My 7 unit investment in Santa Monica

[Jeremy Weinstein]

Investment Info:

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

Purchase price: $985,000
Cash invested: $200,000

I bought this 7 unit apartment building with a partner. I had sold a tri-plex that I had owned for one year, sold the tri-plex and reinvested my sales proceeds into the 7 unit building. I lived in one of the apartments for about 8 years. I rehabbed apartments as tenants moved, and increased the rents (sometimes huge increases after doing tasteful remodel work).
I have refinanced the property 3 times, pulled cash out and bought a few more properties with the proceeds.

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

I needed a place to live, so I looked for a place where I wanted to live. I like residential real estate because it feels like low risk. People always need a place to live and they tend to pay their rent. And, if someone moves out, it doesn't cost too much to make an apartment ready for a new tenant.

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

I was looking with a family friend who was also to be my partner and a real estate broker brought her the deal and she and I bought the property together.

How did you finance this deal?

I got a loan from Washington Mutual Bank. At the time, I thought it was amazing loan. It was a 60% loan to value at 4.8% 5 year Arm (with no balloon).

How did you add value to the deal?

I took one of the units and transformed the interior from a 1960's apartment to a nice unit with outdoor space. Then, as units turned over, I did tasteful remodels. Removing carpets, putting in hardwood floors, painting the apartments with a nicer paint. Installing new light fixtures (and then over time installing recessed lights and really making the units modern).

What was the outcome?

The outcome... GOOD! I bought the building, for what felt like a big number at the time. The rents were low, but I never thought that rents would be what they are now.
I now owe 1.1 Million on a building I bought for $985k. And I have a pretty good cash flow from the property. It has been a relatively low maintenance property that has set my real estate investing on a good path.

Lessons learned? Challenges?

I learned a lot. First, if you are going to have a partner, make sure you establish what each partner is going to contribute (other than money). I learned that rents seem to go up over time and they seem to go up a lot more than I could have ever imagined. I learned that local rent controls can be a hinderance but not as big of an issue as some people make it.