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Updated over 4 years ago, 05/19/2020
CLOSED on a 98-unit TODAY!
So, we had another thread going for a couple of weeks here. And this is not yet a success story, since a lot of work needs to be done to make it a success.
But, today, @Sam Grooms and I closed on this 98-unit in Phoenix.
This is a syndicated private placement acquisition. @Jillian Sidoti and her firm, whom I highly recommend, helped with the PPM-related docs.
The unit mix includes studio, 1x1, 2x1, and 2x2 lay-outs. The asset was constructed in 1984, and has by and large been un-touched on the interior of the units. However, the bones are very good, the unit sizes are attractive within the sub-market, and the location is experiencing very significant gentrification.
This was a mom-an-pop owned property. Rents are low even for as-is condition. Our Cap Rate on the way in is a bit under 5%. Our expected Cap Rate after the re-positioning in Y3 is 8.3%. Obviously we feel that there is a lot of upside on the rents.
We have a $1.4M renovation budget, which includes complete reno of the interiors, as well as close to $500,000 in the common areas.
I could talk for hours, but I won't. I have a feeling me talking for hours might happen on the blog :)
But, feel free to ask questions - I won't tell you everything, but I'll do my best to paint the bug picture.
So, a few updates:
In the week or so that we've owned the property, there have been 2 lease-ups. Basically, the PM is getting $80 premium without us having done anything to the property. This is just because the property is under the market even in as-is condition.
As of yesterday, we have 2 vacants. Over the next couple of months, we will have close to 10 lease renewals. We are about to discover some things...
I love Arizona. Everything is so competitive. The bid for the paint literally came in $20,000 under budget. The bidding process was very strong.
Amazing! You two are doing big things down in Az. My 3 brothers and I were just analyzing a deal yesterday in the am. It was smaller. A 32 Unit in Middle America. We live in California. Very motivating to hear that you and Sam do this all the time. Sam even stopped being a CPA to underwrite deals. That takes some balls. I love it! Maybe my brothers and I should just have invested with you two. Seems like you two are doing great things out in Az. Are you buying in Chandler?
Originally posted by @Marcello Oliveri:
Amazing! You two are doing big things down in Az. My 3 brothers and I were just analyzing a deal yesterday in the am. It was smaller. A 32 Unit in Middle America. We live in California. Very motivating to hear that you and Sam do this all the time. Sam even stopped being a CPA to underwrite deals. That takes some balls. I love it! Maybe my brothers and I should just have invested with you two. Seems like you two are doing great things out in Az. Are you buying in Chandler?
Marcelo, thank so much. Yes, Sam's got balls for doing what he did. Absolutely!
Yes, I would buy in Chandler. I live in Chandler and love it. In the current market, it would take one hell of a value-add project, and most likely off-market. We are working on that. But, while I am very bullish on Chandler, it is not what I would cal an emerging market within Phoenix MSA...
@Ben Leybovich, good to see you get off of preaching from the pulpit and back into the field to work. I had not seen many posts from you lately. I understand why Sam left his job to do this. I am barely over 30 units and it is getting harder to balance the day job versus the real estate. I even have my 12 unit under management. Anyway good to hear about your deal and share in the euphoria a little even though it is from a distance. Enjoy the ride my friend.
Originally posted by @Jerry W.:
@Ben Leybovich, good to see you get off of preaching from the pulpit and back into the field to work. I had not seen many posts from you lately. I understand why Sam left his job to do this. I am barely over 30 units and it is getting harder to balance the day job versus the real estate. I even have my 12 unit under management. Anyway good to hear about your deal and share in the euphoria a little even though it is from a distance. Enjoy the ride my friend.
Thanks, Jerry!
Good deal! Congrats! You guys have a great business plan.
@Ben Leybovich I thought you retired?
Originally posted by @Rich Hupper:
@Ben Leybovich I thought you retired?
Do you have any idea how bored I got...?!
Congratulations! That's incredible :)
Truly amazing! It's so cool to see others crush it in real estate
Congrats @Ben Leybovich! Excited to keep up with your group and see how you change the property over the next several months!
Originally posted by @Scott Morongell:
Congrats @Ben Leybovich! Excited to keep up with your group and see how you change the property over the next several months!
We will report back :)
Update after 1 month of ownership:
- The Gross collected income was $4,000 above the underwriting for Month 1.
- Finished month one with 1 vacant unit.
- The GSR for Month 2 went up $500 for month 2.
- We've rented 2 units and released 5.
- Almost done dialing in interior reno numbers. Demoed one unit. Off to the races.
- Experienced some CapEx challenges. Replaced pool filter and some plumbing.
- Exterior reno in full swing now.
@Sam Grooms - anything you want to add?
Just that we're consistently seeing $150 rent premium on new lease ups for units that haven't been renovated. That's how far below the market the previous owner was.
Nice, right?
Looks great!
How much do you spend per unit on the interior? Any large ticket items (new panels/HVAC)?
Originally posted by @Konstantin Samorodskiy:
Looks great!
How much do you spend per unit on the interior? Any large ticket items (new panels/HVAC)?
Kostya, HVAC is part of the larger CapEx. It's a separate line item in the underwriting.
$7,500 all in on 1x1 units, which includes new cabinets, appliances, granite, fixtures, hardware, flooring, and paint. We ran a bit light. The scope was $7,300. The overage came due to needing to resurface the bathtub. Not all tubs need it, though, but this one did.
Originally posted by @Konstantin Samorodskiy:
Looks great!
How much do you spend per unit on the interior? Any large ticket items (new panels/HVAC)?
We budgeted in our CapEx to replace 50% of the HVACS (including furnaces). We believe that will be closer to 20-25%, so quite a bit of savings there.
No new panels.
@Sam Grooms & @Ben Leybovich Thank you for this thread and the play by play. Just pure gold from an educational standpoint. I currently work full time (in a non RE field), manage 5 SFR's and then do some small land development deals on the side. Been thinking about diving into a small commercial project, still trying to educate myself on apartments vs. strip malls. Just the one question I want to ask is how do you determine how much supply (i.e. doors) exists in a given area and how much supply is expected to come online during a 6 month, 1 yr and 2 yr period? Say this project you are talking about has a 3-5 year execution timeline. Additional supply can derail things and how do you monitor for that? Thanks for letting me ask a rookie question.
Originally posted by @Tony Sera:
@Sam Grooms & @Ben Leybovich Thank you for this thread and the play by play. Just pure gold from an educational standpoint. I currently work full time (in a non RE field), manage 5 SFR's and then do some small land development deals on the side. Been thinking about diving into a small commercial project, still trying to educate myself on apartments vs. strip malls. Just the one question I want to ask is how do you determine how much supply (i.e. doors) exists in a given area and how much supply is expected to come online during a 6 month, 1 yr and 2 yr period? Say this project you are talking about has a 3-5 year execution timeline. Additional supply can derail things and how do you monitor for that? Thanks for letting me ask a rookie question.
Tony, the short answer might surprise you - if you are buying an asset which can be impacted by increasing supply, you are buying the wrong kind of an asset :)
Originally posted by @Ben Leybovich:
Originally posted by @Tony Sera:
@Sam Grooms & @Ben Leybovich Thank you for this thread and the play by play. Just pure gold from an educational standpoint. I currently work full time (in a non RE field), manage 5 SFR's and then do some small land development deals on the side. Been thinking about diving into a small commercial project, still trying to educate myself on apartments vs. strip malls. Just the one question I want to ask is how do you determine how much supply (i.e. doors) exists in a given area and how much supply is expected to come online during a 6 month, 1 yr and 2 yr period? Say this project you are talking about has a 3-5 year execution timeline. Additional supply can derail things and how do you monitor for that? Thanks for letting me ask a rookie question.
Tony, the short answer might surprise you - if you are buying an asset which can be impacted by increasing supply, you are buying the wrong kind of an asset :)
@Ben Leybovich Thanks for the hint. Let me chew on that a little bit. :) I know where to find ya if I get stumped.
@Tony Sera, Ben is correct in that you'd want to buy in a submarket that supply isn't increasing (ie, no cranes in the air).
To answer your question about where to find such information, most of the large advisors/brokers have this information for free on their websites. Just look at new construction permits, completions, and absorption rates.
@Ben Leybovich congrats on this deal. Have seen you guys do a few FB lives while walking through turned units. Looking forward to keeping up with your project and seeing it go full cycle.
Originally posted by @Scott Morongell:
@Ben Leybovich congrats on this deal. Have seen you guys do a few FB lives while walking through turned units. Looking forward to keeping up with your project and seeing it go full cycle.
It's going according to plan so far, Scott :)