My first Commercial Multifamily Deal

[Nick Robinson]

Investment Info:

Large multi-family (5+ units) commercial investment investment in Phoenix.

Purchase price: $1,250,000
Cash invested: $429,000

Is an 8-unit in PHX, AZ. Was my first commercial loan. Did a 1031 exchange on a duplex I owned in Riverside, CA to come up with most of the down payment. The cash invested includes all fees for loan, 1031, LLC etc.

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

I believe from looking at the numbers that the idea is to go to bigger. Your capital is more protected from the extra doors and your cash flow can grow exponentially. Example 1 door rents go up $25/mo you make $300/yr. If you have 10 doors that go up $25/mo thats $3,000/yr. Also the economies of scale work in your favor the bigger the complex you buy.

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

I found this deal through Marcus and Millichap.

How did you finance this deal?

I financed it through a 1031 exchange and added capital I had saved. The previous property was a duplex in Riverside, CA.

How did you add value to the deal?

I have added value to the deal so far by instituting RUBS to each unit.

What was the outcome?

So far everything is going great! Even over COVID I have been getting about a 5.6% CoCr. There have been about 3-4 brokers contacting me about selling and have valued it over $250,000 from what I bought it at a year ago. Also my principal reduction is about a 5% return. So monthly to be making a 10.6% return (CF and Prin. Reduction), having the property in an appreciating market (Phoenix, AZ) , and have a management company take care of it is a great deal.

Lessons learned? Challenges?

Biggest challenge I think for me has to be with coming up with the capital to invest into bigger deals. My plan is to own this for ~5yrs and then do another 1031 exchange and add money to buy a bigger complex. It has been nice to have a property management company even though the first couple months were a little bumpy and I could make another 2.2% CoCr monthly managing it myself. For me though its not worth the hassle of trying to manage something out of state and dealing with the day-to-day

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

Valley Income Properties (Management Company)
Paul Bay (Marcus and Millichap)
CommLoan ( Loan Broker)
US Bank (Lender)