This was a complete gut rehab of a triplex in what was an up and coming part of the Philadelphia (Newbold). Crunching the numbers and projected rent rates (my estimates), showed a cap rate of 8.2% and COC return of 11.5%. This was a syndication deal where we raised all of the funds needed to close & received a 5% sweat equity stake in the deal, with sponsor share escalators upon sale. We maintained management through the hold period, which included leasing commissions and management fees.

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

We knew the area had plenty of upside, and we also knew that our marketing of the property could get max rents, making the cap rate much better than the developer thought.

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

We had a relationship with the broker and developer. They knew we could close, so we had it under contract before it was even listed.

How did you finance this deal?

75% LTV loan through a local community bank. 100% of cash down was through 2 investors. 5.5% APR with 1 pt. Personal guarantee.

How did you add value to the deal?

Our property management strategy emphasizes quality listings and being ultra responsive. It being a new building with all the modern amenities made it easy to get the rents we projected.

What was the outcome?

The final distribution was as follows:
Net Proceeds from Sale $314,419
Account Balance Adjustments $18,822 (reserve funds, mortgage reserve, insurance refund, etc.)
Total Funds Available for Distribution $333,241
Disposition Fee - .05% of Sale Price $(3,400)
Return of Capital $(130,000)
Tax and LP Dissolution Reserve $(15,000) (funds set aside to dissolve LP)

Subtotal $184,841
Limited Partners Profit - 75% to Capital Contributors $138,630
Managing Partners Profit - 25% to Managing

Lessons learned? Challenges?

The biggest lesson I learned was that I was giving away some money by not having my RE license. I've since acquired it and used it to make "extra money" while we build our company. I should also include that it is extremely important to crunch your own numbers and not rely on information you are told. In this case the deal made even more sense because I knew that we could get more in rents than what was extremely conservatively estimated.

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

Just me :-)