Apartment Building Value Add “Sub To” - BRRR

[Mike Cossette]

Investment Info:

Large multi-family (5+ units) commercial investment investment in Canyon Lake.

Purchase price: $1,750,000
Cash invested: $350,000

This is a 12-Unit apartment complex made up of 3 Quad-plexes, bought as a "Sub To" with seller financing in Nov 2022, sold SFR for down payment.

Operations - currently self-manage with on-the-ground support tenant that receives reduced rent for their services,

+$3,600 a month in Cash flow before CapEx. ~12% cash on cash return (after the Refi) and value of the complex has risen despite expanding cap rates.

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

The return on equity we were looking for, the low rents for the market, seller financing, and existing note at a great rate, Ability to rehab units, with lots of value add opportunities, expanding central Texas market

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

Found this one through networking ended up being off market through my builder. Negotiated directly with the sellers, from April 2022 through Oct 2022

How did you finance this deal?

Seller financing, with sub to, Sold an existing rental for the down payment. Capitol Stack - 1st lein with the original Bank/Lender at 4% , the 2nd was Seller Financing 4% on with 3yr Balloon.

How did you add value to the deal?

Currently, rehabbing units as tenants move out and painting exterior of buildings, adding small amenities, Upgrading appliances, and Reducing expenses through more efficient operations. We have rehabbed 30% units, plan to get all renovated as tenants move-out over the course of a 5-year hold. We have repainted 1 building and increased rents maintaining 95%+ occupancy rate.

What was the outcome?

So far has been great especially considering the market shift. Average rents are up 35% in just one year, we have refinanced Oct 2023 with private money to get out of the original Sub-too Bank loan.

Lessons learned? Challenges?

The importance of starting out with a sizable CapEX budget in a down shifting market. Lending standards change rapidly when economic climate changes. When markets down cycle, security of Sub to Loans are not dependable, they can easily be called for any reason and they are checked on regularly.

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

My partner and I are real estate brokers. RE/MAX Gateway in SW Austin.