24 Unit Value Add Deal

[Michael Orlando]

Investment Info:

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

Purchase price: $1,690,000
Cash invested: $5,000

Contributors:
Tal Tamir

This property was brought to us off market by a local connect. The owner had owned the property for over 20 years and was ready to exit. We immediately underwrote the property and put in a competitive offer which was accepted. The units are attractive townhome style units; a mix of 2 bed 1 bath 2 bed 1.5 baths. Current rents were/are about $150 below post renovation market rents. In addition, we were able to pay a slightly higher per door price since the water is separately metered on each unit. Even at the acquisition price, the property still appraised for $150,000 more than we purchased it for.

Since we had to raise approximately $750,000, we decided to do a 506(b) syndication. Our legal team drew up all of the syndication documents and we immediately started raising money from our investors. Our projected metrics are: 10.5% COC, 14.77% IRR and 1.98x EM.

Through implementing a value-add strategy, we project we will push rents by $150. Renovations will include LVT flooring, new carpet on the second floor of the units, refinished cabinetry, stone countertops, sink/faucet combo, and bathroom upgrades including a new vanity, light bar, mirror, shower/bath fixtures and tub surround. We budgeted approximately $8,000 per unit as well as extra capital for deferred maintenance at the exterior of the property.

We plan to refinance in year 2-3 and return 70%+ of our investors initial capital. And exit is projected for year 7-8.

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

We specifically look for 20+ unit properties in B and C class neighborhoods (preferably off market). This property fit the criteria.

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

A local wholesaler brought us the deal and we immediately underwrote it on the first day and submitted an offer before anyone else really had the chance to. We promised an easy and seamless close and were able to deliver.

How did you finance this deal?

We utilized a bank that offered us non-recourse financing as well as competitive 6 months of interest reserves. We were also able to get 1 year of interest only, a competitive rate of 3.375% and a step down pre-payment penalty that fit with our business plan.

How did you add value to the deal?

We are adding value through operational efficiencies and renovation of the units. We plan to create a modern, affordable, clean and safe community that residents will love.

Lessons learned? Challenges?

We had a large investor drop out at the last minute and had to rush to raise the extra money before closing. We learned to never stop raising money even for backup positions, and have the investors wire the money ASAP!