30 month Multifamily Flip in Riverside CA.

[Jason Mak]

Hello BP,

Just closed on a two year flip of a multifamily deal in Riverside CA.  I don't usually like to publicize my deals but BP has been a nice resource and I thought I would contribute with my experience and answer a few questions.  

Summarizing the deal (please note, I'm giving approximate numbers and dates):

July 2013 - Purchased an 81 unit apartment bldg in Riverside CA for $3.1mm equity.  At the time of purchase, the building was mismanaged and in bad shape - it was 60% occupied and collecting 30% of rents due.  

Immediately went to work with a large scale transformation including tenant management (evictions), capital improvements including roof, interior/exterior painting, landscaping, elevator, construction of leasing office, community outreach and many more items.  

December 2013 - Refinanced the building and took out $2.1m so at this time I had approximately $1m equity left in the building.  

Continued to operate the building for over 24 months and got the building up to 95% occupancy and relatively stabilized operations.  Over this time, between the rental income I earned and the capital expense that I ploughed into the building, I probably ran a loss of $100k so at this point, my equity in this building is about $1.1m.

Two months ago I sold the property for $5.5m.  After paying back the loan principal and commissions, netted proceeds of $3m or a profit of ~$2m.   

Roughly speaking my returns were 200% ROE / ~60% levered IRR

Although this was a nice deal and I made some money, there were some mistakes and lessons learned:

• didn't pay attention to my loan prepayment and ended up having to make the decision to pay a hefty prepayment penalty when I sold the property
• I am a licensed broker and in this market I probably should have marketed the property on my own.  However being busy with other deals and projects I opted to use a broker and pay the commission
• Should i have sold?  I was lucky to find a 1031 exchange but in the event that I couldn't, I would be paying a hefty capital gain tax.  I'm also not buying into a particular exciting property but its closer to my target geographic area

Overall pretty happy with the outcome of this deal and looking forward to the next!