Great Syndication Deal (No Money Down): $1,175,000 Profit!

[Roy Assaf]

Hey everyone,

Roy Assaf here from New York City. I want to share a recent success story from one of the markets in which our company is heavily invested, Myrtle Beach, SC.

First, a quick background. I’ve been an out-of-state investor since 2015. Beginning in the Myrtle Beach market, I would travel one week each month to establish my company by building relationships with strong and reliable real estate professionals, and through systemizing the operation. I started out by flipping houses, wholesaling mobile homes, and purchasing small multifamily units for buy-and-hold.

As my network grew in other markets throughout the South East, so did my business. I partnered with several highly experienced individuals, each one bringing their unique expertise and background to the table. Over the last few years, our primary focus has been value-add multifamily, primarily C class. We’ve built a strong presence on the ground, enabling us to source off-market deals, usually at 30% or more below market value.

This deal I want to share with you is in the Myrtle Beach MSA, and consists of 48 units over 10 acres. In March 2019, we put it under contract for $1.7M. The property was 100% occupied with an average rent of $550, all month-to-month tenants. We knew immediately this was a great value-add opportunity; both for cash flow as the market rent for two beds in the area started at $750, and on the appreciation side where the average unit price in the area was $75,000 at the time, and we purchased it for $35,416.

Having a very limited window to close, we quickly compiled all the DD items and ordered an appraisal. For us, having a third-party appraisal report always helps in raising equity. The appraisal came back at $2.5M As-Is (we had $800K of equity on day one) and, upon stabilization at an average rent of $700, the value would be $3M. We raised the $500K equity and took a hard money loan.

Now, the fun part would begin! I love operational challenges and bringing properties to their full potential. We brought in our main property management in the area to take over. Their first action item was to offer tenants annual leases at $725. We wanted to be reasonable and not charge market rent of $795+, knowing it would be a significant increase from the existing $550. In total, 13 tenants decided to stay at $725 each while 35 moved out. With 35 vacant units, our property management brought in their rehab team and quickly started renovating several units at a time, allowing us to rent each one at an average of $795. Using the cash flow coming in to rehab the units, we didn’t need additional equity upfront for rehab.

Fast forward a year, when another partner and I were doing the asset management and working daily with property management on operations, marketing, and rehab. By March 2020, with 35 units completely renovated, we were at 90% occupancy with an average rent now of $770.

We wanted to have 4 to 6 months of consecutive rent at over 90% occupancy in the event we chose to refinance. Accomplishing this, we soon received an attractive offer to sell at $2,875,000 from a reputable multifamily buyer so we decided to put it under contract. The buyer took an agency loan and we closed in mid-October. We settled the hard money loan and our limited partner received their initial investment back plus an incredible profit.

My company takeaways from this deal were:

1. We strengthened the relationship with our equity investors as a result of them earning 66% cash-on-cash return within 19 months.

2. By establishing strong ground presence in the Myrtle Beach market, we have become better at sourcing ongoing off-market deals at 30% or more below market value.

3. We were able to take another multifamily property that was under-performing and bring it to operational value, strengthening our asset management skills.

4. Understanding vacancy loss and absorption rates in our markets and conservatively underwriting deals enabled us to know how to use the cash flow to rehab the property.

5. Knowing the income approach and price per unit approach for this MSA helped us to understand the value at stabilization from the beginning. We had a few potential exit strategies, making it easier for us to take a hard money loan at a high interest rate.

6. We left some meat on the bone for the buyer. Now, the market rent in the area starts at $850 and the appraised value of the property is north of $3,500,000.

7. With no money out-of-pocket, our GP profit was $600,000. 

I truly hope this story helps encourage investors out there, especially during these turbulent times.

Thanks for reading!

Roy