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My first multi-family generating over $7,500/mo passive income
Investment Info:
Large multi-family (5+ units) buy & hold investment.
Purchase price: $1,340,000
Cash invested: $300,000
This was our 1st value-add project in the neighborhood. It's a 27 unit with 4 retail and 23 apartments ranging from studio size through 3 beds. The rent roll at closing was just under $19K per month and we've been able to raise that to $27K per month within 6 months of aquisition.
What made you interested in investing in this type of deal?
This was a high yield play. We wanted to generate passive income and have the ability to force appreciation.
How did you find this deal and how did you negotiate it?
This was found through a local agent in the area. I let him know the price range and type of cash-on-cash returns we were looking for.
How did you finance this deal?
Financed conventionally through US Bank. 80 LTV with a 5 year balloon. We plan to cash out refinance next year into agency debt for the long term.
How did you add value to the deal?
We were able to renovate the vacant units right away after purchase and a couple others during normal turnover. We spend approx. $6-$7k per door on new kitchens, baths, paint and refinishing the hardwood floors. We plan to add laundry next year.
What was the outcome?
The value of the building as a 10 CAP has already increased by about $450K. It was a 'mom and pop' ownership previously. We have been able to modernize some of the units and manage it more professionally. We're getting better and higher paying tenants. And it's lead to another opportunity in the neighborhood for a 50 unit portfolio. We're now under contract for those properties after the listing agent reached out to me.
Lessons learned? Challenges?
It's high risk and high reward when taking over a 'mom and pop' property. There were no bank statements or professional P&L reports to underwrite with. Some tenants challenged our property manager with slow/late payments. We're slowly turning those units over. Overall it's been a great deal.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Jack Cassin from Apartment Investment Advisors
Namit Bammi from the Bammi Law Group
Paragon Property Management.
Originally posted by @Gary Guidi:
@Steven Lowe I love Oak Park and used to live there a long time ago but haven't been able to find any properties that make sense for me since I invest for cash flow. Austin has a much lower price per door. Cicero and Berwyn work too but they have some tricky city ordinances you have to be aware of.
I'm aware! Both Cicero and Berwyn can be challenging to work in if you don't understand how they operate. I've had good experiences doing projects in both, so far. How do you like owning in the Austin neighborhood?
@Gary Guidi Sounds like an amazing deal, job well done!
I wasn't aware you're able to put only 20% down for large MF properties but I'm guessing that's because its structured as a 5 year balloon payment?
Could you talk a little bit more about the agency debt you plan on switching to next year and how it's going to be structured?
Originally posted by @Jay Hinrichs:
Nice job.. hard to go wrong when your buying buildings at probably less than half of replacement value. is this south side Chicago ?
It's far west side Chicago; right on the edge of the city limits.
Nice job Gary. There are so many of these types of buildings in Chicago; I've lived in one many years back. Curious about your inspection process with all those units. I assume you didn't inspect every one?
Wow congratulations on your first property. This one seems like it will be a home run! Can you tell us more about the Laundry Room you will be adding next year and how this will add value to the property and is a way for you to capitalize on additional income?
@Anthony Rosa Chicago isn't under rent control at the moment. There's some growing political pressure to go that route but as investors, we think it's going to hurt more than help affordable housing.
@Jay Hinrichs West side
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Originally posted by @Gary Guidi:
@Jay Hinrichs West side
gotcha. good luck with it. !!!
@Steven Lowe Austin has been good so far. We're lucky that the previous owner had done a nice job cleaning up the building from drug issues 20 years ago. He and other property owners carved out a nice niche of well maintained buildings in the immediate area. That makes a big difference. I'm doing a JV with a partner in the same neighborhood for a 2 building/ 50 unit portfolio. Hopefully all goes well and we close in about 45-60 days.
@Gary Guidi congratulations from a fellow Chicagoland investor! Do you mind sharing who you use for property management? I am currently looking to hire a property manager and would appreciate the referral if you have had a good experience with them.
@Chris Marte I financed with US Bank for that deal. I could have gone with a 5, 7 or 10 year balloon. But my plan was always to stabilize, force appreciation and refinance.
I'll look into whatever works best next year for for the agency debt. I'll probably reach out to Jim Biggs or another Chicago area investor who has done it before. There's always someone willing to give good free advise and point you in the right direction.
@Jesse M. I definitely had every unit inspected by a top inspector in the city. I have about a 50 page report on the while building. It helped me get a seller credit before closing to address a few immediate concerns (paying for the report and then some). And it lays out a good road map to any deferred maintenance we can expect over the next several years. I always use Marcus Keller for my inspections. He's the best.
@Ranjit Wasu You can joint venture with a partner who has strong credit and a high balance sheet. Just needs to be a deal you're both providing value to and have mutual interest in.
@Melissa Gittens our tenants are using a big laundry mat across the street and a block over. But we feel like we can add 3 or 4 washers/dryers into one of the basements just as an amenity. The apartments will be more attractive during turnover if we have that available. Make it a little easier for them. There's a company in Chicago that will install the machines and you lease them for half the profits. So it's a win / win that costs us nothing up front. They even service the machines if they need it. We just need to install more lighting, a more secure door with a code entry. It's something on tap to figure out this winter.
@Joseph Walsh I use Nathan Scott at Paragon Property Management. Send me an email and I'll connect you with him. They're out of Pilsen.
Originally posted by @Gary Guidi:
@Steven Lowe Austin has been good so far. We're lucky that the previous owner had done a nice job cleaning up the building from drug issues 20 years ago. He and other property owners carved out a nice niche of well maintained buildings in the immediate area. That makes a big difference. I'm doing a JV with a partner in the same neighborhood for a 2 building/ 50 unit portfolio. Hopefully all goes well and we close in about 45-60 days.
That's great! How are you sourcing your deals? Was this found through a broker, other investor, etc?
Thanks Gary. I need to dig deeper and understand the value side as I know their value - bring the money and I want to promote the value add/ improvement and return for them
Originally posted by @Gary Guidi:
@Anthony Rosa Chicago isn't under rent control at the moment. There's some growing political pressure to go that route but as investors, we think it's going to hurt more than help affordable housing.
I agree, its been hurting and always will be hurting NY investors.
@Gary Guidi love to see your success!
@Ranjit Wasu, whenever you don't have something in real estate, you can always partner with someone who does. My biggest recommendation for you is to focus us on multi family properties that qualify for "AGENCY LENDING". These are BIG apartments that have a note over $1,000,000 and are typically occupied over 90% with a value ad opportunity. The beauty in agency debt is that you have these incredibly favorable lending terms where you get the loan based on the DEAL not on your PERSONAL FINANCIALS. They don't run your credit, or ask for w2s. They give you the loan based on the trailing 12, the P and Ls and the Rent Roll of the apartment. And to make it even better its NON RECOURSE, meaning you don't have to personally guarantee anything, and it makes it easier to acquire investors. AND...you can get loans as good as 4% interest only for 4 years amortized over 35 years! It really is pretty neat, but you have to learn how to syndicate and put together a deal. based on what you said above, I'd recommend this route.
@Gary Guidi
Thanks Gary!
That one you discussed, I couldn’t see what state that was in?
Can you also suggest and deal analyzer calculators that you used to assess the property.
I want to dig deeper and see/understand the tools you used to assess the opportunity.
Wow! Here I am looking to invest in Sinole SFR's lol!!
Congrats! Hit the jackpot by taking a big risk!
One day.. one day..props
@Danny Randazzo I meant to say first value add in this neighborhood!!! Forgive me please!
@Haseeb M. Thank you so much I definitely will!
