Just closed on 32 unit apartment

[David Turner]

Hey everyone. Just wanted to share my success. It is a 32 unit apartment located in Dallas. It was built in 1983 and features 14 one bedrooms and 18 two bedrooms. The kicker about this property is that each apartment has its own garage. They are single car garages, but they are really long so you could maybe squeeze two small cars in them.

The property has a lot of deferred maintenance that I will be addressing in the next few months. The roof and gutters are the big thing. There is also a french drain system that is completely clogged up that we will have to clean out. The previous owner had just put in a mix of laminate and vinyl wood flooring throughout the units. The interiors are in pretty good shape, but the exterior is extremely neglected. The units have individual HVAC's and water heaters, about half of which were replaced within the last 2 years. The property management company I hired specializes in the value play. They have their own construction division to do all the work. They are a bit more expensive then the other companies I spoke to, but with all the deferred maintenance I feel it needs the extra attention these guys will give it. This includes a full time manager and part time maintenance person. Management cost will be about 10% plus one apartment.

It is in a section of Dallas called Vickery Meadows. It is a low income, mostly Hispanic area. It has the highest population density in the DFW area with approx. 44 units per acre. The area is in the beginning stages of gentrification with a new Walmart, Sams Club and Target having just opened up nearby. There have also been a few apartment complex's that have recently been torn down in order to build newer nicer complex's.

The purchase price was $850k with $50k seller credit to go toward the deferred maintenance so effectively a $25k per door purchase before figuring in deferred maintenance costs. I was able to get a local bank to finance it with a 80% LTV @ 4.625%. 25 year amortization. It is a 5 year note with a balloon at the end, but the bank has an option to extend for additional 5 year periods instead of re-financing. I wanted a longer term, but banks didn't want to go any longer without a steep rise in rates or larger down payment. Closing costs were $22,269.72 along with $2,100 for an inspection. Total cash in was $183k. Expected NOI (per property managers budget) $82,518.

I'm real excited about his deal. It is my first. I have a few other properties, but those are all partnerships that I inherited. This is the first one I have done on my own and will have control over. It is also my first multifamily, the others are industrial.

[David Turner]

@Brandon Turner I had viewed some properties on the brokers website which had required me to sign up for an account. The broker saw that it fit my criteria and called me to see if I wanted to come take a look. The property was originally listed for $950k. I was a bit underwhelmed when I first looked at it due to the deferred maintenance I was looking for a value play so it didn't really bother me, I just felt it was way overpriced for the condition. Not to mention the pictures had made it look a lot nicer then it was.

Seller had bought the property as a foreclosure back in 2010 paying only $250k for it. A few months later he refinanced for $500k. According to the broker he had put about $150k into it. At the time it was only 25% occupied.

The broker stated that the seller was motivated and wanted to sell ASAP. Something about needing the cash for another deal. I told the broker I would be interested closer to $800k and he just laughed. Said the sell had already turned down multiple offers around $850k. A couple days later I checked in with the broker and he said it was under contract.

Spent the next few weeks looking for another deal. Ended up finding another I liked, but not as much. During negotiation on this building the broker called me up and said it was back on the market. I told him I would keep it in mind, but I was going to see where this other deal went. A couple weeks later we still didn't have a deal on this new building and I received a mailing list update showing a price reduction to $880k on the first building. I immediately called the broker and told him I was still interested. After some back and forth ended up settling on $850k.

The inspection then uncovered more issues I wasn't aware of: roof needed to be replaced, drainage clogged, some wood root in a few places, a lot of the exterior lighting was non functioning. One semi big thing I hadn't even thought of was the stair and balcony railings. When I started calling around for insurance I kept being asked how far apart the railings were. During the inspection I found out they were about 6 inches apart. Insurance companies are starting to require less than 4". Apparently this is a hot button issue, so now I have to spend $10k to fix this.

So once I found out all of this I went back to the seller asking for $75k back. The broker got a little angry saying I should of known the condition of the property and I should have assumed all these issues were there since it had fallen out of contract once already. I told him I knew there were some issues, but I didn't know the extent of it and that it required to much work for the price. The seller offered $30k back and I said no deal. Said the lowest I could accept $50k. Broker said $30k was the best I was gonna get so I told him I was going to have to walk. He then came back another 2 or 3 times until finally agreeing to the $50k. I didn't want to retrade like that, but after I got the inspection report I felt there was to much work for $850k.