that are worth less than today at some point well into the future.