Apartment Building Value Add makes 213% return after 2 years

[Thomas Bayles]

Investment Info:

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

Purchase price: $1,275,000
Cash invested: $475,000
Sale price: $2,740,000

7 unit value add project. Original NOI upon purchase was less than $60,000 annually. After renovation stabilized NOI $144,960 in less than 2 years. A lot of hard work but was worth it!

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

A partner who invested with me on other projects found it fortunately. The listing agent was out of area and did not have the listing set up correctly, which meant slightly less competition.

How did you finance this deal?

Due to the horrible operating income when we purchased the property, only private/hard money lenders would do the deal. Our plan was to finish the renovations and stabilization as quickly as possible so we could refinance into a more traditional lower interest rate mortgage, which we did.

How did you add value to the deal?

The previous owner operator really ran the property in the ground. There was 50% vacancy and all the units had never been updated. We came in and updated all the infrastructure (plumbing, electrical) to ensure no future maintenance issues but also did all the cosmetic updates possible. This ensured high demand from potential renters once we put the units back on the rental market.

What was the outcome?

We renovated, re-leased all the units and refinanced into a 4% interest rate in less than 2 years.

Lessons learned? Challenges?

When trying to achieve high rents on the newly renovated units, it took about 30+ days to lease out. Although it was painful waiting longer than the normal 7 days in our market, it was worth the wait. The higher rents increased our NOI and ultimately our valuation.

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

I partnered with Eugene Ridenour from Compass throughout this process who made it much easier start to finish.