Third Year of our Goal Stack a Success!

[Vince Mathis]

Investment Info:

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

Purchase price: $1,065,000
Cash invested: $266,250

Contributors:
Josh Utterback

Property is 15 Unit Apartment Building in a smaller, but stable city in South Dakota with an extremely low vacancy rate.

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

We have been growing our 'Goal Stack' since starting in 2020 with our Duplex. Due to living in a HCOL Area (PHX), we opted to invest in Sioux Falls, where our families are based.

In 2021 we set to add 4 doors and closed on a quadplex in October 2021.

For 2022, we set to add an additional 8 doors (get to 14 doors total). Due to the rising market, as well as having purchased the 4-plex off-market and under-valued, we desired to sell that property and roll it into something larger.

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

We sold our previous investments, a duplex and fourplex in Sioux Falls, SD, and utilized a 1031 Exchange to defer capital gains taxes through a local Qualified Intermediary in Sioux Falls.

Property had been listed online for $1.2 million. Initial inquiries to the listing broker revealed that they were going back and forth with a potential buyer, but were not under contract. Using a local Real Estate Attorney, we were able to get under contract for $135,000 below asking.

How did you finance this deal?

We were able to use the proceeds from the sale of the 4-plex via a 1031 Exchange. We were set to use the proceeds from the sale of our first investment property, a duplex- but fell out of contract due to the buyer being laid off. It is currently for sale.

Due to falling out of contract, we were able to withdraw funds from the HELOC on our personal home. This will be repaid by the sale of the duplex, hopefully, within the next few months. In the meantime, the cash-flow will pay the interest.

How did you add value to the deal?

Alone, we bring little value to this deal outside of the capital.

Our value is in the Team we have assembled over the last few years. Property management, lending, inspection services, and legal representation all worked together to make this work. With the relatively small REI community within Sioux Falls, most of these parties had already worked together and to eliminate running around, we kept most of these parties on a running email thread as we approached closing.

What was the outcome?

Successful Closing!

We are now working with our PM and getting estimates for mechanical updates to provide a better experience for our residents.

Lessons learned? Challenges?

Having the HELOC available was a lifesaver. It cost almost nothing to get, and we are only paying interest on it while we need it.

We also learned that in SD, having coin-operated machinery (laundry) requires annually registering each machine with the state. If they were app-run or took credit cards it would not be required. Due to this and the time burden of handling currency, we are looking at alternatives.

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

Property Management: Josh Utterbach of JL Properties (on BP)
Commercial Lending: Scott Ogdahl of Heritage Bank NA
Legal Representation: Alex Halbach of Cutler Law Firm
Inspection: Brad Horstman of Housemaster Sioux Falls
1031 Exchange: Amanda Schmunk of Homestead Escrow and Exchange Co