Any experienced heavy rehab apartment buyers?

Question

I’ve been a fix & flip guy for over 20 years now and completed hundreds of flips. I’ve also owned lots of rentals - mainly 1-4 unit deals and a few larger but nothing more than 10 doors

I’m adding larger apartments (30 plus units) to my portfolio now and am focused on very distressed deals - apartments that require 3-5 times rehab compared to the purchase price

Anyone out there have experience with these types of value add apartments?

Looking at one now that I can get for $400,000 with 1.5 mil in rehab. After CapEx work is done we will have 32 apartments that generate gross rents of $30,000 a month

Love the BP communities thoughts on this niche of apartment deals.

I’ve got a great contractor team that focuses on larger commercial heavy lift deals like this - over 30 years experience so I feel good about the CapEx side - of course management is always an issue that has to be dealt with

I’m focused on these types of apartment communities in Indiana, Ohio and Michigan - so if anyone works in these states I’d love to connect and collaborate

David Avery · Answer

Raising my hand.

Have done over 2600 Flips mostly in Ogden, Salt Lake, Provo, and now in Phoenix ( sucks here to flip now).

Stuart, have had investors put me on a plane and knock out properties.

If the deal sounded right, then we should talk.  I understand Real Estate and construction to a science.

Have done several partnerships on them also.

Work ( labor) for equity position!

Remington Lyman · Answer

I work in the Columbus, Ohio area. These types of buildings are tough to find in the city center. The prices are typically more expensive. They also typically trade off-market.

Will Fraser · Answer

HI @Stuart Fox, I'm an observed in this space and hope to be following in your steps soon with some big hairy rehabs in the small-medium apartment space!

What you're describing sounds ideal, as the typical path people take is to buy a worse-for-wear 32-plex and try to plonk $15k/unit into it and expect it to be low-maintenance.  If you're able to reposition this to the tun of $40k+ per unit then you'll likely walk away from each project as a "good as new" property, proving to be low maintenance and a nice cash flow-er.

The only caveat would be in the zoning oddities you'll find in many cities, like my market in Oklahoma and any market with a housing boom pre-1940's/robust city planning.  You'll want to make sure your repositioning plans are copasetic with the city and you don't get into the situation of needing to scrape the lot and build a new, which would prove to be higher cost.

Good luck on this project!

Stephen J Davis · Answer

I have done about 4000 units with the value play business model. I love what you are thinking about doing. My concern is your educational level. Have you taken a course on apartment investing? Have you taken the National Apartment Association classes? If not, please be aware you are competing against people who have. Your property manager needs to take the NAA classes as well. My first apartment complex, 10 units, ate me alive. I thought that since I had run over 100 single-family houses I could run an apartment. Wrong. They are completely different. While I made a lot of money on that 10 unit, if I had known what I was doing, I would have made a lot more. Get educated before you make a huge investment like this.

Pete M. · Answer

Have not got into the value-add commercial multifamily space yet, but it's where I want to be.  Basically BRRRRing with a larger property, but I know the similarities pretty much stop there.

As others have mentioned, prices are generally too high for the risk involved, unless you can get close to the source (off-market).  Have gone under contract on a couple heavy rehab MFRs, but had to walk because sellers were demanding a premium for what is essentially one step up from a dumpster fire.  Sad part is, they may very well get it right now.

@Stuart Fox  Keen to hear more about what you're doing.  Looking in the central OH market, grew up in MI, and went to college in IN.

Greg Dickerson · Answer

These smaller to midsize deals can be real thoroughbreds. You can make great margins if you use your own cash and do not have partners or investors. They key is to nail the budget and rent comps. If you miss those your sunk.

Stuart Fox · Answer

@Stephen J Davis Thank you for the insight.  I know what I have done for my career is in real estate, but it is nothing like buying a 200 unit in Cleveland.  I am forming a team to correctly underwrite these deals to make sure I don't lose my shirt on the asset once purchased.

Any experienced heavy rehab apartment buyers?

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