From 3 to 43 Units - I changed my life with one incredible deal!

[Justin Fraser]

I was an investor in New Jersey, slowly building a small rental portfolio. I had flipped a house and a wholesale deal, and owned three rental properties. I had some ambitiously huge real estate goals, and buying one rental at a time was not going to get me where I wanted to go in a reasonable timeframe. So, I started researching apartment syndication and decided this would be my path.

Finding the deal

I used BP to organize meetups with other investors in multiple target cities within driving distance. I built relationships with local investors and brokers. Eventually, a broker in Portsmouth, Virginia called with a pre-market listing. I immediately took a vacation day from work and went to see the property.

Underwriting & Due Diligence

After I got the property under contract, I had to learn how to properly do due diligence as I was in the middle of doing it. Thankfully, I had the expert guidance of @Matt Faircloth of the DeRosa Group. As many of you know, Matt is an apartment investor and happens to be in my local market. We’ve built a relationship over the last few years. I approached Matt with the idea that I would do the leg work and he would guide me, in exchange for part of the equity a GP (me) would normally receive on a deal like this. We negotiated terms, he agreed, and I got to work. This relationship was absolutely crucial to my success. Matt not only guided me through the daunting process of syndication, but he talked me through some of my biggest fears and doubts.

The rental numbers look healthy, but the major appeal of this property is the value - add opportunity. Average rents on this property were in the mid-high $700s due to the previous owner not making renovations nor keeping up with the market. Market rents are in the low-mid $900s, so there is major opportunity for improvement. By putting $300k into improvements across the property, including exterior renovation and unit renovations, we can increase rents significantly. The additional income will improve the value of the property by approximately $1 million dollars.

Raising Capital

I raised about $600k for this deal! With investors I've built relationships with over the years running my local REIA, I was able to raise the cash needed for the down payment, closing costs, and other fees. (Tip: tell EVERYONE you know what you are doing.) You never know where your investors will come from. I had a few people who surprised me when they showed interest, including people from my day job!

Lesson learned-- it takes way longer to raise capital than you might expect. Even though I thought I “had” about $500k in interest from a few key people, I quickly learned that what people tell you in theory is not indicative of what they are willing to commit in reality. I don’t blame them--I absolutely understand it--but looking back, I was naive to think I had $500k committed when I actually did not. Thankfully, I had multiple contract extensions built into our purchase contract, so I used every one to raise the capital I needed to close.

Management

It’s now been about two months since we closed, and I have a strong property management team, @Lisa Doud, and a great General Contractor, @Eric Doud. We are executing the business plan. We’re getting rid of the undesirable tenants who aren’t paying or who are participating in illegal activities. We’re renovating units. We’re cleaning up the area and making it a safer, friendlier community for our tenants. In the meantime, we have a three-year plan to bring rents up to market value.

Moving Forward

The most impactful takeaway from this deal for me is that I set this massive goal and within a year I figured out how to accomplish it. It wasn’t easy and it took many late nights and weekends to make this deal happen. It took time away from friends, family, and other interests and hobbies. I was hyper-focused on getting this deal done, and I accomplished my goal. I’m incredibly proud of what we’ve accomplished and I’m just getting started.

For now, I’m focused on managing this property the right way. I’m keeping the managers and contractors on task with the business plan, and I’m working on new ideas to improve the returns for the investors beyond the pro-forma. I know that making this property a success will give me the credibility and track record to bring on other investors and larger properties in the future.

Thanks

Navigating through the due diligence phase, finalizing the loan, and pushing through to closing, there were probably a thousand ways this deal could have fallen apart. Even on the day of closing, driving to Virginia, I was frantically sending files to the lender attorney, and I still had my doubts about whether it would close. I absolutely have to thank all the people who supported me in a hundred different ways, some of whom, without their help, this deal would have fallen apart.

Thanks most of all to my wife, Kathleen for her unwavering support. Thanks to @Matt Faircloth, @Kevin Davy, David Pal, @Harry Metzinger, Sunny Shakhawala, Lisa Doud, and Eric Doud, for all helping me along the way. Each of you contributed in a unique way that was critical to the success of this deal. Thanks to all the investors who believe in me and put their money into this deal.

Believe it or not, I tried to keep this post short and I left out a ton of detail. If you have questions, I’d love to answer them below.