My First Commercial Apartment... Using Other People's Money!

[Melissa Dorman]

Investment Info:

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

Purchase price: $825,000
Cash invested: $11,000

This deal is all about using other people's money and it starts with a previous property. In 2018, I bought a triplex in Portland OR using selling financing. in 2020, I split the mortgage note in half on that property and recollaterialized one half on my other properties in second position while leaving the remainder half on the triplex. That left the property with quite a bit of equity.

Then I did a cash out refinance to receive $207k of the banks money to put down on this new 20 unit property. All in, I had about $15,000 of my own money in the deal for the down payment.

This 20 unit complex is composed of 3 buildings. There are 16 one bedroom units and 4 two bedroom units. Since commercial lending dried up during Covid19 (with good reason), I did a wrap note on an underlying seller financed loan. Fun fact: I actually negotiated my payment to be lower than the seller I bought from by doing a 35 year amortization.

Rents were about 25% below market rent and I was buying at a 6 cap in Ohio (not great), if I'm honest. Still it was bringing in $9,200 a month on paper with a $3,000 mortgage to my sellers. Plenty of room for error... right? Of course, buying a C class property in a B class neighborhood during a pandemic comes with it's challenges. The first six months has involved 2 evictions (of tenants living in jail), solving a $1,000 a month water leak, and generally cracking down on tenants skipping payments from previously relaxed management styles. Luckily I have a 6 year balloon to get the units to market rent and all paying on time. Numbers are looking quite good on the back end with a 30% estimated IRR. Time will tell.

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

I began looking out of state for better cash flow and where I could afford to put in property manager.

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

My great realtor in Dayton, OH found it off market for me.