First Exit of a Multifamily Value Add Deal, 37% in Inland Empire

[Daniel Frye]

Hello!

I don't often post here at BiggerPockets but thought I would chime in to share the story on my first real estate investment.

I actually found the listing for the deal on BiggerPockets at the end of 2016. It was an 11 unit mulitfamily property in Rancho Mirage, CA which is near Palm Springs to give those unfamiliar a general idea. The deal was originally listed for $1,450,000. We ended up negotiating down the price to $1,378,000 after all the inspections and back and forth. After this first negotiation, I thought to myself what in the world have I gotten into, that was way harder and fell almost fell apart more times than I thought a deal should. We ended up closing in late January 2017 after a couple of extensions. I inherited a fully occupied building that was renting for about 40% less than market rents in the area. The plan was to fully renovate each unit and the exterior completely. I'm talking new cabinets, flooring, fixtures, lighting, paint, counter tops, appliances, pool resurfacing, facia repair, exterior paint, new patio deck, the whole nine yards in other words. 

This process was eye opening as I acted as the general contractor in a sense, finding subs for each trade during the renovation. This process took about 6 months all the way through as the tenants month to month leases expired in a staggered fashion ending in May of 2017. I had engaged a property management firm early on in the process and they leased the property up within about a month and a half. By the end of 2017 we had a full building and were looking to refinance. I was able to use a LOC in order to buy the property all cash, so we ended up putting permanent financing on it at the beginning of 2017 in order to pull most of the cash out and pay down the LOC. We ended up with about $480,000 invested in the deal at that point.

During this time, the property was putting off about a 6.5% cash flow, with rents still a bit under market. I decided to keep them below market rates so that if we decided to sell in the near term, it could be truthful marketed as a property with upside in rents. Its amazing how often brokers pitch properties that way when they are anything but, I digress. During this period, Jan '18 to June '18, my strategy changed due to a host of factors and I decided the best move would be to sell this property and realize the gains that had occurred through the reposition. The property went under contract for $2,025,000 at the end of 2018 and closed on Dec 28th 2018. The return worked out to be just over 37%. 

Beyond this deal, I have completed the repositioning of a 15 unit multifamily property with plans to sell mid year 2019 and am managing a luxury condominium development in Coronado, CA. Along with a group of partners, I am about to close a construction loan on a mixed use development (residential condos + a commercial component) on the 101 in north San Diego county. 

Thanks to BiggerPockets for all the advice along the way!