57 Unit Property Purchased with no Money (of my own)

[Paul Barbeau]

Investment Info:

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

Purchase price: $2,500,000

A 57 Unit property in Manchester, TN purchased with no ($0) of my own money through a partnership.

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

It is a value add apartment deal which is what I focus on.

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

I knew the owner from a previous property I bought. I kept in touch with him and let him know if he ever wanted to sell another property let me know. The price was non negotiable but we were able to negotiate some favorable financing terms since the owner is now our bank.

How did you finance this deal?

I have an equity partner that brought all of down payment to the table and the debt is funded by the previous owner of the property. I knew I didn't have the capital (or probably the credentials!) to buy this property but I knew that I could figure it out and that raising money was an option. So when the seller came to me and the deal fit my criteria, I set out to raise the money. I was able to find a great equity partner that I knew from a real estate meetup.

How did you add value to the deal?

I was able to get the seller what he wanted (a monthly check without the hassle of running the complex anymore). And I found my investor a deal that will beat the return he was getting on his money at the time. I am now the asset manager (manage the management company) and for all of this I get a percentage of the equity from the deal after a preferred return is given to my investor.

What was the outcome?

Initially we had a high vacancy (8 or 10 units), but we were able to get them rehabbed and filled up fairly quickly. This is a double edged sword because the cash flow was lower initially, but we now have several units that are achieving the market rental rate and will not need to be rehabbed again in the near future. Also, we have been able to rent several units for a rate higher than we projected which will help make the property more valuable.