Multi Family Investment Story

[Art Warshaw]

Investment Info:

Large multi-family (5+ units) buy & hold investment in Catonsville.

Purchase price: $3,800,000
Cash invested: $500,000

44 unit apartment building with total monthly rents of $36,000 at time of purchase.

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

We look for properties that are under performing due to management neglect. We had a goal of 100 units and this aquisition took us over that number

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

I received an e-mail from the listing agent who noticed that we had other rental properties in Catonsville. We toured the property with the owner and developed a good rapport. When it came time for best and final offer (there were several other offers) I reached out to the owner and pointed out that we were very similar in our family business strategy etc.. He liked us and accepted our offer and we started working together to make it happen

How did you finance this deal?

We refinanced two smaller apartment complexes that we own and packaged those two loans with the purchase loan with a small local bank. Start to finish, the process took about 90 days

How did you add value to the deal?

We added a parking lot after getting feedback from the tenants that more parking would be helpful. We resurfaced two other lots and redid all of the entrance foyers and hallways. We replaced the roof on all buildings. We did XRF lead testing and got a lead free certification. To date, we have renovated 30 units, raising the rents by approximately $400/unit after remodel. Raised rents for existing tenants by 20%. Sub metered gas heat and passed on $24,000 of utility costs

What was the outcome?

We have acheived a total NOI increase of $260,000 in 2 1/2 years. Monthly rents now at $56,000. 100% occupancy

Lessons learned? Challenges?

Learned the value of lenders competing for business. This saved us money via lower rate, longer fixed term and better pre payment penalty terms. You don't have to sell off assets to expand. Refinancing let us keep existing profitable properties. We had been told by multi family brokers that we should sell off and 1031 into the next deal. The big question always was what if the right deal doesn't come along in the appropriate time frame.

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

We hired John Black and Brendan Harman from Mackenzie Capital and they got us over a dozen term sheet offers from lenders who competed for our business.