18 Unit Portfolio, Buffalo New York

[Christopher G Platt]

Hello Bigger Pockets members,

Here is the potential deal: 18 unit portfolio over three adjacent parcels including 2 multifamily apartment buildings, one mixed use building with a storefront and a 2 unit ADU (accessory dwelling unit behind it), a two stall garage, and vacant lot. All built between 1910-1920 (common for Buffalo). Properties are located right across from the Tri-Main Building (a large adaptive reuse project filled with offices), is an 8 minute walk from the nearest light rail station, bus stops are a two minute walk away, UB South is a 10 minute bike ride, Delaware Park is a 10 minute walk, and a major hospital is just down Main Street.

 Listing: https://www.loopnet.com/Listing/5-Greenfield-St-Buffalo-NY/16567381/

Gallery of photos: http://www.cgplatt.com/2019/07/19/greenfield-properties

I went to check out the properties yesterday. Found the exterior to be in rough shape - see pictures (distressed property). Then a neighbor from across the street asked what was doing, I told him I was interested in buying these buildings, so he told me the story. Neighbor knew the owner for over 30 years, thought he was a great guy, but he passed away recently and now his kids are selling the property (motivated seller). The neighbor was an older gentleman who owns several houses on the street, but wasn't interest in the property I was looking at because its listed for $400k and (according to him) could use about that much in renovations and that the conditions inside matched outside. He followed that with, "But we need someone to save that place."

This morning I called the broker. I asked about cap rate and rents (listing said 90% occupancy), the broker told me that he found out yesterday while showing the property that only four tenants were left (22% occupancy) so the cap rate would be very low right now (opportunity for value added). He confirmed what I heard from the neighbor, said the inside needs work but shows well, that he already has one offer submitted, but would still show the property to me on  Monday - I said sure. Am I wasting his time if I don't have sufficient financing lined up?

As of right now, I do not have $80k for a down payment (20% of $400k) and even if I did, I'm not sure a commercial lender would lend a property in this condition. Nor have I ever owned any property, commercial or residential. I do have a partner who currently manages two SROs (single room occupancy) near UB south. He and I are actively shopping for a duplex in Buffalo, but are open to better opportunities if we can create them. We're both recent architecture school graduates. He works full time at an architecture firm now, and I'll be a masters or urban planning student at UB in the fall. Between the two of us, we've got about $20-25k to put towards a real estate investment. 

Obviously, on our own, we cannot make this deal happen. What would it take to make this happen?

Seller financing is probably out, the kids probably just want to settle the estate and move on, but I will ask the broker on Monday. Bringing on a private equity partner is the most likely solution that I know of. Thanks to Matt Faircloth's lessons on raising private capital, I know that there are 3 primary types of people to look for in my network: people with excess cash (the Millionaire next door), people who own their homes free and clear, and people with IRA accounts. Unfortunately, the few people in my network who meet that criteria don't meet another import criteria: willingness to risk their capital on two guys who have never owned property, nor done extensive renovation work (my partner has done some at the houses he manages and I have done a little, but not much).

But lets try to make this a little more tangible with some numbers (assume renovations are paid for initially with our cash reserves, then with cashflow from the property, and that one additional unit could be renovated and rented per month): 

Purchase price $350k

• Estimated rehab costs: $300k
• 20% down payment (provided by theoretical partner) $70k
• Loan principle: $280k
• Estimated current rent: $500x4 = $2,000/mo or $24k/yr
• Average rent in the area according to rentometer for a 1 bedroom apartment is $803/month. Given the age and lack of amenities offered at these buildings, $750/month might be more accurate meaning that after complete renovations, this portfolio could gross $13.5k/month and $162k annually. 
• Expenses (After renovations are complete): Repairs (5%), Vacancy (10%), Cap Ex (10%), $2000/month for the mortgage, $300/mo in property tax, $200/mo for insurance = $7827.50/month and $93,930/yr NOI.
• And based on a look around LoopNet, cap rates in the area are around 7% resulting in an ARV of $1.3M

I know these numbers are pretty rough, and would appreciate your feedback. If you have any other advice for me, I'm all ears. And if anyone is in Buffalo and is interested in this deal, with or without me, please send me a message.

Thank you,

Chris