Multi-Family Journey... 4-month update

[Julie Kern]

So I posted here a while back about my shift from transactional real estate (wholesaling with a bit of flipping) to multi-family acquisitions after I realized I had gotten away from what initially attracted me to real estate... buy and hold/passive investing.

I wanted to give a quick update since I got so many kind and encouraging responses to that post.   

1. Have I purchased a multi-family property yet? The answer, to date, is "no", but I'm getting close... I think.  More on that.
2. What have I done in pursuit of my first multi-family deal? 
   • I've read several books on multi-family investing and consume podcasts on the subject.
   • I joined Michael Blank's Deal Maker Mastermind which may have been one of the best things I've done in terms of education, boosting my confidence and networking with other multi-family investors.
   • I've spoken to a boatload of commercial brokers, although honestly not nearly as many as I should have.  But as I've spoken to more and more brokers, I've gotten much more comfortable having those conversations and not feeling like a poser :)
   • I spent a day touring a market that I'm interested in with a broker with whom I have fairly regular contact now.
   • I've toured a couple of multi-family properties in markets outside my local one.
   • I've submitted 4-5 LOI's on properties - again, not nearly enough.
   • I've analyzed somewhere around 60-70 deals using a multi-family deal analyzer (again, kudo's to Michael Blank for his Syndicated Deal Analyzer - love that thing).
   • Early on, I had conversations with about 8-10 lenders, even when I didn't have a specific deal to discuss, just to get a feel for their terms, what areas/types of properties they like, etc.  I highly recommend doing this - it came in handy once I had real deals to discuss.
   • I created an app in Podio to keep up with brokers and lenders: I set follow-ups so I remember to reach back out to them on a regular basis (at least the brokers) and record all the details of my conversations so I have it all in front of me the next time we speak.  
   • I've spoken or met with numerous other multi-family investors (both active and aspiring investors), many of whom I met through my BP post from 4 months ago, and learned a ton from them.
3. Why do I feel I haven't contacted enough brokers and submitted enough LOIs?
   • Sometimes I get shiny object syndrome and go do a flip (just closed one this past week :))  or decide I'm going to explore AirBnB in my area or just drop a little mail campaign to try to buy more houses to flip.  Nothing wrong with these things but they did take me off track for a bit.
   • After reading (and beginning to implement) the 4 Disciplines of Execution and Deep Work by Cal Newport (thanks @Brandon Turner, for those 2 podcasts.  They were game changers for me), I've gotten much more focused on my goal than I was there for a couple of months.  Simply defining the "whirlwind" and recognizing it for what it is has made such a difference.  And knowing that it's ok to turn off my phone, remove the distractions and go super deep into analyzing a deal and getting lost in it without feeling like I have to constantly be connected has helped so much.
4. Where am I today in my pursuit of 50 units by 12/31/2019?
   • I have an accepted LOI on a 24-unit property in a small market about 1.5 hours from where I live.
   • I should be going under contract next week on a 25-lot mobile home park about 2 hours from me.  
   • IF both of these go to closing (and there is still a whole bunch of DD to be done and financing to be finalized), that would put me at 49 "units", and get leave me 1 unit shy of my goal.
   • Both deals have some shaky areas that will need to be explored heavily during DD; I'll post with updates.

So, on a scale of 1-10, I would give myself about a 6 or so with respect to my commitment to doggedly pursuing my multi-family goal, but I'm hoping when I update this post in a month or so, I can say it's more like a 7 or 8 :)

[Julie Kern]

Quick update to this post from a month ago... 

• I'm under contract on the 24-unit (as of July 3rd) referenced in my original post on this thread
• Closing date should be around the end of August.
• Inspection is scheduled for this Monday, July 15th. 
• Due Diligence ends 8/2/2019.
• The property management company who will manage the property has been identified.
• I did not move forward with the mobile home park for several reasons: (1) I felt it was more important to focus on one deal at a time, and this one has alot more upside (2) I got some very negative feedback from a local building inspector who has this park (and others in the city limits) in his sights.  This one is next on his naughty list, and I didn't have the bandwidth to take that on while working on this other deal.

A few highlights of the 24-unit:

• Purchase Price is $650K
• We'll be borrowing between $150K and $200K to fund the rehab
• The property is a USDA Rural Development property, or was, anyway.  It is no longer part of that program, but the USDA will be issuing housing vouchers to existing tenants, which will help us through the stabilization period.
• At closing, we'll have 6 vacant units, with 3 others likely coming vacant within a couple of months.
• The ultimate plan is to reposition the property and bring rents up from the current USDA rent-restricted rate of $455 (avg) to between $650 and $750.  Projections are based on the lower end of the range, with $750 being a push number.
• The goal is to refi within 24 months and pull 100% of capital invested back out, with $100/unit cash flow after debt service.  

This has definitely been a rollercoaster, and I've been ready to pull the plug several times, but then new, favorable information would come to light and the plug stayed put :) I was very fortunate to pick up a partner with multi-family experience who is serving as an advisor and mentor, and he has been awesome.  

I'll update this thread after inspections have been completed and we have the report back.