Closed: 16 Unit Buy-and-[probably]-Hold

[Jonathan Makovsky]

@George Paiva and I closed on a different asset class than our single family flips. We purchased a 16 unit in New Britain, Connecticut.

We purchased it for $505K (~$31.5K/unit) and average rents are $675. Top line numbers:

• Revenue: $118K (incl. projected vacancy)
• Expenses: $72K (incl. projected CapEx, R&M, Mgmt fee)
• NOI (Net Operating Income): $46K
• Debt (Mortgage): $23K
• CoC (Cash on Cash): $23K

• LTV (Loan to Value): 75%

A few notes:

1. Don't be fooled by the holy grail 2% RULE. Yes, it worked here, and it's a great way to quickly analyze a property, but just note that every city and property are different, and the "rule" ONLY looks at the 'top line' and ignores expenses. In the case of New Britain, CT, the RE taxes are very high (48 mill rate) which is $20.5K annual taxes (17% of our expected revenue). Our saving grace is that most of the utilities are metered out, and because the units are a big size (duplex 2BR/1.5BA) we can still rent them at a solid price. However, if expenses in your area or on your property are higher than "normal" you even-more-so need to make sure you are looking at the full picture and including your operating expenses of the property.

2. The deal was picked up off-market by a seller that we've done a few deals with in the past. Lessons learned here: 

 a. Be a good person to everyone! It's not only the right thing to do, it's an excellent way to do a lot of business.

 b. Experience is crucial! The seller would not have done the deal with us if we were newbies - he wanted someone that he knew can close on it. So if you're still trying to work on your first deal all by yourself, don't be afraid to give up some of your well deserved profits to bring someone on that can help close the deal and gain that experience. Experience leads to more deals, and more deals leads to access to more money, and access to more money leads to even more deals. [Do you follow the chain of events: Deals --> More Deals --> Access More Money --> Even More Deals --> Even More Access to Money --> Helluva Lot More Deals --> Helluva Lot More Access to Money.] We are at the earlier part of this cycle, but we already see how things snowball.

3. I learned everything in a guru course for $9,997 - and you need to take this class!! (<--- THIS IS AN ABSOLUTE LIE!) I luckily found BiggerPockets which has been an absolute godsend to our business and me. I mentioned this in previous posts, and BP has been the underlying key to our success. BP is where I found my business partner, it's how we learned to flip, analyze deals, find deals, market strategies, phone scripts, grow our business, find relevant books and so much more. BP offers a real estate education that no one guru can come close to teaching, and it's all free! 

If you're new to the real estate game I would strongly suggest that you listen to the BP podcasts and take action on what @Joshua Dorkin, @Brandon Turner and their weekly guest is saying - their words are worth their weight in real estate gold. If you're like me then you will start to notice that a lot of successful podcasts guests have similar stories, have read/recommended similar books, have similar investment strategies, and then hopefully you will begin to mimic those things and then of course go out and do it and succeed! 

Also, if you need help or a partner what better place is there to find possible business partner(s) then BP?

4. Stick to your numbers and don't be afraid to keep offering your price to the seller. All of our offers that ultimately was accepted has been rejected multiple times first - and sometimes this spanned over the course of many months - before our deal was finally accepted. I believe this 16 unit deal was under contract a few times with other buyers for over $600K before they all flamed out. The seller continued to reject our offer until he realized we were his best offer and most reliable buyer. 

Hope this could encourage some of you and I really look forward to hearing all of your success stories! 

[Rob Beland]

Awesome deal @Jonathan Makovsky. I love reading about East coasters. I almost choked when I started reading #3 then I choked when I read it. Right on! I look forward to following you.

[Rob Beland]

Awesome deal @Jonathan Makovsky. I love reading about East coasters. I almost choked when I started reading #3 then I choked when I read it. Right on! I look forward to following you.

[Michael Noto]

Congrats @Jonathan Makovsky

I think it is great when people locally post their successes on here because to many people think CT is to expensive to invest in and they give up before they start. 

I am very familiar with New Britain and it is a small city where if you buy in the right area you can do very well as a buy and hold investor. Like with any market it is knowing the areas to stay away from that is crucial. 

Best of luck as you go through the process of stabilizing this property and it's great to see savvy investors in my neck of the woods doing deals like this. All of your points about developing relationships are spot on as well in my opinion. 

[Tristan Cortez]

Good job and congrats!!👍

[Griffin F.]

Well done @Jonathan Makovsky ! Sweet deal. Off-market opportunity - network is your net worth, they say. New Britain is a a bit of a distance for you. What property management strategy is going to work for you? Self-manage? Hire out?

[Allen Thomas]

Congrats! I don't want to buy and hold any properties until I can purchase a large multi family like the one you described above. I'll just keep flipping until I have enough capital! Keep it up man! 

[Adrian Chu]

Originally posted by @Jonathan Makovsky:

@George Paiva and I closed on a different asset class than our single family flips. We purchased a 16 unit in New Britain, Connecticut.

We purchased it for $505K (~$31.5K/unit) and average rents are $675. Top line numbers:

• Revenue: $118K (incl. projected vacancy)
• Expenses: $72K (incl. projected CapEx, R&M, Mgmt fee)
• NOI (Net Operating Income): $46K
• Debt (Mortgage): $23K
• CoC (Cash on Cash): $23K

• LTV (Loan to Value): 75%

A few notes:

1. Don't be fooled by the holy grail 2% RULE. Yes, it worked here, and it's a great way to quickly analyze a property, but just note that every city and property are different, and the "rule" ONLY looks at the 'top line' and ignores expenses. In the case of New Britain, CT, the RE taxes are very high (48 mill rate) which is $20.5K annual taxes (17% of our expected revenue). Our saving grace is that most of the utilities are metered out, and because the units are a big size (duplex 2BR/1.5BA) we can still rent them at a solid price. However, if expenses in your area or on your property are higher than "normal" you even-more-so need to make sure you are looking at the full picture and including your operating expenses of the property.

2. The deal was picked up off-market by a seller that we've done a few deals with in the past. Lessons learned here: 

 a. Be a good person to everyone! It's not only the right thing to do, it's an excellent way to do a lot of business.

 b. Experience is crucial! The seller would not have done the deal with us if we were newbies - he wanted someone that he knew can close on it. So if you're still trying to work on your first deal all by yourself, don't be afraid to give up some of your well deserved profits to bring someone on that can help close the deal and gain that experience. Experience leads to more deals, and more deals leads to access to more money, and access to more money leads to even more deals. [Do you follow the chain of events: Deals --> More Deals --> Access More Money --> Even More Deals --> Even More Access to Money --> Helluva Lot More Deals --> Helluva Lot More Access to Money.] We are at the earlier part of this cycle, but we already see how things snowball.

3. I learned everything in a guru course for $9,997 - and you need to take this class!! (<--- THIS IS AN ABSOLUTE LIE!) I luckily found BiggerPockets which has been an absolute godsend to our business and me. I mentioned this in previous posts, and BP has been the underlying key to our success. BP is where I found my business partner, it's how we learned to flip, analyze deals, find deals, market strategies, phone scripts, grow our business, find relevant books and so much more. BP offers a real estate education that no one guru can come close to teaching, and it's all free! 

If you're new to the real estate game I would strongly suggest that you listen to the BP podcasts and take action on what @Joshua Dorkin, @Brandon Turner and their weekly guest is saying - their words are worth their weight in real estate gold. If you're like me then you will start to notice that a lot of successful podcasts guests have similar stories, have read/recommended similar books, have similar investment strategies, and then hopefully you will begin to mimic those things and then of course go out and do it and succeed! 

Also, if you need help or a partner what better place is there to find possible business partner(s) then BP?

4. Stick to your numbers and don't be afraid to keep offering your price to the seller. All of our offers that ultimately was accepted has been rejected multiple times first - and sometimes this spanned over the course of many months - before our deal was finally accepted. I believe this 16 unit deal was under contract a few times with other buyers for over $600K before they all flamed out. The seller continued to reject our offer until he realized we were his best offer and most reliable buyer. 

Hope this could encourage some of you and I really look forward to hearing all of your success stories! 

 Thanks for sharing!  

[Jonathan Makovsky]

@Rob Beland - Thanks so much!

@Michael Noto - Thank so much for the kind words. Looking forward to seeing you in New Britain, CT and hoping we can do some work together. You are the BP resident expert with lots of great experience, and we will be looking to grow our portfolio to begin scaling operations.

@Tristan Cortez - Thank you!

@Griffin F. - Thank you very much! We will self manage at first, because as we need to implement a new management style in the building, and no one will be more hands on then we will. After that we will decide which direction we want to go. Our goal is to scale up our rental portfolio and hire in-house to build our property management and rehab management portfolio. 

@Allen Thomas - Thank you, really appreciate it!

@Adrian Chu - Much appreciated, thanks!

[Mark Kurian]

Congratulations @Jonathan Makovsky. I'm new to the BP community and its great to hear that people really are so friendly and helpful here. Reading your post, #3 caught me off guard until you further indicated just how good of a forum this really is. 

[Griffin F.]

@Jonathan Makovsky Smart! Will there be any add-value opportunities while you're self-managing?

Since you'll be self-managing and up in the area, you'll just have to explore Hartford County more heavily while you're up here! :)

[Christopher Gilly]

Congratulations Jonathan.    Your success is definitely not an accident..you earned it!

[Jonathan Makovsky]

Thanks so much @Mark Kurian and @Christopher Gilly!

@Griffin F., yes there is a value-add play. Also, the way the building was set-up as condos, so selling them off that way is an alternative exit strategy.

[Joshua Dorkin]

Congrats, @Jonathan Makovsky!

[Griffin F.]

@Jonathan Makovsky Great to have options. Good Luck!

[Raymond B.]

@Jonathan Makovsky,

Congratulations! It is always nice to hear about a successful RE Invesment.

Raymond

[Karin Crompton]

Congrats, @Jonathan Makovsky! It's been fun watching you ramp up your business in such a short amount of time. I need to take better notes...

[Ramon Jenkins]

well done

Congrats

[Account Closed]

@Jonathan Makovsky Congratulations to you and George!  True words of wisdom, and I agree with @Karin Crompton - it's been great watching you take off with your investing career.  I look forward to reading about your next deal!

[Jonathan Makovsky]

@Karin Crompton @Account Closed: Thank you very much for the support! 

Looking forward to all of us sharing in many more successes together!

[William Collins]

Congratulations @Jonathan Makovsky this sounds like a good deal for you.  I appreciate you and the CT based investors providing some of the advice and inspiration which I needed to move forward with my 1st house which is still in rehab (in New Britain as well).

[Greg Wright]

Jonthan,

Would you mind sharing some details? Did you generate your down payment from flips? Did you get s conventional loan, is it non-recourse what interest rate? Great post very helpful. Thanks 

[Craig Bellot]

Congrats @Jonathan Makovsky and @George Paiva

How did you work out the revenue share between you both?  Is it by percentage of down payment contributed?  Management responsibilities?

Would be interested in learning more on how partners structure buy and holds.

[Jonathan Makovsky]

Thanks @William Collins! (Sorry for the delay in getting back to you.)

@Greg Wright, thank you - really appreciate it. 

• Down payment: Yes, cash generated from flips.
• Conventional Loan: Yes
• Recourse: Yes
• Interest: In the 4's%

@Craig Bellot thank you very much.

• Split & Down Payment: 50/50.
• Management Responsibilities: First, we do whatever is needed to get the job done - no matter what. Second, we each focus on our strengths to make the property run most efficiently; and we each bring something very different to the partnership. (This is we have been doing with our flips.) 

[Fazu M.]

Congratulations to you and your team Johnathan! Great work and thank you for sharing. Folks like myself who are starting out new and fresh can be inspired by experiences/stories like yours. Good luck with the rest of your work!

[Andrew Oladipo]

Congrats!!

[Charles Worth]

@Jonathan Makovsky

Congrats. What type of tenant do you have in there? How did you get comfortable with this considering its probably a little different from your other stuff especially the property management side?