MF Disaster Recovery

[Jeremy Fenceroy]

Investment Info:

Large multi-family (5+ units) buy & hold investment in Phoenix.

Purchase price: $762,500
Cash invested: $236,500

14-unit apartment journey from a turnkey cash-flowing investment, to a war zone, back to a well-run wealth-building asset.

What made you interested in investing in this type of deal?

I picked up this property in 2015 after selling two long held SFRs that had quite a bit of equity. I was looking for a cash flowing property that could supplement my income after retiring from the Air Force just a few years earlier.

How did you find this deal and how did you negotiate it?

I had been searching all over the country, in cities I had lived previously, for a MF property to invest in. My sister lives in the Phoenix area, so while visiting one summer I contacted a realtor to see what might be available here in AZ. Of the 6 properties the agent found that matched what I was looking for, only 2 warranted visiting, and this particular one had better numbers than any other property I had looked at anywhere. I offered a bit below asking and we settled somewhere in between.

How did you finance this deal?

This deal was financed as a 5/1 ARM (30 yr Amort) with a portfolio lender referred to me by my agent.

How did you add value to the deal?

The property was already turnkey, so no need to do anything. A few years later, however, my manager got sick and the property began a precipitous decline. 2 more property managers later, I had lost over half my tenants, had numerous squatters, significant vandalism and finally arson. I finally got a great property manager able and willing to work with me turn the property around. As of 2022 all units are occupied, the vandalism and crime have moved on, and we are cash flowing again!

What was the outcome?

I just finishing getting the place running smoothly again after multiple disastrous property management experiences. My plan was to continue to hold the property for the cash flow, but I recently got an offer for nearly 3 times what I paid for the property, so while the market is still blazing hot I'm now considering cashing out and investing in something bigger.

Lessons learned? Challenges?

Stay on top of your property manager. Even if they've done well for years, life circumstances change, and can significantly affect their performance. You would be astounded at how quickly a well run and performing property can go downhill and become the bane of your existence. Lesson 2: thoroughly vet property management before bringing them on, make sure they are up to the job you have for them; and be willing to pay well for quality management.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I can't say enough about Christine Shipley, Kristi Thames, Julian Pena, Brian Eaves, Lea Long, and the rest of the team at Dunlap & Magee. I brought them on board in April 2021 to manage the property when it was at it's low point with only 6 of 14 units occupied; squatters everywhere; vandalism and crime running rampant. By January 2022 security had been restored, most damages repaired, 100% of the units were occupied, and the property was cash flowing again. Very professional and capable team!