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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.
Great job keep going and congratulations
@Gary Guidi
Wow Gary, congrats to you and your family, thank for sharing... any advice for any newbie that wants to break in to the multi-family world.
@Gary Guidi Excellent job!
Congratulation Gary!! That's amazing. And the building looks beautiful. I hope to be able to do a deal like that in a couple years. Great inspiration
Originally posted by @Gary Guidi:
Tricky area Austin. Looks like you have a good one. My only feedback- Make sure the property management company includes a security plan for the property.
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Real Estate Agent Illinois (#475. 112189)
- The Smith Group
- 3126817487
- https://www.chicagodiscountproperties.com/
@Gary Guidi thanks for sharing and congrats on the outcome.
Originally posted by @Alvaro Soto:@Gary Guidi
Wow Gary, congrats to you and your family, thank for sharing... any advice for any newbie that wants to break in to the multi-family world.
If you're trying to break into multi-family, I would start with a good mentor program.
Thank you for the reply.
I know mentors can cut a lot of redundancy and mistakes that all the newbies make, but now in dates with the mentorship saturate market (everyone wants to be a mentor) how can you decipher from good and bad mentors.
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#2 Land & New Construction Contributor
- Developer
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Originally posted by @Alvaro Soto:Thank you for the reply.
I know mentors can cut a lot of redundancy and mistakes that all the newbies make, but now in dates with the mentorship saturate market (everyone wants to be a mentor) how can you decipher from good and bad mentors.
A good mentor has wisdom, years of experience, deep and wide knowledge a solid track record and walks the talk.
A good mentor will not try to sell you “gimmicks” or “secrets” They give you everything you need to know for free in terms of knowledge and education as there are no secrets. It’s all out there free online. What they charge for is there expertise and time in helping you execute and take action.
A good mentor is more interested in helping you succeed not up selling you the next product in the funnel.
Thank you for your answer.
when you refi what equity do you plan to pull out and how will it effect your monthly cash flow?
@Gary Guidi sorry for the new guy question, still in learning phase.
Are there any situations, outside of anomalies, that a bank won't refinanance with you a bit down the line?
@Gary Guidi. I live in the city .. have a few question. Just sent you a connection request.
@Gary Guidi when you refi what equity do you plan to pull out and how will it effect your monthly cash flow?
Originally posted by @Burt K.:@Gary Guidi when you refi what equity do you plan to pull out and how will it effect your monthly cash flow?
Let's say the building is valued at $1,800,000. And let's say I cash out at 75% LTV with agency debt at 4.25% (depending on rates at that time). I could pull out about $300,000. It would raise my mortgage payment by around $300 per month. My rate now is just under 5.00%. I can use that $300,000 for down payment/ improvements on another property. I could purchase another building in the $900K-$1M range and cash flow more significantly more than the higher payment on property #1.
Originally posted by @Brian Brusich:@Gary Guidi sorry for the new guy question, still in learning phase.
Are there any situations, outside of anomalies, that a bank won't refinanance with you a bit down the line?
I sure hope not. If the lending market freezes for some reason it'll hurt all of us. I was in residential mortgage lending during the great recession and I definitely remember products disappearing from the market. There was basically only the 30 year fixed option available. Appraisers were slashing values everywhere. Dark times. I don't know how multi-family was effected in 2008 and 2009.
@Gary Guidi why did you choose Paragon as your property management? As of early last year I thought they didn't service the west side?
@Ryan Canfield I met with them in person back in January. I felt like we were all on the same page and could work well together. There was no mention of what areas they don't service. I think they're case by case.
I know this thread is a little old, but @Gary Guidi I'm curious about your renovation budget for each unit. It was roughly $6-7k I believe you said, how does that work? Are you generally just doing formica countertops and your basic shower surround? I guess I'm a little confused how you're able to reno each unit for so little.
Thanks! Place looks awesome
Did you find that 6$-7$k was enough to fully revamp each unit? Yes. We remodeled the baths, kitchens, sand & stained original floors, painted and added ceiling fans. More than that would have been overkill for Class C in this area. But doing those things raised the rent from $800/mo to $925/$950 for our 2 beds.
I'm curious about your numbers for rehab on the units. Do you have before/after pictures for the rehab? What amenities/materials did you use? Do you have recommendations for contractors in Chicago? I have some units in Chicago and will need some work done for a turnover soon so curious about these aspects.
Thanks and congratulations! Sounds like you got a killer deal!
@Gary Guidi Congrats on this deal and the newest deal just closed!
Gary, you are the real deal and its been a pleasure working with you. Looking forward to many more successful closings in 2020.