104-Unit Apartment Complex Investment

[Tim Ryan]

Investment Info:

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

Purchase price: $4,120,000
Cash invested: $50,000
Sale price: $6,850,000

Multi-Family investment funded with Fannie Mae loan of 82% of purchase price and syndicated the down payment of 18%. All investors earned an average annualized return on investment of 9.5% over the 6 year hold. At sale, net proceeds grew the annualized ROI to 34% for each and every investor. Quote from several of the investors: "this was a Grand Slam Tim!".

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

I was learning about multifamily investing and believed the bigger they come the easier they are to acquire and operate. This was true.

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

I had been shown this property about a year earlier and was interested. I wrote an offer then was told the seller decided not to sell. A year later I get a call from my broker saying he just walked by his colleague's office and heard him mention he just got the listing to this apartment complex. My broker asked if I was interested. I said YES and to go back into his colleague's office and say you have the buyer. He laughed and I said no, go now. He did and I got the deal off-market.

How did you finance this deal?

I brought in a partner who could help to qualify for a Fannie Mae loan which was very good. Then we syndicated the investment and brought in the funds from investors for the acquisition.

How did you add value to the deal?

The previous landlord was paying water bill for the whole community. All 104 units. I found a company who installs small water meters at every units water heater measuring the total usage in the unit. This saved $3500 per month in water utility expense and added over $750k in value to the complex not to mention the additional cash flow.

What was the outcome?

Made great cash flow and sold for over $2.5m over purchase price.

Lessons learned? Challenges?

The key to managing this complex, which was out-of-state for me and my business partner, was we set up our own management company. We used Appfolio software and hired the Manager and Maintenance person in-house. This gave us control of all processes and saved us a lot of headaches.